de1 Flashcards
Define economic growth
Increase in real output of an economy over time
Sources of Economic Growth
Natural, Human capital, Physical capital, Institutional
Natural factors in economic growth
Land reclamation through landfills \n\nFertilization\nBetter planning of land usage\nImproved agricultural method \n\nBuilding upward instead of outward
Human capital factors
Encouraging population growth\nIncreasing immigration levels\nImproving health care, education training, access to fresh water
Physical or technological factors
Factories, machinery, shops, offices\nSocial capital: schools, roads, hospitals, houses
Capital widening
Extra capital used with increased amount of labor bu ratio of capital per worker does not change
Capital deepening
Increase in amount of capital for each worker, improvements in labor productivity
Institutional factors
Banking, legal, education, infrastructure, political stability, good international relationships
Economic development
An improvement in welfare from viewpoints: \n\nReducing widespread poverty\nRaising living standards\nReducing income inequalities\nIncreasing employment opportunities
Relationship between growth and development
1 Higher incomes–> Improves standard on living \n\n2 Higher government revenue–>Govt able to provide education, healthcare and infrastructure \n\n3 Creation of inequality \n\n4 Lack of sustainability because of pollution
Common characteristics of developing
1 High birth rates \n\n2 Low levels of GDP per capita\n3 Large agricultural sectors \n\n4 Large urban informal market \n\n5 Poverty trap
Poverty trap
A self perpetuating mechanism that contributes to the persistence of poverty in a nation\n\n\nLow income–> savings –> investment –> productivity
What do LEDCs not have in common
Climate\nResource endowments\nPolitical system \n\nHistory (warfare, colionalism)
Absolute poverty
do not have access to the basic necessities needed to sustain life
Relative poverty
living standards are well below an observed “average” in an economy
Millennium Development Goals
GAP RICEE \n\n\n\nGlobal partnership for development\n\nAchieve universal primary education\nPromote gender equality and empower women \n\n\nReduce child mortality \n\nImprove maternal health\nCombat HIV/AIDS, malaria and other diseases\nEradicate extreme poverty and hunger \nEnsure environmental stability
GDP VS GNI
GDP: Total economic activity in country regardless of who owns productive assets \n\nGNI: Total income earned by a country’s factors of productions regardless of asset location \n\nFDI increases GDP above GNI
Purchasing power parity (PPP)
A technique used to determine the relative value of different currencies by comparing prices of identical goods and services in different countries
Exchange rate vs PPP
– EX attempts to equate PPP of currencies in different countries \n– Very volatile and relevant to trading products\n– GDP based on market EX tend to over–estimate cost of living in developing countries
Measures of welfare
1 Health\n– Life expectancy at birth\n– Infant mortality rate\n\n2 Education \n\n– Adult literacy rate: proportion of adults aged 15 or above who are literate \n\n– Net enrollment in primary school:\n3 Composite indicators
Human development index (HDI)
A measurement of economic development, which accounts for education level, health provision and decent standard of living (GDP per capita). A value between 0 and 1, with higher values representing higher levels of development\n\n\n\nHigh: Singapore, Australia \n\nMedium: India, China\nLow: Nigeria, Ethiopia
Problems with HDI
Only an average figure that can mask inequalities within the country. Likely to occur between:\n– Rural and urban citizens\n– Genders\n– Ethnic groups
Domestic factors that contribute to economic development
1 Education\n2 Healthcare\n3 Technology\n4 Access to credit and micro–credit schemes\n5 Empowerment of women\n6 Income distribution
Micro–finance
Micro–credit offers loans to people on low incomes to start their own businesses. Enabling and empowering bottoms–up tool to poverty alleviation. \n\n\n\nCredit creates opportunities for self–employment liberating poor from poverty to gain income \n\n\n\nEnables them to invest
Why is unequal income distribution a barrier to growth and development?
– Tend to be lower saving because poor save very small proportion of their income \n\n– Rich tend to dominate both politics and economy so policies favor the rich\n– Rich move large amounts of funds out of economy
International barriers to economic development
1 Over specialization on narrow range of products\n2 Price volatility of primary products (Suppy–elastic). PES is relatively inelastic so changes will lead to large price fluctuation. Makes it difficult for producers to plan ahead \n\n3 Inability to access international markets due to protectionism. Cannot benefit from comparative advantage. Rate of tariff increases as processing increases so cannot move away from raw materials
Strategies for achieving economic growth and development
–Import substitution\n–Export promotion\n–Trade liberalisation \n\n–Bilateral and regional preferential
Aids
Any assistance that is given to a country that would not have been provided through normal market force. Two types are humanitarian which are short term and development which is long term
Why give aid?
–Help people who have experienced some form of natural disaster or war\n–Help developing countries achieve development\n–Create alliances\n–Fill savings gap in developing countries\n–Improve quality of human resources\n–Improve levels of technology\n–Fund specific development projects
Humanitarian aid
Given to alleviate short–term suffering: droughts, earthquakes \n\nGrant aid: does not have to be paid \n\nFood aid: food or money to buy it\nEmergency aid: shelter, tents, clothing \n\nMedical aid
Development aid
Given to alleviate poverty in the long run. Called “Official Development Assistance” (ODA). Provided by individual countries or multilateral organisations
Types of Aid
Long term loans: Soft loans with low interest rates \n\nTied aid: Grants or loans that have to be used to buy goods from donor country\nProject aid: For one project that does not require repayment \n\nTechnical assistance: Improve tech and human capital in its use\nCommodity aid: Finance for commodities to aid industries
Concerns about aid
1 Corruption: LDC may distribute it unfairly\n2 HDC may dsitribute aid for political reasons \n\n3 Tied aid does not provide employment in LDC and is not an efficient method of allocating resources\n4 Short term provision of food may have same effect as dumping such as in Ethiopia \n\n5 Dependence on future aid \n\n6 Aid may be focused on industrial sector therefore accentuating income disparity \n\n7 Washington Consensus strings attached for free trade and MNC access to new markets \n\n8 Aid fatigue in HDC – don’t want to give aid \n\n9 Loan repayments cause mounting problems \n\n\nIt is estimated that less than half the aid goes to poor countries, instead it is based on the military, political and business interests of the donors, a reward to those in power\n\n\nLoans and grants may be contingent on changes in tax laws, wage and price systems, food subsidy programs, and whether the money is used for rural or urban development.
Organizations for aid
1 The World Bank: provides aid and advice to developing countries \n2 International Finance Corporation (IFC): promotes private sector investment \n3 International Development Guarantee Agency (IDA): interest free loans
Non–government Organisations (NGOs)
To promote economic development, humanitarian ideals, sustainable development eg by lobbying governments
Odious Debt
When government leaders use borrowed funds in ways that don’t benefit or even oppress citizens\n\n\nDebt borrowed by dictators and corrupt regimes on behalf of the government for personal interests
Structural Adjustment Policies (SAPs)
AKA Washington Consensus criteria \n\nIMF lent money to countries that needed it but have restrictions that resulted in \n\n1 Govt spending curbed to pay back loans \n\n2 Increased unemployment \n\n3 Fall in real wage levels \n\n4 Prices rose as subsidies were removed \n\n5 Often led to de–development
The future of aid
Debate on cancelling developing world debt \n\nDebt servicing to cancel interest \n\n– Eg Nigeria borrowed $17bn, repaid $18bn and owes $34bn \n\n– Malawi spends more on debt servicing than healthcare
Market led vs Interventionist growth strategies
Market: Export led, FDI, Washington consensus + SAPs\nInterventionist: Import substitution, protectionist trade, exchange rate intervention
Problems with interventionist
Eg Argentina: \n1 Public sector grew and became bureaucratic \n2 Corruption in public sector increased\n3 Nationalised industries were inefficient and loss making \n4 Govt spending was excessive (budget deficit) \n5 Money supply increased leading to inflation\n5 Large infrastructure project saw little success (Indonesia)
Problems with market based
Thatcher and Reagan (80s) & Success of Asia Tigers based on export led growth and FDI \n\n\n\n1 Infrastructure not created\n2 Developed world want free trade but do not always practice it \n\n3 Economic growth is benefit in long run but not always in short run \n\n4 Urbanisation: growth in urban areas only
Conditions that result in economic development
Trade justice, debt relief, efficient domestic market, political stability, good governance, elimination of corruption, effective targeted aid
Corruption
The abuse of public office for private gain
Informal sector
Part of an economy that is untaxed, unregulated by the government and not included in the calculation in any national income statistics
Sustainable developments
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs
GDP per capita
Total market value of all final goods and services produced by factors of productions residing in an economy in one year divided by population
Gross National Income
GDP per capita plus the net income from abroad per capita \n\n\n\nDeducting domestic income generated by non–nationals and adding incomes earned aboard by nationals
Infant mortality rate
Number of infants dying before reaching one year of age, per 1000 live births in a given year
Literacy rate
Percentage of population that can read and write simple statements on their everyday life
Primary enrollment rate
Proportion of children at official primary school age who are enrolled in primary school
Export promotion
Attempt to achieve economic growth led by exports
Import substitution
A policy to deliberately reduce imports through protectionism
Trade liberalisation
Attempts to open up markets, without govt intervention for free trade
Foreign direct investment
Long term investment by multinational corporations in a foreign country
Multinational corporations
Conducts economic activities in more than one country
Foreign/external debt
Loans borrowed from creditors of another country\n
Indebtedness
Amount of money a country owes to other countries/international institutions
Infrastructure
Essential facilities and services such as roads, airports, sewage treatment that add to the capital stock of the economy and help with economic activity
