Development Flashcards
Development
The increase in real GDP and improvemnt in inhabitants living conditions
Economic growth in developed countries
- may not be significant as people can already afford basic needs and wants
- inflation may increase more as people buying more goods
- may have to work more hours which decreases the quality of life
- people buying more luxury goods such as cars which increases pollution levels
Economic growth in developing countries
- really important as they dont have a welfare state
- more income and can meet needs and wants
- can now send their children to school so gain more skills
- standards of living increases
Relationship between economic growth and development
As economic growth increases, development increases
The Easterlin Paradox
Argues that although there is a correlation between level of income and level of happiness that it does not mean that happiness increases in line with economic growth
What is the Paradox?
- rich people tend to be happier than poor people but as the country as a whole gets richer, happiness does not increase
What are individuals primarily concerned about?
They are concerned about their relative income, which is the income compared to people in their Society
- if you are poor in the UK you compare to how rich someone is in the UK
- so people are not necessarily happy as keep comparing income to someone who is richer
The structure of an economy
1. Primary
- extracting raw materials and fop
2. Secondary
- producing and making the goods using the raw materials
3. Tertiary
- only provide services and not physical goods
Causes of the kuznets curve
1. Deindustrialisation
- as move from primary sector to secondary sector there is high environmental deterioration
- however from secondary to tertiary sector there is lots of deindustrialization
2. Improved technology
- can now afford to invest in research and development
- advanced technology means you use less raw materials
3. Greater awareness
- as standards of living increases it becomes politically popular to focus on reducing emissions
Criticisms of the kuznets curve
- buy more cars with more money so pollution increases
- need industrialisation to get from primary to tertiary sector
- importing goods from other countries which causes environmental degradation
- as incomes increase, people start importing more and may go on more holidays
Why do developing countries struggle to move from primary to tertiary sector?
Due to the lack of skills and money
What is the drawback to being an agricultural based economy?
- exports are of low value and import are of high value so balance of payment deficit
- sensitive to exogenous shocks, such as natural disasters
- prices are very volatile
Sustainable development
Meeting the needs and wants of the current generation without compromising the ability of meeting needs and wants of future generations
Factors influencing growth and development
1. Techonology
- better quality tech so productivity increases and higher efficiency
- output increases
- need to hire workers to use tech so unemployment decreases
2. Level of unemployment
- if high levels of unemployment, high levels of absolute poverty
- consumption decreases as less RDY so economic growth decreases
3. Infrastructure
- higher geographical mobility so more productive at work and make less mistakes
4. Education and Training
- if education and training higher people have more transferrable skills and more occupationally mobile
- more productive and produce more output
- even if lose their job they can easily find another
5. Distribution of income
- if high levels of income inequality, less opportunities for the poor
- intergenerational poverty increases
6. Financial institutions
- allows firms to take out loans to invest which increases productive capacity
- allows consumers to take out money and consume
7. Political constitution factors
- beneficial if there is no corrupt government as will invest into welfare
GNI Per Capita (PPP)
GDP and net income from abraod expressed as an average per person
Advantages of GNI per capita
- includes remittances which is money sent back to home countries
- PPP takes into account the cost of living so takes into how much you can actually buy with the money in that country
- Closes the gap between rich and poor countries
- Can incentivize fdi to invest into the country as when they are adjusted to PPP they are not as undeveloped as they seem
Disadvantages of GNI per capita
- not telling the distribution of income across the country so does not take into consideration income iequality
- some economic activity not recorded in developing countries so informal sector not included
Human development index
A composite measure between 0 and 1 that has three components
- life expectancy at birth, mean years of schooling for 24 year olds and expected children, GNI per capita
Advantages of HDI
1. Mean years of school
- includes how many people are schooled and how many people more likely to be skilled
- so if there’s more skilled jobs and higher paying jobs shows development
2. Life expectancy
- shows the level of healthcare in the economy
- good health care means better quality of life which shows greater development as the government is spending on welfare
3. GNI per capita
- shows how much income individuals have especially in developing nations who receive remittances from abroad
- more money and income means better standard of living as combine more goods and services
4. Easy and efficient
- allows international comparisons to be made as even developing countries are likely to have HDI indicators
- can help reduce poverty around the world as aware that another country have low HDI
5. Outcome-based rather than expenditure based
- Allows distortion to be eliminated as if you only look at the GDP of a country you could think that they are really developed when it is actually not
Disadvantages of HDI
- does not take into account quality of healthcare and education
- low quality investments into healthcare and education not effective
- don’t know the distribution of education and healthcare as higher income households may have higher years and able to access better health care
- weighting of indicators may not be equal
- some countries may just invest into one component of the indicator and pump a lot of money into that area
- large opportunity cost
- only considers three factors which means it is too narrow
The Genuine Progress Indicator
A more comprehensive measure of economic development calculated from 26 different indicators, grouped into three categories
- Economic, Environmental, Social
Advantages of GPI
1. Much more complete measure
- considers a larger range of factors that are going to impact welfare such as pollution
2. Broad indicator
- encourages policy makers to improve invest and look into other factors that will improve infrastructure that has not got to do with income
- Beneficial as GDP is misleading about welfare, as having more money does not mean better standard of living
Disadvantages of GPI
1. Difficult to collect data
- there is a lot of indicators to take into consideration
- measuring is very subjective so accuracy is difficult
- a lot of indicators are value-based so varies from country to country
- includes collecting normative data
- time consuming and expensive
- comparing data is a lot harder
2. Not useful for judging the state of the business cycle
3. Indicators of value-based so subjective
4. Time consuming and expensive
