4.3.2 Factors Influencing Growth + Development Flashcards
1
Q
Factors influencing growth + development
A
- volatility of primary product prices
- primary product dependency
- demographic
- debt
- capital flight
2
Q
What causes price volatility of primary products?
A
- Low PED, low PES means that a shift in the demand + supply curve leads to larger changes in price
- caused by vulnerability to weather - climate change + extreme weather (droughts etc)
- diagram that shows inelastic PED/PES
3
Q
Why does price volatility hinder development?
A
- affects producers e.g. farmers incomes
- deters investment as less stability, difficult to predict future sales
- low prices can lead to lower incomes which can lead to a loss of jobs
4
Q
What is primary product dependency?
A
- developing countries tend to over specialise in a narrow range of goods
- these goods tend to be primary commodities = barrier to growth + development
- country is commodity export dependent when over 60% of its total export revenue are from primary commodities = 64% of developing countries + 9/10 of sub-Saharan African countries
5
Q
Impact of primary product dependency?
A
- developing countries tend to over specialise in a narrow range of goods
- these goods tend to be primary commodities = barrier to growth + development
- country is commodity export dependent when over 60% of its total export revenue are from primary commodities
6
Q
Examples of primary product dependency?
A
- Zambia = copper
- Rwanda = chilli peppers
- Angola + Nigeria = oil
- Kenya = flowers, coffee
- Mozambique = mineral fuels, aluminium
7
Q
Benefits of diversification
A
- diversifying into producing with a higher value added as it increases their export revenue
- provides employment opportunities
- opportunities for new firms to set up
- activities/jobs that require higher skills
- spreads the risk as opposed to relying on one or two products
8
Q
Impact of trade barriers on developing countries
A
- trade blocs cause trade diversion in agricultural markets
- developed countries impose higher tariffs on imports from developing countries e.g. CET on imported commodities + agricultural produce in the EU
- e.g. CAP = Common agricultural policy = EU farmers + US cotton farmers receive higher levels of subsidy + so farmers from developing countries find it hard to compete even though they produce at lower costs
9
Q
Problems for countries that are commodity dependent
A
- highly vulnerable to world demand + prices = risk of high unemployment + developing countries often don’t have a welfare system
- danger of over extraction of resources
- high risk of corruption + conflict = govt officials may be open to bribes from transnationals seeking to acquire ownership of natural resources
- Dutch disease
10
Q
Why can developing countries not access international markets?
A
- trade protection policies
- e.g. tariffs on developing countries’ primary products
- subsidies on developed countries goods
- landlocked countries e.g. Chad
11
Q
What does Prebisch-Singer believe?
A
- countries may be better off to try + develop their own domestic industries in manufacturing, which may involve protectionism in the short term to protect infant industries
- real prices for many commodities decline relative to manufactured goods because the YED for commodities tend to be more inelastic than manufactured goods which are more income elastic (luxury)
12
Q
Weaknesses of Prebisch singer’s argument?
A
- labour intensive manufacturing e.g. household appliances have become cheaper (kettles, washing machines etc)
- this because of globalisation, containerisation + economies of scale
- per capita incomes have risen in most countries = increase demand for household appliances = higher demand for commodities to make household goods
- increase in global population = increased demand for food
13
Q
Supporting argument for primary product dependency
A
- increase income per capita = increase demand for household appliances = increase demand for commodities
- therefore the price of primary products have increased due to high demand
- e.g. lithium = used in smart phones, batteries etc = important for electric cars, home energy
- HOWEVER = lithium could develop into an example of Dutch disease
14
Q
What is Dutch disease?
A
- if the price of primary products/ commodities increases = country selling it experience increase in export revenue
- this will act to increase the value of the currency
- this could make exports of other goods more expensive in foreign markets + therefore less price competitive
- this can act as a barrier for balanced growth
- often linked to discovery of rich natural resources in an economy
15
Q
How can primary product dependency be overcome?
A
- better govt, more transparency = clear where tax money (from natural resources) is spent
- need to be able to tax the extraction of natural resources + reinvest back into the economy in education, health, infrastructure = help increase per capita incomes
- diversify - manufacturing, tourism = find sectors that offer high value added
16
Q
What demographic factors should be considered in development?
A
- population increasing or decreasing
- ageing population?
- dependency ratio increasing? = fewer people of working age to those who are not working (dependents)
17
Q
What was the Malthus argument?
A
- argued that there would always be diminishing returns as population increases
- implies that food supply would not be able to increase at the same rate as population = population growth speed exceeds agricultural growth
- HOWEVER - technological improvements have increased food production more than Malthus predicted (Boserup)
18
Q
What occurs in demographic transition?
A
- improved living standards + healthcare = lower death rate + lower birth rate
- leads to a low + stable population growth
- Africa has not reached this demographic transition
19
Q
Demographics in Africa?
A
- high rate of growth of population in Africa = 1.3 billion at present, estimated to be 4.3 billion by 2100
- there has been a fall in infant mortality + death rates = good indicator of development
- high birth rate + average LE of 64
- fertility rate although falling is still high = 4.4 children per woman
20
Q
Positives of high population growth
A
- provides more labour = increases productive capacity
- therefore higher potential for growth + development = PPF shifts outwards
- stimulates economic growth + bigger domestic market for firms = increase in AD
- HOWEVER - depends on willingness to work, skills
21
Q
Negatives of high population growth
A
- drain in resources = higher demand for food, clean water, sanitation, education + health
- overall effect may depend on the dependency ratio = high in Africa (48% of pop are aged 15 or less in Uganda)
- therefore a higher % of population who are dependent on others puts constraint on the growth
- also tax as a % of GDP will be very low = less finance to spend on education, nurseries etc.
22
Q
What is debt servicing?
A
Paying the interest on debt
23
Q
What is external debt?
A
Debt owed to overseas institutions/lenders
24
Q
Impact of external debt on LEDCs?
A
- may have large amounts of external debt + the need to repay this means the govt has less money
- therefore there is less money to spend on education, health and infrastructure = key areas of economic growth + development
- this is particularly true if interest rates are high
25
Risks of debt led growth
- loans taken out when interest rates are low has the risk that interest rates will rise = increase in debt that is less sustainable
- if countries default on debt interest rates will be higher in the future
- risks of currency depreciation means value of loans in foreign currencies increases
26
What is capital flight?
- the uncertain + rapid movement of large sums of money out of country
- this often prompted by a lack of confidence in the economic or political situation
27
What are the main causes of capital flight?
Causes linked to lack of investor confidence:
- political turmoil/unrest/risk of civil conflict
- fears that a govt plans to take assets under state control
- exchange rate uncertainty e.g. ahead of possible devaluation (makes capital worth less in terms of other currencies)
- fears over the stability of a country’s banking system
28
Consequences of capital flight?
- if capital flight is an act of corruption or embezzlement of public resources it reduces govt revenue
- the govts capacity to finance social service + other public investments is greatly eroded
- tax burden is shifted on the middle class + poor who have to subsidise social services due to tax evasion (form of capital flight by high earning organisations)
29
Consequences of capital flight on the currency?
- undermines the stability of the financial system + could bring about a much weaker currency
- this increases the prices of essential imports = increase inflation which hits the poorest the hardest as they spend a greater % of their income on food + necessities
- capital flight may mean a developing country runs short of essential foreign currency + does not have the net financial inflows to finance their investment or buy essential imports e.g. pharmaceuticals
30
Policy to reduce capital flight?
- govt introduce capital controls which control how much money people can take out of a country
- however illegal capital outflows are much harder to stop
