4.3.2, 4.3.3 Flashcards
1
Q
what are the economic factors that affect growth and development?
A
primary product dependency, volatility of commodity prices, savings gaps, foreign currency gaps, capital flight, demographic factors, debt, access to credit and banking, infrastructure, education and skills, absence of property rights
2
Q
what is a primary product?
A
Primary products include agriculture, mining etc
3
Q
what types of countries are most likely to be dependent on primary products?
A
developing countries economies are most dependent on primary products
4
Q
why can countries not rely on primary products as a source of revenue in the long run?
A
They are often non-renewable, which means the
country will suffer when they run out of the product. they will need to find other sources of revenue.
5
Q
what is the income elasticity of demand for primary products?
A
They tend to have a low-income elasticity of demand , which means as people get wealthier, they don’t continue to increase the amount of primary products they buy whereas they are likely to increase their demand for manufactured goods
6
Q
what does the Prebisch Singer Hypothesis state?
A
the long run price of primary goods declines
in proportion to the price of manufactured goods
7
Q
what is the effect of the Prebisch Singer Hypothesis?
A
those dependent on primary exports will see a fall in their terms of trade
8
Q
why is the Prebisch Singer Hypothesis weakened in recent times?
A
in recent years, there has been a rise in the prices of some key commodities , such as food and a fall in prices of some manufactured goods due to the expansion to places like China.
9
Q
what is dutch disease?
A
This is when a country becomes a significant commodity producer in a short amount of time, causing an increase in demand for the currency (to enable people to buy the goods) which pushes its value
up. This increases export prices and leads to a reduction in competitiveness of the economy, causing a fall in output in other areas.
10
Q
how might primary products be used to increase growth?
A
It is suggested that countries should use primary product revenue to invest in manufacturing. this has occurred with Saudi Arabia and there oil supply
11
Q
what primary products don’t have a low income elasticity of demand?
A
diamonds, gold , rare metals
12
Q
why are primary products volatile?
A
they are volatile because the price elasticity of demand and supply is inelastic and supply fluctuates often due to the fact primary products are affected by factors such as the weather which alters supply
13
Q
why is the volatility of primary products affect growth and development?
A
These large changes in price mean that producers’ income and the country’s earnings are also rapidly fluctuating, making it difficult to plan and carry out long
term investment as well as meaning that producers can see their income fall very rapidly, causing poverty.
14
Q
why does the volatility of commodity prices affect growth and development?
A
When prices of commodities rise for a number of years, there tends to be over-investment in the production of the commodity causing long term risk when the price eventually falls.
15
Q
define the saving gap?
A
A savings gap is the difference between actual savings and the level of savings needed to achieve a higher growth rate.
16
Q
how does the savings gap affect growth in developing countries?
A
Developing countries have lower incomes and thus they save less. This means there is less money for banks to lend, reducing borrowing and thus reducing investment/consumption.
17
Q
how does the savings rate compare from africa to the average middle income countries?
A
The savings rate in Africa is around 17% of GDP compared to 31% on average for middle income countries (Tutor2u).
18
Q
what is the Harrod-Domar-model?
A
The Harrod-Domar model suggests savings provide the funds which are borrowed for investment purposes and that growth rates depend on the level of saving and the productivity of investment.
19
Q
what does the harrod-domar model suggests for developing countries?
A
the savings gap in developing countries is what is prohibiting growth. growth requires capital and labour. developing countries have excess labour but not enough capital. In order to improve capital, investment is necessary and investment requires savings.
20
Q
what are the problems with the harrod-domar model?
A
Economic growth is not the same as economic development, difficult for individuals to save when they have little income, borrowing from overseas causes problems with debt, investment could be wasted
21
Q
what is the foreign currency gap?
A
This is when exports from a developing country are too low compared to imports to finance the purchase of investment or other goods from overseas that are required for faster economic growth.
22
Q
what country suffers from a foreign currency gap?
A
Ethiopia. In 2018, public debt was around 60%
of GDP; most of it in foreign currency so it is possible that they will not have enough foreign currency to repay their debt. It is thought there are only enough currency reserves to pay for a month of imports
23
Q
what is capital flight?
A
Large amounts of money are taken out of the country , rather than being left there for people to borrow and invest
24
Q
how does capital flight affect growth and development?
A
if money was left within the banks, then this could create credit by banks for consumers and business to spend
25
why might capital flight occur?
This can occur because of lack of confidence in the country’s stability, to hide it from government authorities or simply for profit repatriation.
26
what is an example of capital flight?
the Argentine economic crisis in 2001.
27
what are demographic factors that affect growth?
developing countries tend to have higher population. whatever rate population increases by then economy must increase at same rate for living standards to remain same. this high birth rate puts pressure on the government to pay for healthcare and it means there is high youth unemployment
28
when is the African population expected to double by and what is the effect of this?
it is expected to double by 2050 which will create complications for efforts to reduce hunger and poverty
29
how does debt affect growth and development?
During the 1970s and 1980s, developing countries received vast loans from banks in the developed world. Now, they suffer from high levels of interest repayment ; sometimes even higher than the loans and aid they receive from developed
countries, meaning money is flowing from developing to developed countries. This means they have less money to spend on services for their population and
they may need to raise taxes, which limits growth and development.
30
what is an example of a country with high debt?
Nigeria’s debt is 52% of GDP
31
is borrowing bad for growth?
no borrowing is not inherently bad as countrys borrow to expand just like firms do however the problems occur when governments take on too much debt and doesn't invest it well
32
how does access to credit and banking affect growth and development?
Developing countries have limited access to credit and banking compared to developed countries, who have complex systems. This means those in developing
countries cannot access funds for investment and they struggle to save for the future.
33
what are loan sharks?
a moneylender who charges extremely high rates of interest, typically under illegal conditions:
34
how do loan sharks affect growth and development?
as some community cant access finance through banks they may borrow through loan sharks who charge extremely high rates of interest which could leave them in permanent debt
35
how does the infrastructure affect growth and developement?
In a developed country, there is a complex network of buildings, roads, ports, railways, airports, utilities and electricity cables. Low levels of infrastructure make it hard for businesses to trade and set up within the country, for example if there are a lack of roads. It makes their services and production less reliable
36
what are the cons behind building up infrastructure?
the development of infrastructure can be expensive and tends to conflict with environmental goals. also with a lack of property rights there could be a negative production externality for example china building infrastructure in Africa, villagers could have their houses destroyed in order to build infrastructure
37
what is an example of poor infrastructure affecting growth and development?
India is a country suffering from poor infrastructure. For example, they saw power blackouts in 2012 and this damages their potential tourism industry. About half their roads are not paved and they need to invest around $400bn in the power sector. (Tutor2u)
38
how does education affect growth and development?
Poor education within these countries means that workers are low skilled, sometimes unable to read and write, so have low levels of productivity.
39
what is an example for education affecting growth?
Countries like China and South Korea invested heavily in their human capital when they were developing, and this has benefitted them in the long term. Ethiopia suffers from high illiteracy rates at around only 49%. (Unesco)
40
what are the cons involving education?
when a country is over educated they may suffer underemployment for example when graduates cant gain graduate level degrees
41
define underemployment?
Underemployment is a measure of employment and labor utilization in the economy that looks at how well the labor force is being used in terms of skills, experience, and availability to work.
42
how does the absence of property rights affect growth and development?
Property rights are where individuals are allowed to own and decide what happens to certain resources. A lack of rights mean that individuals and businesses cannot use the law to protect their assets, leading to reduced investment. They will be unwilling to buy machinery, build factories or establish brands.
43
what is an example of loss of property rights affecting growth and development?
The loss of property rights in Zimbabwe led to economic collapse.
44
what are non economic factors that affect growth and development?
disease, corruption, poor climates, geographical terrain, civil wars
45
how does corruption affect growth?
Corruption means individuals will make decisions which maximise the bribes they receive as oppose to those which maximise development and output
46
what is a bureaucracy?
a system of government in which most of the important decisions are taken by state officials rather than by elected representatives.
47
what is the relationship between the level of bureaucracy and level of corruption?
High levels of bureaucracy are often linked to corruption.
48
what is an example against corruption?
Ghana’s high level of freedom and democracy is one reason why it has been able to develop so quickly.
49
how does civil war affect growth and development?
This causes high levels of poverty and destroys infrastructure, making it very difficult for the country to
rebuild even after the war has ended.
50
what is Rostow's model of development?
1) country begins as a traditional society based on agriculture and a subsistence economy
2) they develop their capital in agriculture and mining
3) increased industrialization
4) a drive to maturity with diversified industry and higher levels of technology
5) they end up with a stage of high mass consumption with strong service sector and high output levels
51
what is the problem with Rostow's model of development?
it is seen as an oversimplified model and necessitates financial infrastructure and investment. it doesnt show to encourage development but shows the stages. it is also based on western world so may not be representative of the developing countries mainly based in Africa and Asia
52
what are the market orientated strategies influencing growth and development?
trade liberalization, promotion of FDI, removal of government subsidies, floating exchange rate, microfinance schemes, privatization
53
how does trade liberalization influence growth and development?
it enables countries to have export led growth. Removing trade barriers will mean that domestic industries either close or are forced to become as efficient as other world producers. Resources will be allocated to their best use where the country has a comparative advantage.
54
what group of countries have benefited from export led growth?
the tiger economies like Hong Kong, Singapore and South Korea
55
how does promotion of FDI influence growth and development?
It will create jobs and leads to the effect of the multiplier. Labour productivity tends to increase and wages are often higher. It is a source of investment and can help to fill the savings gap. It also involves the transfer of knowledge from one country to another, with the company bringing production and management techniques and training for staff
which will benefit the country as a whole.
56
why do firms undertake FDI?
Firms tend to undertake FDI because production costs are lower in developing countries and because it enables them access to a new market.
57
why does FDI differ from a loan?
It is different from a loan because if the investment fails, it is the company who has to deal with it and the country does not owe money to foreigners. It also involves the transfer of knowledge from one country to another, with the company bringing production and management techniques and training for staff
which will benefit the country as a whole.
58
what are the negatives to FDI?
there is usually a repatriation of profits and developing countries may find the company exploits them, by offering lower wages and poorer conditions than they would in a developed country. The country will also lose some sovereignty and become dependent on another firm. Local competition may find it hard to set up and compete and the best jobs often go to imported labour, leaving only low skilled jobs for locals
59
what are example of FDI benefiting growth and development?
India has benefited greatly from FDI. The Make In India initiative liberalised FDI policy and led to a 48% increase in FDI in a range of sectors, including pharmaceuticals, manufacturing and railways.
60
what are example of FDI benefiting growth and development?
India has benefited greatly from FDI. The Make In India initiative liberalized FDI policy and led to a 48% increase in FDI in a range of sectors, including pharmaceuticals, manufacturing and railways.
61
what are the aims of subsidys?
Subsidies are placed on essential items within a country, such as food or fuel, or target agriculture and industry in an attempt to increase output and investment. They can be an effective way of minimising absolute poverty and ensuring a minimum standard of living
62
how can subsidy's increase criminality and consumption and give an example?
as subsidy will decrease the price of a good in a country, this could lead to smuggling across borders the lower priced good and selling abroad for a profit, this happened Venezuela when fuel was subsidized
63
why might there be political difficulty for governments removing a subsidy and how can this be removed?
consumers enjoy low prices so may be damaging to a party to be seen removing subsidy, therefore the best time to remove a subsidy is when the free market prices are declining as it will be harder to notice
64
how do floating exchange rates influence growth and development?
In these systems, market forces determine the currency. The country does not have to worry about their gold and foreign currency reserves and the government does not intervene.
65
what are the issues with floating exchange rates and growth?
the currency can be volatile which makes it difficult for exporters/importers to make decisions about the future ( ie.level of investment neccasary for future demand)
and can cause large changes in macroeconomic variables, including economic growth.
66
how does microfinance influence growth and development?
These schemes aim to give poor and near-poor households permanent access to a range of financial services , including loans, savings, insurance and fund transfers. It allows borrowers to invest in their businesses or start up new ones. these services allow the communities to fill the savings gap
67
why is microfinance beneficial to reduce inequality?
The scheme tends to target groups who would be less likely to otherwise receive loans, for example women.
68
what are the problems with microfinance?
It has become a method of financing consumption spending and unemployment means that most people do not have the funds necessary to ensure repayment of their loan. When actually used for investment, it has simply increased the informal economy with very little being spent on sustainable methods of development such as investing in industry or manufacturing
69
what country have had issues with microfinance?
South Africa - 94% of microloans were spent on consumption rather than income generating initiatives
70
how does privatization influence growth and development?
Privatization can end the corruption within a firm who is owned by the state, as well as encouraging them to be more efficient by increasing competition. Selling off a firm, particularly if it is loss making, will improve government finances and reduce levels of debt.
71
what are the flaws of transferring from state run to privatization?
if the firm is privatized as a monopoly there will be no competition within the market. On top of this, it can be associated with corruption where politicians or officials sell the company at below market price to a friend or family member or receive bribes to accept one company’s bid.
72
what are the flaws of transferring from public to privatization?
if the firm is privatized as a monopoly there will be no competition within the market. On top of this, it can be associated with corruption where politicians or officials sell the company at below market price to a friend or family member or receive bribes to accept one company’s bid.
73
what is an example of privatization going wrong?
Ghana- was privatized but now is a public state. Water quality improved but reliability did not. There had been increased revenue and efficiency and improved
customer service.
74
what are the interventionist strategies?
development of human capital, protectionism, managed exchange rate, infrastructure development, promoting joint ventures with global companies and buffer stock schemes
75
how does the development of human capital influence growth and development?
This would provide workers with skills and training and thus help them to be more efficient and improve productivity. Businesses struggle to expand where there are skills shortages and it also limits innovation. Higher skills allows countries to develop from the primary sector to a manufacturing sector, overcoming primary product dependency.
76
what is the relationship between quality of life and education?
better education improves the quality of life
77
what are examples of countries developing human capital and its influence?
Both China and South Korea developed their human capital massively in order to develop.
78
how does protectionism influence growth and development?
Protectionism allows domestic industries to grow by keeping foreign goods out and protects them from strong competition. This will create jobs in the short run and will allow the industry to develop, perhaps to the extent where the barriers can be removed , and the industry can compete globally.
79
what is the problem with protectionism?
countries lose out from the benefits of specialization and comparative advantage and could cause inefficiency, since domestic producers suffer from a lack of competition. Other countries are likely to retaliate.
80
how does multiple exchange rates system influence growth and development?
The currency could be fixed against a number of different exchange rates. They can introduce high exchange rates for the import of essential products and lower exchange rates for others. A high exchange rate for essential products will mean that the price within the country is low, which helps to reduce poverty if the goods are consumer goods and encourages investment if they are capital goods. A lower exchange rate for other imports will mean that the price of these goods within the country is higher, discouraging their import and encouraging consumers to buy from domestic producers.
81
what is the issue with multiple exchange rates systems?
they often fail to work in practice; black markets in foreign exchange develop which can destabilize the
system. a single exchange rate will reduce
volatility
82
how does infrastructure development influence development and growth?
infrastructure is essential for development ; a country needs roads, airports, schools, hospitals, railways etc. the private firms tend to underprovide due to free rider problem and very high capital costs so will need to be provided for by government
83
where do issues occur when developing infrastructure?
government may not have the funds and may be inefficient, could cause environmental damage, may be poorly built and maintained
84
how does promoting joint ventures influence growth and development?
it reduces exploitation of foreign firms with FDI. as the firm will set up a joint venture with a local partner, some of the profits will remain within the country which can be used for investment
85
what are buffer stock schemes?
This is where the government imposes a target price range for goods, buying up stocks when there is excess supply and selling them off when there is excess demand. As a result, it should be self-financing: money is raised when selling the products, which allows the government to buy the next lot of stocks.
86
how do buffer stock schemes influence growth and development?
It is used on commodities, where the prices are volatile. it stabilizes prices and thus encourages investment since producers can plan for the long term. It also prevents sharp falls in prices, meaning that producers are kept from falling into absolute poverty, and prevents sharp rises in prices, meaning that consumers are able to afford the good.
87
what are the issues with buffer stock schemes?
it requires quantity to go up and down, if they keep rising firms will run out of money , and if keep falling then they run out of stock. it consists of huge start up costs. minimum prices set too high will encourage firms to be inefficient. if scheme is operating at a loss a taxpayer will feel burden
88
how do other countries benefit from buffer stock systems?
other countries can benefit from more stable prices and can be seen as free riders of system so they may not need to put in place buffer stock schemes
89
what is an example of a buffer stock scheme?
The Ivory Coast and Ghana implemented a buffer stock scheme for cocoa in 2017 due to low prices
90
what are other strategies that influence growth and development?
industrialization, development of tourism, development of primary industries, Fairtrade schemes, aid, debt relief
91
what is the Lewis model?
it states that there are dual economies in a country, agriculture (low wages, low productivity, low savings) and industrial (high wages, high productivity, high savings and high investment) he suggests that the industrial area will attract workers from rural due to higher wages. he believed savings and investment were key to growth so through migration from rural to urban there will be greater growth
92
what is the flaws with the Lewis model?
vast amounts of labour is needed when planting and harvesting, not neccessarily true that increased income leads to increased saving and investment. migration has lead to an increase in urban unemployment as there are not enough jobs in industry, as technology increases there is less demand for labour in industry
93
how might governments encourage industrialization?
they may build factors and plants to encourage the transition. this was successful in south korea
94
what are alternatives to industrilsation?
Instead of industrialising, India went from agriculture to services as this is where they had a comparative advantage.
95
how has developments of tourism influenced growth and development?
Some countries have decided to take advantage of their climate and geography to build up a tourism industry, such as the Caribbean. This provides them with the funds to develop their economy and improve living standards.
96
what is the income elasticity of demand for tourism and how does this affect development?
The income elastic nature of tourism means that as the global economy grows, demand for the industry will increase even further, allowing the developing country to continue development. However, it also means that they will suffer in times of recession.
97
what is the currency gap?
A foreign exchange gap happens when currency outflows persistently exceed currency inflows
98
how does tourism affect the currency gap?
tourists bring in a flow of foreign currency which fills the currency gap, however these tourists may demand goods from their own currency which would mean an increase in imports which could counteract the changes in currency gap.
99
how does tourism affect investment?
countries are likely to get an inflow of FDI from transnational hotels. this will create jobs, increase government revenue. it also brings intellectual capital. it may lead to an improvement of infrastructure as it relies on airports, electricity and clean water
100
what is the issue with tourism in influencing growth and development?
a lot of foreign firms so profits will be repatriated away from country, seasonal so not constant source of income, the jobs employed will likely be low skilled and paying and import the higher jobs from countries abroad. increase in externalities (environmental damage pollution, damage on culture)
101
how does the development of primary industrys influence growth and development?
The development of a primary industry provides funds to allow a country to diversify as well as allowing infrastructure development and better education.
102
what are the issues with the development of primary industries?
dutch disease- affect other industries within the economy, the prices are volatile, investment will be low due to this volatilty
103
how does fair trade schemes affect growth and development?
fair trade has meant that workers in the fair trade industry have higher wages and standard of living, it also has meant that there is no child labour so they can now become educated and gain skills which will allow them to not be reliant on primary products as they move away from agriculture
104
what are the flaws of fair trade schemes?
affects those workers who aren't under there scheme due to reduced demand, in long run higher price for Fairtrade goods will increase supply bringing down fair trade price however this is dependent on elasticity of supply, higher incomes reduce the incentive to diversify so it keeps farmers engaged in low profit activitys. the price mark up in supermarkets may only contribute a small amount to the actual farmers with the supermarkets pocketing the rest
105
how does aid influence growth and development?
aid reduces absolute poverty particularly emergency relief after disasters. can fil. the savings gaps (harodd-domar model) as it provides funds for investment, can fill currency gap due to the inflows of foreign currencies, reduces world inequality and increase globalization and trade
106
define aid?
This is when a country voluntarily transfers resources to another or gives loans on concessionary terms
107
what is bilateral aid?
bilateral aid is directly from one country to another
108
what is tied aid?
tied aid is aid with conditions attached, such as economic or political reforms or a commitment to buy goods from the donor country
109
what is multilateral aid?
multilateral aid is when countries give aid to an international organization who distributes it to other countries.
110
what are concessional loans?
concessional loans are loans given on lower, or no, interest rates
111
what are the largest receivers and largest donators of aid?
Egypt, Afghanistan and Vietnam are the greatest recipients of aid, whilst the EU and US are the largest donors.
112
what are the issues with aid on growth and development?
it creates a dependency culture where countries are not worried by their financial situation as they know they can get foreign aid. some aid types may not benefit the country for example in tied aid. it is difficult to know best way to develop so hard to target aid, money spent on infrastructure after disasters may not solve absolute poverty
113
how does debt relief influence growth and development?
Many countries suffer greatly from the high interest repayments to loans they have taken out. It limits the growth of the poorest countries, whilst being relatively small for the parties that are owed the money. writing off the debt will ease government finances and allow more money to be spent on provision of services and infrastructure to aid development.
114
what is the issue with debt relief?
it causes moral hazard because it creates a precedent: every poor country may now expect to receive debt relief. It also eases pressure on weak governments
to adopt reforms and good economic policies.
115
when was the world bank created?
The World Bank was founded at the Bretton Woods Conference after the Second World War.
116
what are the aims of the world bank?
It aims to bring about long-term development and a reduction in poverty.
117
what is the world bank made up off?
o the International Bank for Reconstruction and
Development (IBRD)
o the International Development Association (IDA)
o the International Finance Corporation (IFC)
o the Multilateral Investment Guarantee Agency (MIGA)
o the International Centre for Settle of Investment
Disputes (ICSID).
118
What parts of world bank provide financing, policy advice and technical assistance
The IBRD and IDA, IDA helps the poorest countries whilst IBRD helps middle income and creditworthy poorer countries
119
what parts of the world bank help strengthen the private sector in developing countries by providing them with finance, technical assistance, political risk
insurance and settlement of disputes?
IFC, MIGA and ICSID
120
how many development projects has the world bank funded since 1947?
The World Bank has funded over 12,000 development projects since 1947 through interest free loans and grants and supports long term human and social
development.
121
what is the aims of the international monetary fund?
the IMF was set up to ensure that exchange rate
| systems work well.
122
how does the IMF fulfill their aims?
They provide loans to help countries when there are international exchange rate crises or when they cannot afford to pay off their international debt. When providing loans, the IMF insists that countries make macroeconomic reforms to resolve the problems.(reducing imports and increasing exports, lower government spending). these reforms however reduce resources available for domestic consumption.
123
what are NGO's?
These are non-profit organizations that are run independently from the government. they can provide direct assistance to countries in the form of project work, for example Oxfam or CAFOD. they can act as pressure groups to lobby governments to adopt more
pro-development strategies.
124
what are the issues with NGO's?
A problem of NGOs is that it is believed that they alone can never solve the problem, it is the government who has to fix the issues. many see them as having an anti-capitalist agenda which blames problems on the World Bank, the IMF and the WTO. This causes divisions in the development project and is also an issue since past experience suggests global capitalism is the best system for development.
