A2 - Growth And Development

Question 1

What is development ?

Answer 1

When real per capita incomes increase and the inhabitants of a country are able to benefit from improved living conditions

Question 2

What is meant by the Millennium Development Goals?

Answer 2

Set out by the United Nations they are a range of development objectives set out for less developed countries.

Question 3

What are Millennium Development Goals?

Answer 3

Eradicate extreme poverty and hunger

Universal primary
education

Promote gender equality and empower women
Reduce child mortality
Improve maternal health

Combat HIV/aids
Ensure environmental sustainability

Question 4

Why is economic growth in itself not development ?

Answer 4

An increase in the productive capacity of the economy means there are more resources available in an economy, but it doesn’t mean that these resources will be used well

Question 5

In what regions are the LDCs concentrated?

Answer 5

Sub- Saharan Africa,
Latin America
South Asia
South East Asia (bar China)

Question 6

What is GNi

Answer 6

GNI per capita is GDP plus net income from abroad, expressed as an average per person

Question 7

Why is GNI a better measure of income for some countries?

Answer 7

It takes into account flows o money from nationals of the country working elsewhere

Question 8

What are the benefits of GNI as a measure of income?

Answer 8

It is widely recognised and is available for almost every country in the world

It is easily understood

Question 9

What are the issues of using GNI per capita in US dollars to measure income in countries?

Answer 9

There are exchange rate problems as the Gross National Income of a country is first calculated in its local currency and afterwards it is converted to US dollars using official exchange rates.

The measurements in US dollars tend to understate real incomes for low-income countries but overstate them for high income countries

Question 10

What is an alternative to GNI per capita in US dollars as a measurement of income for countries?

Answer 10

GNI in Purchasing power Parity gives a more accurate result.

Question 11

What is the limitation of GNI (measured in US dollars and Purchasing Power Parity) when measuring living standards?

Answer 11

In many LDC’s there is a significant amount of informal sector activity so it may not be reflected in GNI, which is measured by totalling transactions in an economy.

Doesn’t show income distribution as it is an average measurement.

GNI provides a good indicator of the amount of resources in an economy, but it doesn’t show whether those resources are being used effectively to improve peoples standards of living.

Question 12

What is the Human Development Index?

Answer 12

Devised by the United Nations it is an indicator of the level of a country’s development ranging from 0 to 1.

Question 13

What specifically is measured to give a country a HDI score?

Answer 13

Resources- measured in GNI per Capita in Purchasing power parity
Knowledge of how to make good use of those resources- mean schooling and expected years of schooling
Whether people have a reasonable life span to make use of their resources- life expectancy

Question 14

What is the difference between what mean years and expected years of education (within HDI) show about the development of a country?

Answer 14

Mean years of education- shows the amount of investment into education in the past as it shows the average number of years that people over 25 spent in school.
Expected years in education- shows the current state of education in the economy, as it shows the number of years a child of school entrance age can expect to receive based on enrolment and accessibility to education.

Question 15

What are the limitations of HDI as a measurement of development?

Answer 15

HDI does not include all of the dimensions of human development and doesn’t for example take into account the level of a country’s environmental sustainability or gender equality.

Question 16

What are the different sectors that can make up the economic activity within an economy?

Answer 16

Primary, Secondary and Tertiary

Question 17

What is primary production?

Answer 17

This is production using natural resources including growing crops (agricultural) and extracting raw materials e.g. oil and minerals.

Question 18

What is secondary production?

Answer 18

Where the raw materials or crops that were extracted in the primary sector are manufactured into goods. e.g. Processing food or manufacturing computer equipment

Question 19

What is tertiary production?

Answer 19

This is where services e.g. hairdressing , financial services are provided.

Question 20

What is the quaternary sector?

Answer 20

Part of the tertiary sector, it is production based on information technology and products, such as scientific research.

Question 21

What are the stages of economic growth?

Answer 21

It is the five stages that all developing countries will pass as modelled by Walt Rostow.

Question 22

What is the first stage of economic growth?

Answer 22

Traditional Society- Most of the production takes place in the primary sector particularly agriculture.

Investment is low

Income per capita is constant for countries in this stage.

Question 23

How did Walt Rostow believe that countries could move past the first stage of economic growth (traditional society)

Answer 23

The preconditions for economic growth must be established.
E.g.
They have to increase their agricultural productivity so some resources can be used to provide infrastructure so industrialisation can take place.

Question 24

What is the preconditions Period of economic growth

Answer 24

The second stage of economic growth, it is where the preconditions for economic growth are established.

The country has to increase their agricultural productivity so some resources can be used to provide infrastructure and transport so industrialisation can take place.

Question 25

What is the third stage of economic growth?

Answer 25

The Take- Off stage is where the economy has a 20-30 period of fast economic growth, with investment rising and taking up a larger amount of GDP.

A flow of funds for investment is needed this may come from domestic savings but also externally e.g. remittances, borrowing internationally from the IMF.

Entrepreneurs that can recognize opportunities for productive investment and take risks emerge.

Question 26

What is the Fourth Stage of Economic Growth?

Answer 26

The Drive to Maturity Stage- New sectors emerge in the economy to allow the economy to become more diversified and balanced.

The tertiary sector dominates economic activity in the economy.

Investment still takes up a large proportion of GDP.

Question 27

What is the last stage of economic growth?

Answer 27

The Age of Mass Consumption- the economy is fully diversified.
GDP per person continues to rise
consumption rather than firm investment takes up the largest proportion of GDP.
The county has essentially become developed.

Question 28

What are the criticisms of Walt Rostow’s five stages of economic growth.

Answer 28

He doesn’t explain how countries in the ‘traditional society ‘stage can stimulate economic growth.

Question 29

Name the five stages of economic growth as set out by Walt Rostow

Answer 29

Traditional Society 
Preconditions for Economic Growth
Take-Off Period
Drive to Maturity
Age of Mass Consumption.

Question 30

Why is the dependence on agriculture problematic for LDC’s?

Answer 30

Agriculture tends to have low labour productivity in comparison to other sectors.
This often results in low income per person

Agriculture production can be faced with volatility in commodity markets and deterioration in the terms of trade in the long run (as real incomes in developed countries rise demand for agricultural goods rise relatively slowly, but supply increases as technology increases causing the price to fall pg 279).

Question 31

Why is international trade essential for the growth and development of LDC’s?

Answer 31

It allows them access to physical capital goods that they wouldn’t be able to access by themselves.

Question 32

What are the benefits to developed countries of LDC’s increasing there economic growth and then increasing their trade?

Answer 32

It would increase world trade, giving industrial countries an increase in the markets for their products (more countries to import to.

A humanitarian motive- to reduce global inequality

Question 33

What is Official development Assistance (ODA)?

Answer 33

It is aid provided to LDC’s by countries in the OECD
It was agreed in a UN summit that industrial countries would devote 0.7% of their GDP to aid.
This includes debt forgiveness under the World Banks Heavily Indebted Poor Countries.

Question 34

What are the main motives behind giving official development assistance to LDC’s?

Answer 34

Politically, a country may wish to show to the electorate that the money for aid is being well used, so it gives aid to countries that are in a good position to use these funds well.

Humanitarian motives - to reduce global inequality

Question 35

Why might aid be ineffective at promoting economic growth?

Answer 35

When aid is provided to the poorest countries, that are in the traditional society stage of economic growth they lack the resources to utilise the funds effectively.

The LDC government may be inefficient or corrupt and not use the funds wisely.

Or the aid given wasn’t enough to make a significant impact.
Aid may damage business for local producers, e.g. dumping cheap grain into the market will lower prices which is bad for local producers.

The flow of foreign aid may cause the exchange rate in the LDC to rise, causing their exports to lose competitiveness (Dutch Disease)

Question 36

Why might aid be ineffective at promoting economic growth? ( in terms of the donor binding the recipient)

Answer 36

The donor may be giving aid on the condition that the LDC agrees to certain trade deals that are unbeneficial for the recipient e.g. having to buy their imports at inflated prices.
The donor may tie the LDC to certain projects , this could be beneficial in ensuring that the funds are used to cause economic growth, but it is only beneficial if appropriate projects are used that will help develop the LDC.
In 2010 79.4% of aid was untied (99.9% UK)

Question 37

What is the Dutch disease?

Answer 37

The idea that flows of foreign aid into a country may cause the exchange rate to rise, reducing the competitiveness of the country’s exports.

Question 38

What is the role of the International Monetary Fund in economic growth?

Answer 38

It was set up to give loans to countries facing a deficit in an account on their balance of payment. (short-term)

However, the country had to put in place policies to help it deal with the deficit (restrictive monetary and fiscal policies)

Question 39

What is general the role of the IMF

Answer 39

A multilateral (numerous countries) institution that acts as a bank for central bank

and sets standards for the regulation of these banks that are accepted globally.

Question 40

What is the general role of the World bank?

Answer 40

A multilateral organization that provides funds for long term development projects, it provides funding for projects at commercial projects, that commercial banks would find too risky.

Question 41

What is the role of the World trade organization?

Answer 41

It is a multilateral organization that oversees international trade and aims for there to be global free trade, so it try’s to reduce trade barriers such as tariffs and other forms of protection.

Question 42

What were the conditions that countries had to meet in order to be more likely to receive loans and debt forgiveness from the World Bank and IMF based on

Answer 42

They were based on the Washington Consensus

Question 43

What were the core priorities in the Washington Consensus

Answer 43

These were the conditions that countries had to meet in order to be more likely to receive loans and debt forgiveness.

Fiscal discipline (not a large deficit)
Tax reform
Liberalising inflows of Foreign Direct Investment
Liberalising interest rates.
A competitive exchange rate
Trade liberalisation (lack of protectionism

Question 44

What was wrong with the Washington Consensus?

Answer 44

It was oversimplified and didn’t mention poverty reduction.
Didn’t mention the need of countries to improve how their markets work, e.g. a more flexible labour market.
The policies were biased towards a market-based economy rather than a mixed one with state control.

Question 45

Explain the Easterlin paradox

Answer 45

Easterlin argued that although there is correlation between happiness and income, it is not necessarily the increase in income that causes happiness, it is dependent on how this income is used.

Question 46

What is the Measuring National Well being programme?

Answer 46

As established by the Office for National Statistics (ONS) it is an attempt to measure the well being of the nation looking at:
Personal well being
Relationships
Health 
Education
Economy 
Personal Finance
Environment

Question 47

What is the limitation of the ONS’s Measuring National Well-being programme and other indicators of well being?

Answer 47

It is unlikely that any single indicator can include all the dimensions of development.