4.3.2: Factors Influencing Economic Growth & Development Flashcards
What are the economic factors influencing economic growth & development?
[3 DETAILED]
-Primary product dependency (Prebisch-Singer Hypothesis & Dutch disease).
-Volatility of commodity prices.
-Savings gap (Harrod-Dollar model).
What are the economic factors influencing economic growth & development?
[7 SHORT]
-Foreign currency gap.
-Capital flight.
-Demographic factors.
-Debt.
-Access to credit & banking.
-Infrastructure.
-Education/skills.
What are examples of primary products?
-Copper.
-Agriculture.
-Oil.
What is primary product dependency?
A high reliance on the extraction & export of primary products for economic growth.
Why may primary product dependency be a problem?
A country can run out of its primary products (through extraction or natural disasters).
The economy will be vulnerable to this lack of diversification.
How can primary product dependency be used to increase economic growth & development?
Using primary products to invest in manufacturing (e.g. Saudi Arabia, oil).
What are the two theories that are linked with primary product dependency?
-Prebisch-Singer Hypothesis.
-Dutch disease.
What is the Prebisch-Singer Hypothesis?
A theory that suggests that over the long run, the prices of primary goods declines in proportion to the prices of manufactured goods.
What is the impact of the Prebisch-Singer Hypothesis?
Countries that are dependant on primary exports will see a fall in their terms of trade.
What is the Dutch disease?
The negative impact on an economy of anything that results in a sharp inflow of foreign currency (e.g. discovery of oil reserves).
What is the impact of the Dutch disease?
A rise in export prices and a reduction in competitiveness of the economy, causing a fall in output in other areas (e.g. non-oil sectors for Nigeria).
What is volatility of commodity prices (of primary goods)?
The fluctuation of prices of primary goods.
Primary goods are demand ________ & supply ________.
Inelastic, inelastic.
How are primary goods demand inelastic?
They are essentials that are required in the production of other goods (e.g. wheat, steel).
How are primary goods supply inelastic?
Time lags (e.g. growing period for agriculture, developing mines).
How does demand inelasticity & supply inelasticity contribute to volatility of commodity prices (of primary goods)?
Relatively small changes in demand or supply leads to huge fluctuations in price.
What is savings gap?
The difference between actual savings and the level of savings needed to achieve a higher growth rate (e.g. investment).
Why do developing countries have a higher savings gap than developed countries?
Higher MPC due to lower income.
What is an example of a savings gap?
Savings rate for Africa: 17% of GDP.
Savings rate for middle income countries: 31% of GDP.
What is the Harrod-Domar model?
Savings -> Investment -> Capital Accumulation -> Output & Income (and repeat) = Economic Growth.
What is the equation of the Harrod-Domar model?
Savings Ratio / Capital Output = Rate Of Growth.
[PRODUCTIVITY OF CAPITAL INVESTMENT]
How can foreign currency gap influence economic growth & development?
This is when exports are low in comparison to imports.
There is less money to finance investment or other exports that support financial growth.
How can capital flight influence economic growth & development?
Occurs when owners of liquid assets move them to ‘safe haven’ countries.
It is triggered by an economic threat (e.g. hyperinflation).
How can demographic factors influence economic growth & development?
High birth rates can negatively impact the development of a country.
Rapid population growth has complicated efforts to reduce poverty in Africa.
How can debt influence economic growth & development?
Less money to spend on public services, and they may need to raise taxes.
How can infrastructure influence economic growth & development?
Poor infrastructure makes it hard for firms to trade and set up within a country.
India saw power blackouts in 2012, damaging the tourism industry.
How can education/skills influence economic growth & development?
Human capital ensures the economy can be productive and produce high quality goods & services.
It helps generate employment and raise standards of living.
What are the economic factors influencing economic growth & development?
[3]
-Corruption.
-Civil war.
-External shocks.
How can corruption influence economic growth & development?
Leaders make decisions that benefit themselves rather than the economy.
How can civil war influence economic growth & development?
Causes high levels of poverty and destroys infrastructure.
How can external shocks influence economic growth & development?
Natural disasters damage infrastructure (e.g. farms).
