Chapter 35- Economic Development Flashcards
Economic Development
it is an improvement in economic welfare
Stages of Economic Development
Countries with high income per head have high economic development, have high living standards, high proportion of workers in the tertiary sector, high levels of productivity, and high levels of investment
Countries with low income per head have low economic development have low standard of living
UN divides countries into very high human development, high human development, medium human development and low human development
World bank divides countries into high income, upper middle income, lower middle income, low income
Measures of Economic Development
Real GDP per head is used because it looks at material living standards
HDI is a wider and better measure as it looks at life expectancy and education as well as material living standards. It outputs a figure between 0 and 1 after looking the the factors.
<0.55 indicates low development
0.55-0.699 indicates medium development
0.7-0.799 indicates high development
>0.8 is very high development
Some countries have a higher HDI than real GDP per head like Costa Rica and Vietnam, while others have a higher real GDP per head than HDI like Pakistan and Saudi Arabia
Causes of differences in economic development
differences in income per head
differences in saving due to differences in income per head
differences in investment
differences in population growth
differences in education and healthcare
differences in size of primary, secondary and tertiary sectors
differences in the concentration on a narrow range of exports
differences in productivity
why governments seek to achieve economic development
they want higher real GDP per head, higher living standards and more social and social choices for their citizens
life expectancy may be increased and infant mortality may be reduced
for economic development, there should be an even distribution of income and poverty should be reduced
lifting people out of poverty gives them access to basic necessities, improves their mental and physical health and increases their productivity hence lowering the country’s average costs and making it more competitive. It may also result in less pollution as people would now have options of more sustainable products
economic development increases access to education, healthcare and participation in the political process and can hence create a virtuous cycle
As income, education, healthcare increase saving and investment also increase therefore increasing productivity
Conditions for Economic Development
improvement in the quality and quantity of resources
more investment, improved education, training and healthcare. This increases GDP, standard of living, and life expectancy
Impacts of Differences in Economic Development Between Countries
High population growth
High levels of international debt
Reliance on the export of primary products
Lack of investment in human capital and capital goods
Emigration of key workers
Trade restrictions on their products
unbalanced economies
Measures to Promote Economic Development
Import substitution: the protection of new domestic industries against foreign competition by the government
this allows industries to grow and slowly replace imports with domestic products. if successful, this can increase domestic output, raise employment and improve a country’s trade in goods and services balance. in the short term this may raise prices reduce choice, reducing economic welfare
Exposing domestic firms to market forces is another way to increase exports. without government support, the firms re forced to become more efficient. but its success depends on weather the firm can keep up with other foreign firms that might have a head start in the space
Improving the country’s infrastructure, capital stock, education, training and healthcare systems is another method. if a country lacks tax revenue to carry this out, they may promote MNCs to set up in their country
Borrowing from abroad is also a possibility
