Development Flashcards
Sen Definition of development
The process of improving well being and quality of life involving improvements to standard of living reducing poverty improved health/education and economic freedom as well as economic growth
todaro definition of development
for development to be achieved:
- life sustaining goods such as food and shelter need to be available
- Improvement s in the standards of living
- expansion in social choices
why is development difficult and controversial to measure
it is a normative concept
characteristics of developing countries
- low standards of living
- primary sector/one sector dominance
- high unemployment and informal sector
- high population growth
Single indicator measure of development
- GDP or GNI per capita
- health measures (life expectancy, infant mortality)
- Education measures (adult literacy, funding, MRP)
why is GNI a good measure for developing countries Growth
- Accounts for foreign FOP that take profit out of the country as well as national FOP that send profit back
why must be done to get a comparative measure of GDP in a developing country vs USA
convert GDP/GNI do dollars and account for PPP in order to make direct comparisons
Components that HDI measure
- Longevity (life expectancy and birth rates)
- Knowledge (adult literacy)
- Standards of living (GDP/capita ppp)
2 positives and 2 negatives of HDI
Positves
- focuses on development outcomes (broad measure)
- attention and focus for developing economies
Negatives
- Inequality?
- corruption
3 factors that cause development
- Government spending (education, infrastructure and health)
- Political instability - corruption, wars
- Taxation
what is the major barrier to development in a developing economy
corruption (bribes, Inefficient regulation, misuse of AID, lack of investment)
causes of long run development
- increase in quality and quantity of FOP
- Natural factors (land, fertilizing)
- human capital factors ( quality/quantity of labour)
- Capital and tech factors ( machines and productivity)
- Institutional factors ( adequate banking system/legal system and gov investment)
Economic growth for development (pros)
- incomes (fiscal dividend)
- profits (investment)
Economics growth for development (cons)
- inequality (even growth)
- Negative externalities
international trade for development (pros)
- Exploit comparative advantage (economies of scale and efficiency, tech transfer, innovation)
- Increased international relationships
International trade for development (cons)
Resource curse (primary commodity dependance - falling prices? depletion of resources? slowing demand?)
- Protectionism
What is the terms of trade
index of export prices/index of import prices x100
what is the hypothesis to do with international trade
- Prebisch - Singer Hypothesis : there is a long run decline in the terms of trade for countries that rely of primary commodity exports for growth and development
- this is because as the country becomes more developed incomes rise, as do incomes in other countries however YED for commodity’s are inelastic therefore demand remains constant, however YED for manufactured goods is greater therefore causing imports to rise and exports to remain constant.
- this proves that relying on trade for development is a short term phenomenon as countries that rely on it will develop a structural CA deficit that is financed through borrowing.
Polices for Trade to promote development
- import tarrifs
- export promotion
FDI to promote development (pros)
- Employment
- Infrastructure and productivity (other objectives)
FDI to promote development (cons)
- MNC’s with too much power (influence gov decisions, employment standards)
- Environmental costs
why will firms undertake FDI
- Production costs lower in other countries
- Emerging markets therefore possibility for large revenue
- Regulation standards are lower
evaluation points of FDI for development
it has to be sustainable (without resource depletion, deforestation and environmental costs)
what is a big problem that limits investment in developing countries
lack of savings therefore there is a lack of lending
Foreign aid for development (pros)
- plug savings gap allowing governments to achieve higher levels of investment than they would do otherwise
Foreign aid for development (cons)
- corruption
- indebtedness
- incentive for domestic supply side to be productive
what was the 3rd world debt crisis
- oil boom caused large amounts of savings to take place with commercial banks which meant commercial banks could lend money to developing economies with low interest rates, however worsening economic conditions and higher interest rates in developed world meant developing countries could not repay debt, this lead to a debt spiral, this lead to countries having to be bailed out by IMF with strict conditions on the loans provided sot that this would not happen again and the IMF would get there money back
- IMF measure involved austerity, opening of financial markets and free floating exchange rates and reducing protectionist measures
- this was argued to be unbeneficial for developing countries and led to de development and domestic producers could not compete and governments could not invest.
Solutions to solve indebtedness
- debt relief
- debt swaps
Market based policys to promote development
- FDI, privatization , deregulation, trade liberalization.
- benefits: more efficient resource allocation and efficiency and incentive to invest (free market outcomes)
- cons : Public/merit goods are not provided, market failures
interventionsit policies to promote development
examples : protectionism, gov spend, exchange rate
pros - public sector growth, increase merit goods provision
cons - inefficiency, debt, nationalized = risk of opportunity cost
