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Macroeconomics > Development > Flashcards

Development Flashcards

1
Q

characteristics of developing nations

A
  1. low income per capita & low absolute savings
  2. low levels of production
  3. dependency on export income from commodities
  4. living in rural areas/ employed in agriculture
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2
Q

what is economic growth

A
  • sustained rise in country’s productive capacity
  • increase in real GDP/GNI per capita
  • increase productivity of FoP
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3
Q

what is economic development

A
  • progress in expanding economic freedoms
  • sustained improvement in economic and social opportunities
  • growth in personal & national capabilities
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4
Q

how can economic growth spur development

A
  1. increase per capita income & raises people out of extreme poverty
  2. increase financial resources to save
  3. increase jobs
  4. higher profits to reinvest
  5. decrease income and wealth inequality
  6. changes in patterns of production
  7. higher tax revenue for gov
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5
Q

define economic development in short

A

a multidimensional undertaking to achieve higher quality of life for all people

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6
Q

what is HDI

A

human development index - broad composite measure of improvements in peoples lives

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7
Q

what are the 3 factors HDI focuses on

A
  1. knowledge - education
  2. long and healthy life - life expectancy
  3. decent standard of living - GNI per capita, growing remitances
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8
Q

limitations of using HDI as a development measure

A
  • standard HDI does not take into account qualitative factors, such as cultural identity, political freedoms
  • doesn’t account for income distribution
  • purchasing power parity values used to adjust GNI data can change quickly & be inaccurate
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9
Q

sustainable development goals

A
  1. end poverty
  2. end hunger
  3. healthy lives
  4. education
  5. gender equality
  6. water & sanitation
  7. sustainable energy
  8. sustainable economic growth
  9. infrastructure
  10. reduce inequality
  11. safety
  12. sustainability
  13. combat climate change
  14. oceans
  15. terrestrial ecosystems
  16. peaceful
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10
Q

rostow development theory

A
  1. traditional society - agriculture and barter exchange
  2. pre-take off stage - education, science, transport, entrepreneurs, banking
  3. take-off - production and rewards
  4. maturity - diverse
  5. mass consumption - rewards spread evenly
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11
Q

what does rostow’s development theory depend on

A

accumulation of savings

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12
Q

harod and domar’s devlopment theory

A

circular
1. increase national savings
2. increase net investment
3. increase capital stock
4. increase real GDP/ GNI
5. increase factor incomes

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13
Q

2 things derived from harod and domar’s development theory

A
  1. capital-output ratio
  2. savings ratio
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14
Q

what is the capital-output ratio

A

relationship between capital stock and investment and the output

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15
Q

what is the savings ratio

A

relationship between savings and national income

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16
Q

criticisms of the savings approach to development

A
  1. other relevant factors
  2. unrealistic assumptions (perfect knowledge, stable XR, constant terms of trade)
  3. based on the reconstruction of Europe after WW2
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17
Q

why might the harod and domar be unsuccessful

A
  1. low savings
  2. weak banking sector
  3. infrastructure
  4. market system
  5. interest rates/ debt interest
  6. distribution of income
  7. exploitation
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18
Q

what is HPI

A

human poverty index - measures life expectancy, education and the ability of citizens to meet basic needs

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19
Q

whats the difference between HPI-1 and HPI-2

A

HPI-1 = developing countries
- probability of living till 40
- adult literacy rate
- percentage underweight children and percentage of people not using improved water sources

HPI-2 = developed countries
- probability not living until 60
- percentage of adults without literacy skills
- people living below the poverty line

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20
Q

what is GDI

A

gender-related development index - measures the relative inequality between men and women. HDI with a consideration of gender

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21
Q

name factors influencing development

A
  1. primary product dependency
  2. savings gap
  3. foreign currency gap
  4. capital flight
  5. demographic factors
  6. debt
  7. access to credit and banking
  8. infrastructure
  9. education/skills
  10. absence of property rights
  11. corruption
  12. poor governance/civil war
  13. vulnerability to external shocks
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22
Q

what is primary product dependency and how does it effect development

A
  • raw materials
  • countries whose main exports are primary products rely on it to pay foreign debts and imports
  • issue with the volatility of commodity prices that can make it hard for workers to plan for the future
  • a fall in the price leads to a fall in export incomes, which can make it hard to fund their infrastructure and education
  • primary products are not necessarily sustainable as they could be over extracted and run out
23
Q

what is a foreign currency gap and how does it affect development

A

country is not attracting sufficient capital flows to make up for a deficit in the capital account on the balance of payments

24
Q

what is capital flight and how does it affect development

A

when capital and money leave the economy through investment in foreign economies. triggered by economic threat, such as hyperinflation or rising tax rates. it can worsen an economic crisis and cause a currency to depreciate

25
Q

what are demographic factors and how do they affect development

A

link between keeping birth rates down and fighting hunger, poverty and environmental damage

26
Q

how does access to credit and banking affect development

A

unlikely to be a lot of saving = investment is difficult

27
Q

how does infrastructure affect development

A

poor infrastructure discourgaes MNCs from setting up premises in a country. production costs increase where basic infrastructure is not available

28
Q

how does absence of property rights affect development

A

entrepreneurs cannot protect their ideas so do not have incentive to innovate

29
Q

what are the market-orientated stratefies influencing growth and development

A
  1. trade liberalisation
  2. promotion of FDI
  3. removal of government subsidies
  4. floating exchange rate systems
  5. microfinance schemes
  6. privitisation
30
Q

what and how does the trade liberalisation strategy work

A
  • free trade = no protectionist barriers
  • world GDP increases with free trade as output increases when countries specialise
  • living standards might increase and there could be economic growth
  • firms grow and export more
    HOWEVER:
  • if firms are unable to compete globally they will collapse
  • causes loss of jobs and limits development and growth
31
Q

what and how does the promotion of FDI strategy work

A
  • creates employment, encourages innovation of technology, helps promote long term sustainable growth
  • funds to invest and develop, overcoming the savings gap
  • transfer of knowledge and techniques to improve labour productivity
    HOWEVER:
  • the often repatriate their profits and exploit the workers by paying low wages and offering poor conditions
32
Q

what and how does the removal of government strategy work

A
  • government subsidies could distort price signals by distorting the free market mechanism
  • inefficient allocation of resources
  • negative effect on the government budget and cause excessive debts
    HOWEVER:
  • they can be an effective way to minimise absolute poverty and ensure a minimum standard of living
  • removing subsidies can be politically unpopular
33
Q

what and how does the floating exchange rate systems strategy work

A
  • determined by the forces of supply and demand
  • government doesn’t have to worry about gold and foreign currency reserves
    HOWEVER:
  • currency will be volatile so it will be difficult for importers and exporters
34
Q

what and how do the microfinance scheme strategy work

A
  • microfinance involves borrowing small amounts of money from lenders to finance enterprises
  • increases incomes of those who borrow, and can reduce their dependency on primary products
  • multiplier effect
  • small loans for unbankable people = allows them to break away from aid and gives borrowers financial independence
  • less vulnerable to shark loans
  • help businesses be set up
    HOWEVER:
  • money is not spent on sustainable methods of development and simply increases the informal economy
  • people unable to pay their loands back
35
Q

what and how does the privatisation strategy work

A
  • assets are transferred from the public sector to the private sector
  • government sells a firm so that it is no longer in their control
  • firms operating on free-market have a profit incentive
  • increases allocative efficiency and higher quality
  • by selling the asset, revenue is raised for the government
    HOWEVER:
  • one-off payment
  • important it is not privatised as a monopoly
36
Q

what are the interventionist strategies used to influence growth and development

A
  1. development of human capital
  2. protectionism
  3. managed exchange rates
  4. infrastructure development
  5. promoting joint ventures with global companies
  6. buffer stock schemes
37
Q

what and how does the development of human capital strategy work

A
  • skills base in the economy would improve
  • increase productivity and allow more advanced technology
  • help businesses expand and increase innovation
  • mover production up the supply chain from primary products to manufactured goods & services
    HOWEVER:
  • difficult and expensive
38
Q

what and how does the protectionism strategy work

A
  • reduce trade deficit
  • less imports due to tariffs and quotas
  • increase AD
  • protect infant industries
  • create jobs in the short run
    HOWEVER:
  • distort the market leading to a loss of allocative efficiency
  • prevents industries from competing in a competitive market
  • loss of consumer welfare: higher prices and less variety
  • firms don’t have competition = less incentive to lower CoP
  • retaliation from other countries
39
Q

what and how does the managed exchange rate strategy work

A
  • provides stability
    HOWEVER:
  • more intervention
40
Q

what and how does the infrastructure development strategy work

A
  • social benefits
  • reduce CoP
    HOWEVER:
  • suffer from bribery and corruption
  • cause environmental damage
  • intermediate local technology might be a better alternative
41
Q

what and how does the promoting joint ventures with global companies strategy work

A
  • partnership is formed between two firms based in multiple countries
  • open up new markets for small firms, so they can distribute their products to consumers
  • saves time and funds
  • spreads risk = important in industries where producing a product is expensive
  • benefits of FDI without the negatives of exploitation
  • some profits remain in the country
42
Q

what and how does the buffer stock scheme strategy work

A
  • government intervenes with a buffer stock scheme to reduce price volatility
  • gov buys up harvest during surpluses and then sell the goods onto the market when supplies are low
  • farmers income are stable
  • fluctuations in price are reduced
  • increases consumer welfare by ensuring prices are not in excess
    HOWEVER:
  • gov lack of financial resources
  • storage is difficult and expensive
  • administrative costs
  • inefficiency as suppliers produce as much as they want due to the guarantee of gov buying it at whatever price
43
Q

what are the other strategies used to influence growth and development

A
  1. industrialisation: the lewis model
  2. development of tourism
  3. development of primary industries
  4. fairtrade schemes
  5. aid
  6. debt relief
44
Q

what and how does industrialisation: the lewis model strategy work

A
  • based on the assumption that in agriculture, there is a surplus of unproductive labour in developing economies
  • manufacturing sector, wages are fixed
  • workers from agriculture are attracted due to higher wages
  • entrepreneurs change prices above the wage rate, which allows them to make profits
  • assumed these profits are invested into more fixed capital for the business
  • demand for labour increases since the productive capacity of firms has increased. surplus of labour from the agriculture sector is employed to the manufacturing sector
  • grows the manufacturing sector to the extent where the economy moves to manufacturing (traditional state to an industrialised state)
    HOWEVER:
  • in reality, profits may not be reinvested
  • capital investment might replace labour so demand may fall
  • not always easy for labour to move across
  • urban poverty
45
Q

what and how does the development of tourism strategy work

A
  • creates jobs and helps shifts economies away from primary product dependency
  • developing countries have a higher MPC = multiplier effect
  • diversify the economy, attract FDI and improve infrastructure
  • way of earning foreign currency
  • low technology and labour intensive work
    HOWEVER:
  • little revenue retained - travel agents/hotel owners repatriate their profits
  • issue of overcrowding and loss of inhabitants
  • income is unstable - relies on the business cycle in developed countries
  • locals feel stigmatised
  • environmental damage
46
Q

what and how does the development of primary industries strategy work

A
  • gov exploits raw material advantage
  • develop the industry so they country can have a comparative advantage
  • form the livelihoods of the bulk of the population
    HOWEVER:
  • primary product dependency
47
Q

what and how do the fairtrade scheme strategy work

A
  • ensure farmers recieve a fair price for their goods
  • supermarkets buy a guaranteed quantity at a price above market equilibrium
  • helps farmers as they have a guaranteed income and certainty about their sales so they can plan for the future
  • support community development and social projects
  • working conditions meet a minimum standard
  • encourages sustainable production, promotes environmental protection and stops the abuse of child labour
  • promotes self-sufficiency and encourages independence
    HOWEVER:
  • producers not part of fairtrade are worse off
  • divides the market into two separate sections: fairtrade and not
  • distorts price signals
  • makes farmers reliant on the sale of their produce
48
Q

what and how does the aid strategy work

A
  • consumers have a lower MPC than MPS due to limited resources
  • capital inflows can help fill this savings gap
  • aid provides temporary assistance to a country
  • it can also be a grant for a project that a country might not have the funds for
  • reduce human capital inadequacies
  • pay off debt
  • improve infrastructure
    HOWEVER:
  • corrupt leaders limit benefits
  • countries can become dependent on aid
  • interrupts domestic markets
49
Q

what and how does the debt relief strategy work

A
  • partial or total forgiveness of debt
  • in developing countries, debt is considered to be a principal cause of poverty - causes human suffering and misery, hampers development
  • high levels of debt = financial resources are diverted from infrastructure, education and healthcare
  • debt forgiveness can allow a country to import more and increase the standard of living
  • improves gov finances so public services can be funded
    HOWEVER:
  • corruption
  • encourages more borrowing
50
Q

what is the world bank and what does it do

A
  • loan funds to memeber countries
  • focuses on development
  • aims to promote economic and social progress by raising productivity and reducing poverty
  • provides microcredit
  • supporting education
  • helping the rebuilding of countries after earthquakes
51
Q

name the two main international institutions

A
  • world bank
  • imf
52
Q

what is the IMF and what does it do

A
  • aims to promote monetary cooperation between nations
  • consults monetary problems
  • keeps payments and recipients between countries logical and ordered
  • aims to help free trade globally so the jobs are supported
  • exchange rate stability
  • avoids competitive depreciations
  • members can borrow from the IMF
  • to gain loans, countries have to promise to undertake reform - reducing imports and gov spending
53
Q

what are NGOs and what do they do

A
  • funded by gov, firms or private individuals
  • not part of the gov or for-profit businesses
  • voluntary groups which aim to raise the voices of ordinary citizens
  • focus on particular issues such as human rights, healthcare or human rights
  • lobby the gov to make changes, raise funds and undertake projects in developing countries

Macroeconomics (12 decks)

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