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Macroeconomics > Development > Flashcards

Development Flashcards

1
Q

Economic Growth

A

Increase in the size of a nation’s GDP

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2
Q

Economic Development

A

Measures the change in living standards over a period of time

Using normative, value-based judgements.

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3
Q

Why is using GDP alone a bad indicator of development ?

A

Usually nations with a higher GDP do have a higher living standard, however fails to measure overall quality of life;
Income inequality
Leisure
Health
Education
Hidden Economy ?
Political Freedom
Conlfict
Safety

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4
Q

Human Development Index (HDI)

A

United Nations (UN)
Includes -
- Health = Life Expectancy
- Education = Years in schooling
- Standard of Living = GNI per Capita

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5
Q

Purchasing Power Parity (PPP)

A

The measurement of prices in different countries, using the prices of specific goods to compare the absolute purchasing power of the countries’ currencies, and, to some extent, their people’s living standards.

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6
Q

Key causes of Inequality

A

Wage and tax levels
Unemployment levels
Education
Property Ownership
Govt. welfare system

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7
Q

Key Barriers to development

A

Poor Infrastructure
International Competitiveness
Missing Markets
Corruption / Political Instability
Savings Gap
Primary Dependency
Poor Human Capital
Lack of Property Rights

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8
Q

How does Poor Infrastructure prevent development ?

A

Poor Infrastructure
High transport costs
Weak communication
Expensive Supply Chains
Geographical / Factor Immobilty
High Geographical Unemployment

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9
Q

How does international competition affect development ?

A

High foreign competition
Failing infant industries
Relative cost disadvantages
Unable to use EoS

  • Leading to a lack of diversification and potential primary dependency
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10
Q

How do missing markets prevent development ?

A

Education / Healthcare
Weak human capital (low HCI)
Inefficiency workforce - low productivity
Unattractive to foreign investment

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11
Q

How does corruption / instability prevent development ?

A

Volatile Markets
Low Confidence - consumer / investor
Deter FDI
Ineffective use of tax revenue
Regulatory Capture
Poor use of foreign aid
Inadequate provision of policing - high crime rates

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12
Q

What is a Savings Gap ?

A

The gap between levels of savings in an economy and the level of investment needed to facilitate economic growth in the economy.

The lack of capital investment means that incomes will remain low and savings gap will persist.

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13
Q

Capital Flight

A

People choose to save their incomes abroad, due to instabilty / low interest rates.

Causing a Savings Gap
Lost Tax Revenue

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14
Q

Foreign Exchange Gap

A

When capital outflows exceed capital inflows, often caused by primary dependency / debt servicing

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15
Q

Harrod-Domar Model

A

Rate of Growth (GDP) = Savings Ratio / Capital Output Ratio

Savings Ratio - This is the % of GDP that is saved in an economy, the same as the average propensity to save
Capital Output Ratio - The quantity of capital required to produce one unit of output.

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16
Q

Key Principles of Primary Dependency

A

Global Price Fluctuations
Prebisch-Singer Hypothesis
Dutch Disease

17
Q

How do global price fluctuations affect development ?

A

Economic stability is crucial to sustainable growth as stability promotes FDI and maintains investor confidence.

An economy that lacks diversity becomes very susceptible to supply/demand side shocks.

For example, if a global recession occurs and demand for exports majorly falls (demand-side shock like covid), then the economy will receive very little income into the circular flow.

18
Q

Prebisch - Singer Hypothesis

A

The price of primary commodities declines relative to the price of manufactured goods long-term.

This can lead to a deterioration of the terms of trade.

This hypothesis is supported by the concept of YED, where a rise in global incomes, the demand for commodities remains constant, whereas the demand for manufactured goods increases - leading to greater profits from manufactured goods.

19
Q

Dutch Disease

A

The phenomenon whereby the growth of an export industry strangles out all other industries.

As demand for primary commodities increases, the demand for the currency increases, leading to increasing price levels.

Consequently, appreciation of the exchange rate will make other industries less internationally competitive.

20
Q

Human Capital Index (HCI)

A

Measures the health, knowledge and standard of living of an economies workforce.

21
Q

How does a low HCI affect development ?

A

With a low HCI, workforces possess less skills and consequently are less productive which can prevent development.

22
Q

Key principles of a lack of property rights

A

Tragedy of the Commons
Issue of Ownership

23
Q

Tragedy of the Commons

A

When property rights are absent, resources can be exploited, due to no incentive to preserve for future stock. This is an example of a market failure, in which quality of life can decrease over time.

24
Q

Lack of Property Rights - Collateral / Ownership

A

Less developed countries often have inadequate financial and legal institutions, therefore the ability to prove legal ownership of a house etc. as collateral becomes harder. Consequently, loans are not issued, preventing people from buying basic capital to establish a firm. Therefore, Ill-defined property rights can inhibit long-run growth and development.

25
Q

Interventionist Policies to aid growth

A

Infrastructure spending
Subsidies
State Banks
Police
Education

26
Q

How does infrastructure spending boost development ?

A

Provision of improved infrastructure can improve the geographical mobility of factors of production, allowing for more productive workforces and access to more resources.

27
Q

How do Govt. Subsidies boost development ?

A

By subsiding new industries, primary dependency can be overcome, allowing for diversification to occur and increase occupational mobility.

28
Q

How do State Banks boost development

A

If the financial sector is poor, state-run banks can be established to provide funds for capital to new firms and promote economic growth in the long run.

29
Q

How does improved policing aid development ?

A

An improved provision of policing in an economy can reduce crime rates and ensure that legislation is being followed, overcoming the tragedy of the commons.

30
Q

How does improved education boost development ?

A

By providing better education, the HCI can be improved in the future, allowing for more productive workforces - leading to improved long-run growth.

31
Q

Market Based policies to boost development

A

Privatisation
Deregulation
Tackle Corruption

32
Q

How does privatisation boost economic development ?

A

By allowing Govt. owned industries become private, they are exposed to greater competition. Subsequently, in order to achieve their profit motive, there is a greater incentive for innovation and dynamic efficiency, signalling long-run economic growth.

33
Q

How does deregulation boost development ?

A

Removing financial / red tape barriers to development, firms are able to invest in their factors of production, leading to greater productivity - indicating an increase in productive capacity and increased LR Growth.

34
Q

How does tackling corruption boost development ?

A

Identifying corrupt leaders and examples of regulatory capture and removing them can improve development. By doing this, nations are better able to attract FDI and promote long-run growth.

35
Q

Two providers of Aid

A

UNDP - The United Nations Development Programme aims to; eradicate poverty, reduce inequality and install democratic governance and rule of law.

World Bank - The World Bank aims to end extreme poverty and boost shared economic prosperity.

36
Q

How can aid be used to promote development ?

A

Increase levels of human capital - via education and health
Improve Infrastructure
Overcome primary dependency and allow diversification
Reduce extreme poverty.
Promote innovation - improving FoP’s

37
Q

Arguments for giving aid

A

It reduces absolute poverty
Improvements in health and education - increasing HCI.
Overcomes a Savings Gap
Potential for a Multiplier Effect.

38
Q

Arguments against giving aid

A

Conditions can be applied by the donor country - aid may not be used appropriately.
Aid can be misused by corrupt governments.
Nations can become dependent upon aid rather than develop.

39
Q

Harrod-Domar Model - for/ against aid

A

For Aid - The provision of aid may plug a savings gap, facilitating further capital investment and leading to long-run growth.

Against Aid - The provision of aid to an economy may create dependency on further aid, lowering the incentive to save - causing lower LR Growth in accordance with the Harrod-domar model.

Macroeconomics (16 decks)

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