5 Economic development Flashcards
Indicators
Used to assess progress in the living standards of a country.
Living standards
Refers to the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class or geographic area.
Adult literacy rates
The proportion of the adult population that is able to read and write.
Real GDP per head
Measures the average income per person in a country.
The Human Development Index
What does it do
‘The HDI (Human Development Index) was created to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone.’
The HDI measures three key dimensions of human development:
A decent standard of living, measured by GDP per head.
A long and healthy life, measured as life expectancy at birth.
Access to knowledge, measured by mean and expected years of schooling.
Problems with Real GDP per head
Real GDP per person does not take into account what people can buy with their income.
A higher output may be due to increases in the number of working hours or worsening working conditions that lower rather than improve the standard of people’s lives.
Increases in real GDP per head may be due to increases in the production of weapons and military equipment, which may actually reduce the quality of people’s lives.
Real GDP per head also excludes unpaid work that people do for charities or voluntary organisations, which then understates the total output and well-being of the country.
Real GDP per head is an average and so tells us nothing about how any extra income earned is shared.
Limitations of the HDI
The HDI assumes that income is distributed evenly but there may be differences in income between different groups, such as between men and women.
The HDI also ignores human rights and gender inequalities, which can have a considerable impact on people’s well-being.
HDI does not measure increases in daily commutes to and from work, the range of working conditions, or the severity of environmental impacts such as resource depletion and pollution.
Comparing living standards: Investment in infrastructure
Regions and countries with good road, rail and communication networks are more attractive to businesses, which increases job prospects for people in those areas. This can improve their income and living standards.
Comparing living standards: Distribution of income within a household
The distribution of income depends on the composition of earners within a household. Households with two or more people working will usually earn a higher income than a household with one person working. Full-time workers typically earn more than part-time workers.
Comparing living standards: The general price level
The cost of living in one region or country may be more expensive than another, which will influence wages. Wages tend to be higher when the cost of living is higher.
Comparing living standards: Education
Highly skilled workers are more likely to be in high demand, and as a result their earning potential can be higher. This will increase the standard of living.
Comparing living standards: Healthcare
Access to healthcare can help people to become healthier and more productive, which allows them to earn more wages.
Comparing living standards: Wealth
The amount of wealth a person holds can improve their standard of living. Wealth is the stock of assets that have a monetary value. This includes houses, jewellery and shares in companies, many of which can be sold for cash. Wealth can also be through inheritance (money or objects that someone gives you when they die), entrepreneurial skills or savings. Some people have a considerable amount of wealth, while others have none. Households who have accumulated (collected over a long period of time) wealth can live on the income earned from their wealth and in some cases this adds to their earned income.
How is Standard of living measured
Literacy rates
CPI
Distribution of income
Jobs: in different sectors
Poverty
Poverty is an inability to meet basic needs because food, clean drinking water, proper sanitation, shelter, education, healthcare and other social services are inaccessible. Poverty is when people cannot sustain a basic standard of living.
Relative poverty
When people cannot sustain the same standard of living as others in the same society.
Absolute poverty
When people earn at or below 1.90 USD per day and cannot fulfill the most basic needs necessary for survival.
The causes of poverty
10
POVERTY TRAP
Unemployment
Low wages
Illness
Age
Population growth
Poor infrastructure
Dependence on commodity exports
Lack of foreign direct investment (FDI)
High public debt
Foreign direct exchange
Foreign capital injected into a domestic economy to purchase tools and services used to produce goods and services.
Policies to alleviate poverty and redistribute income
6
Sustainable Development Goals (SDG)
Reducing unemployment
Progressive taxation
Providing state benefits
Improving education
Introducing or increasing the minimum wage
Factors that affect population growth
The birth rate
The death rate
Net migration
What influences birth rate
The birth rate of a country is influenced by the number of women in the population, the fertility rate (the average number of children per woman) , contraception, female employment, customs and religion.
What influences Death rate
This is influenced by factors such as disease, income levels, living standards and nutrition.
Reasons for different rates: Birth rate
Birth rates tend to be high in countries where the fertility rate is high, the infant mortality rate is high, and women are less educated and so tend to marry young. A lack of family planning and access to contraception also lead to high birth rates.
Countries where the cost of raising and educating children is expensive (where education is compulsory up to a certain age), and where women prioritise their careers and so choose to have children later in life, tend to have lower birth rates.
Reasons for different rates: Death rate
A country is likely to have a relatively low death rate if the majority of people have a healthy diet, regular exercise, proper sanitation, good housing facilities, access to good-quality healthcare and education, and good working conditions. Countries at peace are also likely to have lower death rates than those at war.
Reasons for different rates: Net migration
People leave (emigrate from) their home countries for many different reasons, such as better job opportunities, a better lifestyle, warmer climates, lower taxes or to seek refuge from conflict.
Effects of changes in the size and structure of population on different countries
Age distribution
Gender distribution
Optimum population
Optimum population
The size of population where the output of goods and services per head of population is maximised.
How does changes in size and structure of population change: Firms
In 2018, 28% of people in Japan were aged 65+. An ageing population reduces the supply of labour to firms.
On the other hand, a combination of high birth rates and net immigration will increase the supply of workers in a country.
How does changes in size and structure of population change: Government
A growing population can mean an increase in the birth rate, a decrease in the death rate and an increase in net immigration.
An increase in net immigration means that the government can collect more tax revenues. But at the same time, an increase in the birth rate increases the government’s spending. For example, in Australia, the government pays up to 18 weeks at minimum wage level to the primary carer of a newborn. More babies means the government has to spend more on supporting their carers.
How does changes in size and structure of population change: The economy
Population growth increases the demand for scarce resources within a country. If a country cannot produce enough goods and services to match growing demand then this can lead to an increase in imports, which can lead to inflationary pressure.
How does changes in size and structure of population change: The environment
An increase in the number of people in a country can increase the level of pollution and traffic, as well as the rate at which non-renewable resources are depleted.
How does changes in size and structure of population change: Consumers (what they consume)
Spending patterns will vary within a country depending on the age and gender distribution.
A country with a very young population will see consumers spend a larger portion of their income on childcare, education, housing and toys.
If a country has an older population, consumers will spend more on healthcare and related costs.
Firms and governments need to ensure there is sufficient supply of goods and services to meet this demand.
Economic development
Occurs when increases in income and output per capita are accompanied by improvements in the living standards of the population.
How is economic development achieved
Increasing incomes and output
Redistributing income so that the gap between the very rich and very poor is reduced
Reducing unemployment
Increasing the provision of essential goods and services such as food, shelter, education and healthcare.
How to measure economic development
Real GDP per capita: but this does not take into account living standards within the country
Human Development Index:
A decent standard of living, measured by GDP per capita.
A long and healthy life, measured as life expectancy at birth.
Access to knowledge, measured by mean and expected years of schooling.
Factors that cause different rates of economic development
Differences in income
Productivity
Population growth
Size of the primary, secondary and tertiary sectors
Differences in saving and investment
Education and healthcare
