Chapter 3: Globalisation and eco development Flashcards
what are the factors differing people born in developed vs developing countries
vastly different opportunities in terms of health, education, income and life expectancy
define economic growth and how it is achieved
Economic growth (quantitative concept): increases in real GDP over time, leads to measurable increases in national output, incomes, employment and living standards. Eco growth achieved through an increase in AD or AS (usually both)
How is an increase in AS (increase in productive capacity) achieved in 2 broad ways
- increased use of resources (quantity) - eg use of unutilised land resources, more widespread adoption of new tech, bus migration
- more productive use of existing resources (quality) - eg use of capital increasing in the productivity of labour and capital resources
what leads to an outward shift of the PPF
- eco grwoth through an increase in productive capacity
- when producing at capacity, eco grwoth can only occur if resources bevome available or tech advancements allows for more efficient use of existing resources
what do points on the curve represent
full employment of resources
define eco development
- eco development (qualitative concept): improvements in the wellbeing on a nation’s people - measurable variables such as life expectancy, mean yrs of schooling and real GNI per capita (which measures income, rather than output as with GDP)
how does eco grwoth affect eco development and vice versa
- eco growth is generally required for/leads to eco development to occur
- eco development creates conditions conducive to further economic grwoth (eg edu)
how does eco grwoth influence eco development to change how society functions
- transformation from rural and agricultural based to urban and industrial/service based
- changing employment patterns and increasing mechanisation
- construction of eco and social infrastructure such as roads, railways, schools
- educated and healthy populations (ie more productive workforces) with high disposable incomes (ie capacity to drive further growth via consumer expenditure)
outline the process of eco development to eco rgwoth
- savings channelled thru financial markets to firms for investment –> high quality resources –> eco grwoth
- growth leads to equal distribution of income –> rela increases in living standards thru ‘trickle down effect’
- high income –> high lvls of svaings –> further investment and eco growth
how do developing countries obtain funds for investment
- borrowing from overseas or attracting foreign investment, though both difficult to secure since high risk for lenders, and comes with disadvs (interest from loans, benefits often repatriated)
why do developing countries lack the ability to sustain grwoth
- developing countries lack the strong domestic demand req’d to encourage output and attract investment
- lack any real comparative adv which must exist to pursue export-led grwoth
determine the progress towards overcoming inequalities
- poverty declined significantly, mortality rate reduced, net enrolment to primary school increased, life expectancy increased
- but major gap still exisst b/w 6.8bn ppl in the developing world and the 1.2bn in developed who enjoy high lvl of human development
define GNI (gross national income)
the total income earned by domestically owned factors of production over a period of time
(does not account for income for foreign residents earned from domestic production but does include income received by domestic residents from overseas production)
how are real GNI figures derived
accounting for the effects of inflation on GNI growth
why is usign PPP before comparing GNI levels b/w countries more accurate?
- PPP adjusts GNI figures to reflect the purchasing power of currencies within national economies, providing a standard comparison of real income lvls b/w countries
- measuring GNI in US$ terms will underestimate the true income of people in developing countries
what are the general statistics for income inequality
- high income economies receive around 2/3 of the world’s income as measured in raw GNI figures but less than 1/2 in PPP adjusted figures
- high lvl of inequality exists as 1.2bn/8bn ppl in developing
- low income eco makes up almost 10% of population but less than 1% of the size of global economy
what is the equation for real GNI per capita
divide real GNI of a country by its population to get more useful comparison b/w population size and living standards
what has been the general trend of income inequality in recent decades
the gap in income b/w richer and poorer countries appears to be lessening, in reality, the reduction in inequality is occuring very slowly
define wealth
wealth is a stock concept as it refers to the assets an individual has accumulated over time
- important safety net for ppl when they dont have income and can be used to improve education or find other ways to generate income (eg purchasing shares, bonds)
what are the general trends for wealth
- the top richest 1% of ppl have significantly increased their wealth (45% of the worlds wealth), while wealth for 60% of the world’s population has declined greatly
- wealth for billionaires increased 3 time faster than inflation, while wages for 800 million workers have been outpaced by inflation
why are average incomes misleading
they do not account for income distribution which may be highly skewed
what 3 variable are used to calculate HDI values
life expectancy at birth, mean years of schooling and real GNI per capita
is HDI or GDP/GNI a more comprehensive measure of human development
HDI is more comprehensive than GDP or GNI per capita as it takes into account non-material aspects of QoL which do not always correspond with levels of income
what can u gather from comparing HDI and GDP/GNI stats
the differences b/w growth and development (highlighting need for broader measure of welfare than just income or output)
- note: eco growth still crucial for high levels of development
why can countries have similar HDI levels but very different income levels and vice
- high levels of inequality results in the benefits of income not being well distributed
- effectiveness of education and healthcare systems is not always determined by national income
- armed conflicts can have devastating impacts on levels of development
eco progress leads to advances in human development with greater opps to:
- live longer, healthier lives as measured by changes in life expectancy
- acquire knowledge and skills through access to education as measured by mean yrs of schooling
- enjoy a decent standard of living with higher earnings as measured by rising levels of GNI per capita
what was the effect of covid on the global HDI level
despite substantial improvement over the past 3 decades, 2020 and 2021 saw the only declines since 90s
- uneven economic and health impacts
- the decline erased the gains of the prev 5 yrs
what are the categories for countries
- their level of income, level of human development, geographical region, economic system or trade profile
- main cats used by economists - adv, developing and emerging
what are features of adv ecos
have high levels of economic development, a high degree of integration in the global financial system, and typically both diversified export bases and liberal-democratic political and economic institutions
what are features of developing
generally have low income levels, populations with poorer education and health outcomes and have only experienced industrialisation to a limited extent
what are common characteristics of developing countries
- high lvls of income inequality
- dependence on agricultural production for income, employment and trade opportunities
- reliance on foreign aid and development assistance as a major source of income
- low lvls of labour productivity, industrialisation, technological innovation and infrastructure development
- weak political and economic institutions and a high prevalence of corruption
what classifies an emerging economy
- a group which are in the process of industrialisation or modernisation and experiencing sustained high levels of economic growth
- neither advanced nor developing
- previously considered ‘newly industrialised’ or ‘transitioning’ (transition from socialist to market)
what is the development gap and what does it distinguish
the contrast in the level of economic development b/w the three groups of countries (adv, dev, eme)
- distinguishing features including per capita income and lvl of savings, investment, capital formation and economic growth
what is the North-South divide
income gap b/w Majority of emerging and dev ecos in the southern hemisphere and most adv countries located in the northern hemisphere
what si development economics
development eco attempts to explain the conditions req’d for sustainable economic grwoth and development
what does comparing advanced and developing economies highlight
highlights the specific problems faced by poorer countries, such as high rates of population growth (which increase demands on alr strained public services, low levels of skills development, weak legal and financial institutions, and endemic corruption
causes of global inequalities - what are the global factors?
- global trade system
- global financial architecture
- global aid and assistance
- global technology flows
causes of global inequalities - what are the domestic factors for economic resources?
- natural resources
- labour supply and quality
- access to capital and indebtedness
- entrepreneurial culture
- levels of inequality
- exposure to the impact of climate change
causes of global inequalities - what are the domestic factors for institutional factors?
- political and economic institutions
- economic policies
- government responses to globalisation
how has the endowment of natural resources affected global inequality
- ecos w/ abundant & reliable supply have better opps for eco development
- however, abundance can hamper a country’s development if it leads to an overvalued ER, narrow export base and over-reliance on a small number of industries to drive eco growth
- Countries reliant on natural resuorce exports are exposed to downturns in commodity prices which can result in sudden falls in national income (volatility)
how has the endowment of labour supply and quality affected global inequality
- high income countries tend to have highly educated and skilled labour resources, low income nations characterised by high population growth and lower lvls of education attainment and low health standards that result in lower productivity lvls
how has the access to capital and technology affected global inequality
- difficulty in gaining access to capital (funds) for investment contributes to lower rates of economic growth
- low income levels provide little opp for savings for investment
- poorly developed financial systems make it difficult for firms to gain access to loans for investment
- with small research orgs and limited funds for business innovation, dev ecos have fewer opps to develop new tech or pay for patents
∴ lower capita incomes can create a self-perpetuating cycle of poverty
how has the endowment of entrepreneurial culture affected global inequality
- country’s history and social institutions can impact its eco success
- ie strong civil society institutions (eg activist groups, charities, clubs, NGOs), cultural disapproval of corruption, respect for law and aspirations towards work, enterprise and personal responsibility.
- traditional cultures can impede the adoption of new technologies or implementation of management techniques
how does high lvls of inequality in income and wealth lead to lower rates of eco growth and development
low and middle income households gave reduced spending power (lowering AD) and lower access to educational oppps and healthcare (lowering AS and HDI)
how does climate change lead to weather events and thus, lead to income inequality
- affect crop yields and rising sea lvls –> communities at risk
- warmer temps –> infectious disease
- Climate change can spark major civil conflicts
how does policitical instabiltiy, corruption and a lack of law enforcement affect businesses
- undermine the confidence of investors, who reluctant to take risks if bus interests threatened by inadequate structure for legal disputes, civil unrest or violent conflict
why is the balance b/w market forces and government intervention important
- market forces achieves high lvls of eco growth but may not see improvements in edu, health and QoL
- however, excessive gov control can constrain entrepreneurship and innovation reducing eco growth
why cant developing countries implement policies to reduce inequality and what does it mean for their eco
- they collect less tax revenue and so cannot provide the same level of public services and social welfare
- less able to use gov spending to stimulate the eco during downturns –> more vulnerable to changes in bus cycle and impeding efforts to sustain logn term eco growth and reductions in inequality
what will influence a country’s ability to take adv of the benefits of integration
- the country’s participation in regional and global economic orgs will influence an eco’s ability to take adv of the benefits of integration eg east asain ecos opened most to trade and investment and have exp the strongest rates of growth in recent decades
what features of the global trade system work to reinforce global inequality than reduce
- developing countries exporting agricultural commodities r subject to high lvls of protectionism from many adv ecos
- regional trade blocs exclude developing countries from gaining access to the most lucrative global consumer markets
- the WTO’s Doha Round of trade negotiations focused on trade reforms to benefit dev countries but failed cos high income ecos resisted making concessions
- benefits of FTAs inaccessible cos of substantial cost in implementing international agreements and lodging appeals against other countries’ protectionist measures
- complexity of TAs let adv ecos take adv of loopholes and tilt global trade rules in their favour
what is the overall trend of FDI flows
- FDI flows heavily favoured adv ecos - changed since 2000s with 2/3 of global FDI flows to dev ecos but still very little to LDCs
what are the potential effects of short term financial inflows on an eco
- offer better financial returns for currency and stock market speculators
- however, more exposed to eco volatility which can set back ED for years
what were the consequences of tax avoidance by TNCs on dev ecos compared to adv
- tax avoidance tactics of companies (such as profit shifting to tax havens) cos govs substantial amts of lost revenue each yr, with dev countries suffering disproportionately (since amts involved make up a larger proportion of their total revenue)
How have the IMF reinforced global inequalities rather than reduce them and what have they done in response
- it’s ‘structural adjustment’ policy advocating for dev ecos in financial crises actually serve the interests of adv ecos, & are not appropriate for conditions of the countries their supposedly assisting
- in response, IMF assistance packages for the GFC and pandemic include zero interest loans with limited conditions for dev countries
what is the effect of large foreign debt burdens on developing countries
- since interest for the loans reduce revenue for gov to promote growth through edu, health and infra, developing countries spend more on debt servicing than public health
what have global institutions done to relieve developing countries’ large foreign debt burdens
- WB and IMF provided ‘debt relief’ to heavily indebted poor countries (HIPCs), cos much of this debt was accrued bcos of bad lending practices by financial inst in adv ecos
explain why a significant proportion of official development assistance is ‘phantom aid’ - does not actually improve the lives of the poor
- according to OECD, almost 1 in every 6 dollars of foreign aid is ‘technical cooperation’ –> reducing the amt available for development projects and humanitarian relief
what are the limitations of foreign aid
- too much of the money goes to administrative costs, debt relief, ‘tied aid’ and can be misused
- tied aid - aid spent on overpriced or unnecessary G&S from donor country firms
- miused - fund violent conflicts, often with -ve impacts on dev and poverty incerasing
what is the gap in access to new communications tech referred to and what factors of adv ecos allowed them to adopt that tech more effectively
- the gap in tech is referred to as ‘digital divide’
- new tech adopted more quickly in ecos with better infra, higher lvls of edu and that already have high penetration rates of related tech such as broadband infra
why is the trend in tech development unsuitable for the growth of dev ecos
- new tech has been largely geared to the needs of high income countries as they choose the priority area of scientific research
- tech like labour-saving devices and pharmaceuticals for the ageing population are of little benefit to dev countries
why do developing countries find it difficult to gain access to new tech (and thus, are entrenched by inequality)
- intellectual property rights restrict the benefits of technological transfer to poorer countries bcos they cannot pay developed country prices for those techs
- adv ecos resist giving concessions that would reduce the IP rights of their firms
what factors suggest that globalisation facilitates stronger economic growth
- ecos that have embraced international, trade foreign investment and TNCs suggest that globalisation facilitates stronger growth
how will the global response to climate change affect the gap b/w ecos
- the slow global response to climate change is likely to widen the gap in grwoth and dev indicators as some ecos will nt have the resources to address accelerating impacts
how can globalisation (increases in trade and financial flows) impact inequality and change the structure of ecos
- increased openness to trade tends to raise income in sectors that can take adv of greater export opps (mining) while depressing incomes of workers in import-competing sectors (manufacturing) and pushing workers to low-skilled service jobs (retail)
- increased financial flows tend to be concentrated in higher skill and higher tech sectors - favouring those alr better off
- the global mobility of skilled labour allows highly skilled workers to emigrate in search of higher pay
what is a driver of increasing inequality
- the impact of technological change, which shifts production processes away from low-skilled labour towards higher-skilled jobs (benefits ppl of high edu but increases unemployment for less skilled ppl)
- chnages in gov policy (lower taxes - particularly for high income and reduced welfare payments when adjusted for inflation) also contributed to increasing inequality
What is the effect of the increasing use of AI on inequality and jobs
- AI by buses is liekly to have mixed impact on inequality
- reduce demand for labour and lead to lower wages, however they have more occupations in which AI can play a complementary role, raising productivity and potentially increasing wages
what does vertical specialisation mean
goods are produced through multiple stages in different locations thru global supply chains ie countries focus on 1 or 2 parts of the production process
differentiate trade thru global supply chain as opposed to trade of finished goods
trade thru global supply chains is the exchange of G&S across borders where different components are sourced whereas tarde of finished goods are the exchange of goods ready to sold to consumers
how has covid revealed the weaknesses of and affected global supply chains
- covid highlighted the vulnerability of countries to global supply chains
eg every country needed protective equipment but could not obtain enough supplies form china and many countries did not have the capacity to manufacture themselves
-pandeimc resulted in major disruptions to air travel constricting supply chains and alternative options for sourcing materials and improving the reliability fo supply chains has become a key priority
how do international conflicts contribute to inflation
eg Russias invasion of Ukraine led to trade in the Suez Canal being halved and going around Africa (adding 10 days to delivery times). Theses sustained supply chain disruptions contributed to higher inflation through substantially higher transport costs and shortages of certain products
what are the adv and disadv to the globalisation of financial markets
- increased reliance on foreign sources of finance for investment
- benefit - greater access to overseas funds for investment
- very large increases were recorded
- however, can increase the vulnerability of firms and economies to external shocks
- the growth of short term financial flows has also had a destabilising impact on many ecos
when can the full adv of FDI inflows be realised in relation to TNCs
the full adv of FDI inflows can only be realised if TNCs are connected to local suppliers or labour and other inputs
What are the consequences of globalisation on the environment
- growth in trade is increasing consumption of non-renewable fuels for transport
- low income countries desperate to attract foreign investment and earn higher export revenue may engage in eco actvities that harm the enviro
- countries dependent on high-polluting sources of energy generation may eb reluctant to swtich due to the high initial costs that may hurt international competitiveness of domestic firms
which international org coordinates the global efforts to reduce carbon emissions b/w ecos
United Nations Framework Convention on Climate Change
define the pollution haven hypothesis and pollution halo hypothesis
- pollution haven hypothesis - TNCs taking adv of more lax environmental regulations and thus lower production costs in dev countries
- pollution halo hypothesis - globalisation has increased the transfer of new tech to improve energy efficiency and reduce enviro pollution
how have governments encouraged the development of global financial markets
by removing ‘capital controls’ (regulations that limit the flow of foreign money into and out of a country) on the flow of finance, floating their exchange rates and deregulating their domestic banking sectors
what are the positive impacts of global financial markets
- firms able to conduct international transactions
- find it easier to access loans or attract investor as they are not limited to domestic financial makrets
- govs can access a much larger pool of funds to finance programs that can increase domestic ED
what can international financial markets do to ensure continued access to finance
efficient international financial makrets should encorugae greater transparency from firms and govs - who need to retain the confidence of international investors to ensure continued access
