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Econ > Development > Flashcards

Development Flashcards

1
Q

What are the three equal weights within the HDI?

A
  • education - mean years of schooling
  • health - life expectancy at birth
  • real GNI per head at PPPs
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2
Q

Waht are the advantedges of HDI?

A

Combines effects of increased growth with other quality of life indicators

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3
Q

What is a disadvantedge of HDI

A
  • does not take into account inequality, poverty or other measurements of deprivation (qualitative factors)
  • no income distribution (inequitable development is not human development)
  • PPP values used to adjust GNI data change quickly can be in a cure or misleading
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4
Q

When was Inequality adjusted HDI (IHDI) introduced

A

2010

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5
Q

What is the IHDI

A
  • HDI adjusted for inequalities in the distribution of achievements in each of the three dimensions of the HDI
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6
Q

What is the multi dimensional poverty index?

A
  • published in 2010
  • reports and complements money based measures by considering multiple deprivations and their overlap
  • identifies deprivations across the same three dimensions as the HDI
  • it shows the number of people who are multi dimensionally poor (suffering deprivations in 33% of weighted indicators) and the number of deprivations with which poor households typically contend
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7
Q

What other indicators can be used?

A
  • proportion of the male population engaged in agriculture
  • energy consumption per person
  • the proportion of the population with access to clean water
  • the proportion of the population with internet access
  • mobile phones per thousand of population
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8
Q

What is economic development?

A
  • an increase in welfare or living standards over time
  • economic development is subjective
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9
Q

What is primary product dependency?

A
  • demand for these products tend to be relatively price elastic (large impact on TR)
  • supply is quite inelastic (crops taking a long time to grow)
  • change in supply or demand will have a big impact on the country’s export values.
  • dependence on volatile products reduces investment
  • Angola exports 97% oil
  • Kenya: 19% tea, 12% horticulture
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10
Q

Sectoral imbalance - Prebisch-Singer hypothesis

A
  • developing countries may tend to export primary products whilst importing manufactured products
  • primary products tend to be income inelastic
  • as world incomes rise demand wont increase, unlike manufactured goods
  • Firms focused on producing primary products wont be able to afford as many imported goods over time
  • ToTs deteriorates relative to prices of primary products
  • PREBISCH SINGER HYPOTHESIS (cash crops is not an effective long term development plan)
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11
Q

What

A
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12
Q

What are some criticism of the PS hypothesis

A
  • as population grows, demand for agriculture products will push up price
  • demand for some primary products (oil/gold) is income elastic
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13
Q

How do you calculate terms of trade?

A

Index of export prices/index of import prices *100

  • over 100 means exports are improving
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14
Q

What is the harrod domar model

A

GDP growth = savings rate/capital output ratio

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15
Q

What is the capital output ratio

A
  • how much capital it takes to make a certain amount of output
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16
Q

How does savings gap lead to a barrier in development

A

Low GDP per capita -> low marginal propensity of saving

Low savings -> lack of funding for investment

Low investment -> low capital and infrastructure accumulation

Low capital -> low GDP per capita

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17
Q

Compare to saving rates in Africa to middle income countries

A

17% of GDP vs 31% of GDP

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18
Q

Low saving rates and poorly developed or malfunctioning financial markets make it more…

A

Exspensive for Africa sectors to get funds for investment (higher interest rates)

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19
Q

How can instability lead to a savings gap?

A
  • capital flight
  • people hold money abroad
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20
Q

What is the foreign currency gap?

A
  • outflows of money are higher than inflows of money into an economy
  • often due to primary product dependency or foreign debt
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21
Q

Why does a foreign currency gap act as a barrier to development

A
  • does not have enough foreign currency to pay for essential imports such as medicines, food and raw materials
  • severely hamper SRAS
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22
Q

Why does a foreign currency gap act as a barrier to development

A
  • does not have enough foreign currency to pay for essential imports such as medicines, food and raw materials
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23
Q

How do countries deal with a foreign currency gap?

A
  • devaluing the exchange rate to improve competitiveness
  • may even increase as investors get nervous
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24
Q

Describe debt as a barrier to development

A

Money was often borrowed at times of low interest rates and has since become harder to repay:

  • debt may finance risky projects where export prices for output were high and returns have since fallen
  • oil prices have risen
  • currency value of the borrowers has declines (especially in comparison to $)
  • loans may have been used for military
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25
Q

How does gender inequality contribute to barriers in development

A
  • if woman cannot access the workplace the country misses half of its workforce - misallocating resources/
  • lack of education healthcare and opportunities for women will socially hold a nation back as well

In Bangladesh 81.3% labour force participation rate for me, 36% for women

$12 trillion could be added to global GDP by 2025 by advancing women’s equality (McKinsey global institute report)

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26
Q

How does lack of physical capital contribute to barriers of development

A
  • may be due to lack of property rights/lack of investment
  • leads to production being relatively inefficient therefore difficult to drive growth

Property rights:
- lack of makes it hard for people to access loans as they have no collateral

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27
Q

How does population growth affect development

A
  • LEDCs have rapid population growth
  • if population is growing faster than the economy, GNI per capita decreases
  • Increased dependency ration and pressure on social infrastructure
  • outwards migration of young people and ageing populations
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28
Q

How does poor infrastructure lead to barriers in development

A
  • businesses will find it costly to trade
  • deterrent to FDI and domestic
  • low gdp -> low tax revenue
  • countries with rich natural resources may receive multinational corporate investment in their infrastructure to facilitate businesses
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29
Q

Give examples of bad infrastructure that may harm development

A
  • unreliable energy supplies
  • poor transport networks
  • bad internet coverage
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30
Q

What are examples of human capital problems

A
  • low school enrollment leads to low productivity and low gdp growth
  • in turn deters FDI because cost of training
  • un/deremployment
  • prevalence of HIV and AIDS causes problems
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31
Q

How much can malaria reduce GDP in African countries by?

A

5-6%

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32
Q

What is corruption?

A
  • the use of power for personal gain
  • includes bribery, extortion, diversion of resources to the governing elite
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33
Q

How does corruption act as a barrier to development

A
  • deters domestic investment and FDI
  • limits G&D

World bank withdrew investment to chad for oil pipeline because of corruption

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34
Q

What are some geographical factors to development

A
  • lack of natural resources or difficulty farming
  • landlocked so hard to access trade routes
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35
Q

what are some historical factors that can act as a barrier to devleopment

A
  • exploitation
  • slavery
  • colonisation
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36
Q

How does disease affect development

A
  • smaller work force
  • lower productivity
  • strain on healthcare system
37
Q

How does civil strife affect development

A
  • civil war leads to a reduction in the labour force
  • destruction of capital/infrastructure
  • often leads to capitral flight/high military spending once over
38
Q

Give application for debt as a barrier to development

A

Ghana pays 30% of GDP in debt repayment

39
Q

What are the two ways to increase growth according to the harrod domar model?

A

Increase savings rate
- higher savings means increase capital for banks
- increase ability to loan
- increase firm investment in capital

Decrease capital output ratio
- less capital to make the same amount of output (increase productivity)

40
Q

What is the Lewis model?

A
  • for a country to develop they need to improve their industrial sector
  • assumes that there is excess labour capacity in the agricultural sector and therefore there is little opportunity cost to workers moving from agriculture to the industrial sector
  • means that theoretically industrial sector can grow without any decrease in agricultural output, higher profits therefore can be invested in capital goods = more production = more profits
41
Q

What are the drawbacks of the Lewis model?

A

Assumes manufacturing is labour intensive when its in fact mostly capital investment
- therefore investment in education and training for sectoral change; may be occupational immobility

  • profits from investment may be reallocated inefficiently
42
Q

How does trade liberalisation influence growth and development?

A
  • removes trade barriers (free trade)
  • free trade forces firms to become more competitive as there are larger markets + economies of scale
  • higher efficiency + competitiveness leads to a rise in exports and export led growth
  • reduces price of goods + provides more choice for consumers
  • higher economic growth + living standards (led by higher productivity growth)
43
Q

What are the drawbacks of trade liberalisation

A
  • loss of government import tariffs revenue that could be used to invest in development projects
  • risk of structural unemployment if demand shifts from domestic goods to imports
  • risk of rise inequality if certain industry’s have little comparative advantages do not grow
  • countries with uncompetitive goods will experience a trade deficit
44
Q

Give an example of trade liberalisation being effective

A

African continental free trade agreement - 43 African countries
- Creates a single market of 1.3bn people
- liberalises ~90% of tariffs within Africa

45
Q

What are government subsidies

A
  • financial assistance or benefits provided by governments to support specific business or industries
46
Q

How does removing subsidies contribute to development?

A
  • cause firms to be inefficient as they don’t try to cut costs and become reliant on subsidies (removal forces them to be efficient)
  • subsidies might have high opp cost
47
Q

Drawbacks to removal of subsidies

A
  • in developing countries (who dont have the same access to resources) removal coudl take them out of the market completely as they wouldn’t be able to continue operating and competing
48
Q

Give a real life example of removing subsidies benefiting development

A
  • Nigeria removed fuel subsidies, these mostly benefited the elite who could afford fuel at market price
49
Q

What is FDI?

A
  • the purchase of interest from a company by a foreign investor
50
Q

Why do firms tend to undertake FDI?

A
  • production costs are lower in developing countries
  • enables them access to a new market
51
Q

What are the benefits of FDI for development?

A
  • creates new jobs and higher wages, leading to consumption, positive multiplier effect -> increase growth + GDP
  • can improve capital output ratio and fill savings gap
52
Q

What are the drawbacks to FDI?

A
  • exploitation of workers in less developed countries by offering lower wages and worse working conditions
  • profit earned in the country jay be taken out of the country and spent elsewhere
53
Q

Give an example of FDI helping economic growth

A
  • Samsungs investment in Vietnam has meant many local firms are part of their supply chain and other businesses have set up around
54
Q

What are microfinance schemes?

A

Small loans for people who typically do not qualify for a loan. Uses social responsibility to grant out the loan.

55
Q

What are the benefits of a microfinance scheme

A
  • used in environments where there is little cash
  • loan stimulates a lot of employment
  • removes interest rates from loan sharks
  • helping people pull sway from absolute poverty
56
Q

What are the drawbacks of microfinance schemes

A
  • dishonesty or bad investment can mean people cannot pay back their loans
  • social responsibility can be detrimental
57
Q

What are examples of microfinance schemes

A
  • in Bangladesh microfinance schemes have pulled 10% of those engaged in those schemes out of absolute poverty (2.5mil)
58
Q

What is privatisation

A

When government owned companies or services are transferred into the private sectors

59
Q

How does privatisation increase real gdp?

A
  • improve effiency and productivity because privatized companies are driven by profit
  • increase economic output and GDP
  • employment would rise as privatisation can create jobs
  • reduce opportunity for corruption
  • attracting FDI as international corporations perceive opportunities
60
Q

Give the drawbacks to privatisation

A
  • increased inequality if essential services become more exspensive
  • private companies could prioritise profits over quality leading to a decline in standards of services provided
  • monopolies created
61
Q

Give a case study for privatisation

A
  • indias pricvatisation led to a boost in FDI which brought in capital and also increased employment opportunities and skills development which contributed to economic growth
62
Q

In many cases developing countries try to maintain an exchange rate at..

A
  • An artificially high rate
  • when exchange rates are floated there is a depreciation of the currency
63
Q

What are floating exchange rates?

A
  • currency who’s value is determined by foreign exchange markets
  • affected by supply and demand of the currency in public markets
  • by allowing markets to determine the exchange rate, when demand for exports fall, value of currency will fall, making the exports cheaper and increasing demand
64
Q

What are benefits of floating exchange rates

A
  • stabilizes bot
  • if there is a current account deficit this will lead to an outflow of currency, causing a depreciation. This will lead to a greater demand of exports, improving current account
65
Q

What are the drawbacks of floating exchange rates?

A
  • you cant have free capital flows
66
Q

Why is free capital flows a good/bad thing?

A
  • encourages investment and the central bank to have control over interest rates
  • allows speculative attacks
67
Q

Case study - floating exchange rates

A

Argentina couldn’t match its currency to the true state of the economy

68
Q

What is human capital

A

Value of workers experiences and skills
- includes assets like education training intelligence skills and health
- more human capital more productivity

69
Q

Benefits of human capital

A
  • more educated/skilled/healthier
  • more productive workers
  • firms costs will decrease, SRAS outwards
  • LRAS outwards and real gdp not limited
70
Q

Drawback of human capital development

A
  • putting kids in schooling means those with sick parents will not have any income at all
  • shift left in AD
  • healthcare must improve as well
71
Q

Case study for developing human capital

A
  • Madagascar 1980-1990 - Malagasy
  • GNI went from $460 to $240
  • lost gen
72
Q

What is protectionism?

A
  • government policies that restrict international trade to help domestic industries
  • in order to improve economy within a domestic economy and overall gdp
73
Q

What are the benefits of protectionism?

A
  • couteracting protectionism abroad
74
Q

What is a managed exchange rate?

A
  • when a country’s currency is determined by market forces but has occasional intervention from central banks to stabilise or influence the exchange rate
75
Q

How do managed exchange rates help break down barriers to entry?

A
  • can stop sharp fluctuations that disrupt economy, help exports and importers who rely on stable/predicable exchange rates to price goods and services
  • price volatility reduced (investment increased, consumer confidence increase)
  • buffers against speculative attacks when speculartors try to exploit rapid currency movements
76
Q

What is an example of a country with a managed exchange rate?

A

Switzerland

77
Q

What is infrastructure development?

A
  • construction and improvement of physical facilities and systems that support economic growth (transport,water treatment)
78
Q

What are the benefits of infrastructure development?

A
  • Increase AD
  • human capital leads to increased productivity
  • crowding in
  • corp tax
79
Q

What are joint ventures?

A
  • business agreement where two or more companies join together to form one collective entity, sharing resources
80
Q

What are the benefits of joint ventures

A
  • job creation
  • access to international markets, distribution networks
  • higher quality, labour practices, environmental regulation
  • more competitive - FDI
81
Q

What are the drawbacks of joint ventures

A
  • reliance on foreign partners for investment
  • short term profit maximisation by foreign companies
  • exploitation
  • local businesses may not be competitive
82
Q

Examples of joint ventures

A
  • 2008 India company
  • taya motors with Land Rover
  • Improve in car manufacturing led to innovation in India
83
Q

How does tourism benefit eco growth

A
  • better facilities
  • more jobs
  • multiplier effect + income tax
84
Q

Drawbacks to development of tourism

A
  • season
  • low skilled so income is limited and the multiplier effect is limited
  • transaction corportations may move their profits out of country
  • environmental damage
85
Q

Example of development to tourism

A
  • Morocco
  • kings ten year plan includes building seven new eco resorts on the north coast where unemployment is 40%
86
Q

What is fair trade

A
  • de marginalises small scale farmers and workers by increasing price of good so it covers the cost of sustainably producing the good
87
Q

Benefits of fair trade

A
  • additional money
  • allows access to credit ahead of harvest
  • improves working conditions bans child labour
  • stronger relationships with buyers
88
Q

What are drawbacks to fair trade

A
  • higher price discourages consumers from buying the good
  • exspensive to become fair trade certified
  • dependency on primary resources
89
Q

Examples of fair trade

A
  • the economist report, for each dollar paid only three cents more are transferred to the country where the product came from
  • Guatemalan coffee farmers have been found to have higher incomes, better access to healthcare and education

Econ (8 decks)

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