development economics Flashcards

Question

evaluation points for sources of growth

Answer 1

1. Natural Factors (Land) Depends on sustainability – Overexploitation of natural resources (e.g., deforestation, soil degradation) can lead to environmental damage and long-term economic decline. - Limited by geographical constraints – Some countries have poor-quality land or limited natural resources, restricting growth potential. - Technological advancements may reduce dependence – Advances in hydroponics, synthetic materials, and AI-driven farming could reduce reliance on natural resources for growth. 2. Human Capital - Quality of education matters more than quantity – Simply increasing access to education doesn’t guarantee better skills; curriculum and teaching quality are critical. - Brain drain – High-skilled workers may migrate to developed countries for better opportunities, limiting the benefits of human capital development in their home country. - Short-term costs vs. long-term benefits – Investments in education and healthcare take time to yield economic benefits, which can be challenging for developing economies with limited resources. 3. Capital and Technological Factors - Risk of capital misallocation – Investments in capital may not be efficient if there is corruption, weak institutions, or poor planning. Technology requires skilled labor – Without proper human capital development, technological advancements may not be fully utilized, leading to underemployment or increased inequality. - While boosting efficiency, automation and AI can lead to job losses, particularly in low-skilled industries, which could slow consumption-driven growth. 4. Institutional Factors - Institutions require strong governance – Corruption, weak enforcement of laws, or political instability can undermine economic growth despite improvements in banking and infrastructure. - Financial accessibility does not guarantee growth – Even with a strong banking system, high interest rates, risk aversion, or financial exclusion can limit investment and entrepreneurship. - Government policies can create inefficiencies – Overregulation or excessive state intervention in markets may hinder private sector growth and discourage innovation.

Answer 2

1. Exploiting Comparative Advantage - Trade allows countries to specialize in industries where they have a comparative advantage, leading to more efficient production. - This increases aggregate demand (AD) as exports rise, boosting economic growth. Higher growth leads to increased tax revenues, which governments can reinvest in infrastructure, healthcare, and education, driving long-term development. 2. Consumer Benefits - Through trade, consumers gain access to a wider variety of goods and services at lower prices due to increased competition and specialization. - This improves living standards and enhances welfare. - Additionally, trade fosters better political relations between countries, reducing conflict and encouraging cooperation on global development initiatives. 3. Economies of Scale - As firms expand into international markets, they benefit from economies of scale, reducing average costs and increasing profit margins. Higher profits lead to greater corporate tax revenues, providing governments with additional funds to support public services and invest in social development projects. - This creates a positive feedback loop that enhances long-term economic stability. 4. Technological Transfer & Industrial Growth - International trade facilitates knowledge and technology transfer, allowing developing economies to adopt more advanced production techniques. This encourages industrialization, particularly in secondary industries (e.g., manufacturing), helping economies transition away from reliance on primary commodities. Breaking free from dualistic economic structures promotes sustained development and structural transformation

Answer 3

1. Resource Curse & Commodity Dependence - Many developing countries rely heavily on exporting primary commodities, making them vulnerable to price volatility and external shocks. - If commodity prices fall, export revenues decline, leading to lower tax revenues and reduced government spending on essential services like healthcare and education. - Over time, resource depletion or shifts in global demand can further weaken economic stability, trapping countries in a cycle of underdevelopment. 2. Price Fluctuations - Global markets for commodities and exports are highly volatile, meaning prices can change unpredictably due to external factors like speculation, weather conditions, or geopolitical events. - Sudden drops in export prices reduce income for producers and governments, leading to economic instability. - This unpredictability makes it difficult for developing nations to plan long-term investments in infrastructure and social services, slowing down development. 3. Barriers to International Markets - Developing countries often face significant trade barriers, such as tariffs, quotas, and protectionist policies from developed nations, limiting their access to lucrative markets. - Additionally, non-convertible currencies make international transactions more difficult, reducing export competitiveness. - This restricts their ability to fully benefit from global trade, leading to slower economic growth and limited progress in development. 4. Long-Term Decline in Terms of Trade - Over time, many developing economies experience a decline in their terms of trade, meaning the prices of their exports (often primary commodities) fall relative to the prices of imports (often manufactured goods). - This results in a worsening trade balance, requiring them to export more just to afford the same amount of imports. - As a result, economic development is hindered, making it harder for these countries to escape dependency on low-value exports.

Answer 4

suggests that the prices of primary goods tend to decline relative to the prices of manufactured goods over time.

Answer 5

1. Income Elasticity of Imports vs. Exports = Developing countries primarily export primary commodities, which have low-income elasticity, meaning that as global incomes rise, demand for these goods does not increase significantly. - However, the goods they import—such as capital equipment and manufactured products—have higher income elasticity, meaning their demand grows rapidly as global incomes rise. - This creates an imbalance where developing countries struggle to increase their export earnings while facing rising import costs. 2. Rising Demand for Manufactured Goods - Globalization and technological advancement have led to an increase in demand for manufactured goods, pushing up their prices relative to primary products. - Since developing countries rely on importing these goods for industrialization, they face rising costs, reducing their ability to generate long-term economic growth. - Meanwhile, the prices of their primary exports remain stagnant or decline, worsening trade imbalances. 3. Long-Run Decline in Terms of Trade - As manufactured goods become more expensive relative to primary products, developing countries experience a decline in their terms of trade. - This means they must export more commodities just to afford the same amount of imports, leading to lower real incomes and reduced government revenues. - This weakens economic development, making it harder for these nations to invest in infrastructure, education, and industrial growth. 4. (Evaluation) Solution: Diversification - To break free from declining terms of trade, developing countries should reinvest export revenues into diversifying their economies. - By developing secondary and tertiary industries, they can reduce dependency on volatile commodity markets and transition towards higher-value-added sectors. - This would make their economies more resilient and enable sustainable long-term growth.

Answer 6

tariffs on imported manufactured goods to allow domestic industries to grow

Answer 7

1. *Protecting Domestic Jobs* - By replacing foreign imports with domestically produced goods, ISI helps create jobs in local industries. - This reduces reliance on volatile global markets and improves income security for workers. - However, in the long run, industries may become inefficient due to a lack of competition, leading to job losses as firms struggle to remain viable. 2. *Reducing Foreign Influence & MNC Dominance* - Restricting imports prevents multinational corporations (MNCs) from dominating domestic markets, allowing local firms to develop without external competition. - This fosters economic independence and strengthens national industries. - However, without exposure to international best practices and competition, domestic firms may lack the incentive to innovate, reducing long-term growth potential. **Problems with ISI** 3. *Short-Run Job Creation vs. Long-Term Unemployment* - In the short term, ISI boosts employment by fostering new domestic industries. However, these industries may become dependent on government protection. - If tariffs are lifted or subsidies removed, inefficient firms may collapse, leading to mass unemployment and economic stagnation. 4. *Loss of Comparative Advantage* - By prioritizing domestic production over imports, ISI diverts resources from industries where the country has a comparative advantage. - This results in inefficiencies, higher production costs, and lower international competitiveness, ultimately reducing export revenue and economic growth. 5. *Risk of Retaliatory Protectionist Measures* - If a country imposes high tariffs or import restrictions, trading partners may respond with their own protectionist measures. - This can lead to trade wars, reducing export opportunities and harming industries that rely on global markets. In the long run, this isolates the economy, limiting growth potential and slowing development.

Answer 8

removing protectionist policies, encouraging trade

Answer 9

1. Reducing Primary Product Dependence - By focusing on export promotion, developing countries can diversify their economies away from volatile primary product markets. - This reduces vulnerability to fluctuating commodity prices and long-term declines in terms of trade, stabilizing economic growth. 2. Encouraging Technological Advancements - Export-oriented industries often face global competition, pushing firms to adopt better technology and improve productivity. - This leads to higher-quality goods, increased efficiency, and greater long-term economic growth. **Problems with Export Promotion** 3. Protectionism Abroad - Developing countries may face tariffs, quotas, and non-tariff barriers when trying to access global markets. - High-income nations often implement protectionist policies to shield their industries from competition, making it difficult for developing economies to expand exports. This limits the effectiveness of export promotion policies and can slow economic growth. 4. Widening Income Inequality - Export-oriented growth can disproportionately benefit capital-intensive industries and skilled workers, leading to a widening income gap. - Those in traditional or low-skill sectors may see little benefit, increasing inequality within the economy. If wealth remains concentrated among a small elite, domestic demand and overall development may suffer. 5. Overdominance of MNCs - Multinational corporations (MNCs) often play a key role in export promotion strategies, bringing investment, expertise, and global market access. - However, they may exploit local resources, repatriate profits, and use their power to suppress wages and working conditions. - This can limit the long-term benefits of export-driven development for local populations

Answer 10

- in 2020, fairtrade sales reached 19.2 billion - fairtrade supports over 1.8 million producers and workers in over 70 developing countries - the top 5 fairtrade products are bananas, cocoa, tea, coffee and sugar - Biggest fairtrade markets are UK,USA, Germany, Switzerland, Netherlands

Answer 11

1. Higher Prices for Farmers → Increased Incomes → Poverty Reduction - Fairtrade ensures **minimum price** guarantees for farmers, protecting them from price volatility → This provides a stable and predictable income, reducing uncertainty and financial insecurity → With higher earnings, farmers can invest in better seeds, equipment, and farming techniques, increasing productivity → Higher productivity leads to greater output and revenue, allowing farmers to escape poverty and improve their standard of living → This ultimately contributes to sustainable economic development. 2. Helps Farmers Access New Markets, Increases Trade ,Economic Growth - Fairtrade agreements provide small-scale farmers access to international markets they might otherwise struggle to enter → This allows them to sell products at better prices rather than relying on local markets where demand may be low → As export opportunities grow, farmers experience higher revenues, which fuels business expansion and job creation → Increased trade contributes to higher GDP growth, stimulating the overall economy of developing nations → Over time, this promotes economic diversification, reducing dependence on primary commodity exports. 3. Promotes Ethical and Sustainable Farming , long term agricultural productivity - Fairtrade agreements encourage sustainable farming practices, such as organic farming, soil conservation, and reduced pesticide use → These practices help protect the environment, ensuring that land remains fertile for future generations → By reducing soil degradation and deforestation, farmers can maintain productivity in the long run → This ensures food security and stable agricultural output, allowing developing economies to grow without excessive environmental damage. 4. Additional Investment in Local Communities, Long-Term Development - A portion of Fairtrade revenue is allocated to community development projects, such as schools, healthcare facilities, and clean water access → This improves education and healthcare standards, leading to a healthier and more skilled workforce → A better-educated population leads to higher long-term productivity and innovation, increasing economic growth → Investments in infrastructure, such as better roads and irrigation systems, also improve transportation and farming efficiency, supporting further development. 5. Reduces Exploitation and Child Labor → Better Working Conditions → Social Stability Fairtrade agreements set strict labor standards, ensuring that workers receive fair wages and operate in safe conditions → This reduces worker exploitation and child labor, leading to improved quality of life for families → With parents earning a stable income, children are more likely to stay in school rather than being forced into work → Education leads to better job prospects in the future, reducing poverty cycles and income inequality → Over time, this creates a more stable and prosperous society.

Answer 12

1. Limited Impact on Global Trade → Small Market Share → Minimal Effect on Poverty Reduction Fairtrade only covers a small proportion of global trade, with less than 0.02% of total world trade in 2020 → This means that most farmers and workers in developing countries do not benefit from Fairtrade certification → As a result, the positive effects on poverty alleviation are limited, as the majority of agricultural producers still face price volatility and exploitation → Without wider adoption, Fairtrade's influence on reducing global income inequality and improving living standards remains marginal. 4. Creates Dependency on Ethical Consumerism → Demand is Uncertain → No Long-Term Stability Fairtrade relies on ethical consumer choices, meaning it depends on consumers in high-income countries being willing to pay premium prices for Fairtrade goods → If demand for Fairtrade products falls due to economic downturns or changing consumer preferences, farmers will lose their higher-income opportunities → This makes Fairtrade an unreliable long-term development strategy, as producers remain vulnerable to shifts in global consumer sentiment → Developing countries may struggle to build self-sustaining industries if they continue to depend on Western markets' willingness to support Fairtrade. 5. Distorts Market Incentives → Reduces Productivity Growth → Long-Term Inefficiencies Fairtrade guarantees minimum prices, which removes some of the risk of price volatility for producers → However, this reduces the incentive for farmers to improve efficiency and adapt to market-driven changes in demand and technology → Without competition forcing improvements, some Fairtrade farmers may lag behind non-Fairtrade competitors, leading to lower productivity growth → Over time, this may hinder the modernization of agriculture in developing nations and prevent farmers from competing effectively in global markets without Fairtrade support.

Answer 13

money, or technical assistance given by one country to another to promote social and economic development done to: - reduce poverty - improve living conditions - promote sustainable development in developing countries forms: - grants - loans - technical assistance funded by: - government - international organisations - private foundations

Answer 14

- UNICEF - WFP - WHO - OXFAM

Answer 15

1. project aid: financing projects for a donor, eg hospitals 2. technical assistance - funding of expertise 3. humanitarian aid - emergency disaster relief, food aid 4. soft loans - a loan made on a concessionaire basis such as China to Africa 5. tied aid - projects tied to suppliers in donor countries 6. debt relief - refinancing of a countries external debt

Answer 16

🇩🇿 Dependency Culture 🔹 Regular aid inflows may reduce the incentive for governments to raise tax revenue ➡️ This creates a reliance on aid instead of building sustainable institutions ➡️ Domestic industries and initiatives may not develop ➡️ Long-term economic development is hindered due to weak self-sufficiency 💰 Misallocation of Resources 🔹 Aid may be allocated based on donor interests rather than local needs ➡️ Infrastructure projects may be prioritised over healthcare or education ➡️ This reduces the effectiveness of aid in tackling poverty ➡️ Opportunity cost of using funds poorly can be high 🧑‍⚖️ Corruption and Mismanagement 🔹 Aid can be siphoned off by corrupt officials or misused ➡️ This leads to minimal improvements for the poor ➡️ Citizens lose trust in institutions ➡️ Aid fails to achieve its intended developmental goals 🧨 Undermining Local Businesses 🔹 Free or subsidised goods can undercut local producers (e.g. free food aid) ➡️ Domestic farmers and manufacturers may lose income ➡️ This stifles entrepreneurship and local job creation ➡️ Long-term damage to private sector growth

Answer 17

1. Better Trade Relations with Other Countries Providing aid strengthens diplomatic and economic ties between nations. Countries that receive aid may develop trade agreements with donor nations, leading to increased exports and investment opportunities. Over time, this fosters mutual economic growth and geopolitical stability, benefiting both parties. 2. Helps Overcome the Savings and Foreign Currency Gap Many developing countries struggle with low domestic savings and a lack of foreign exchange reserves, limiting their ability to invest in productive industries. Overseas aid can fill this gap by providing necessary capital for infrastructure, businesses, and social programs. This enables long-term economic growth and reduces reliance on external borrowing. 3. Stabilises Post-Conflict and Disaster Recovery Aid plays a crucial role in rebuilding war-torn economies and regions affected by natural disasters. Immediate financial assistance allows governments to restore essential services, reconstruct infrastructure, and provide humanitarian relief. This fosters political stability, reduces the likelihood of future conflicts, and supports long-term economic resilience. 4. Investment in Infrastructure Aid directed toward infrastructure projects—such as roads, energy grids, and communication networks—enhances economic productivity and market access. Improved infrastructure lowers business costs, attracts foreign direct investment, and facilitates trade, leading to higher economic output and employment opportunities. 5. Long-Term Health and Education Benefits Sustained aid in healthcare and education contributes to human capital development. Access to better medical facilities reduces mortality rates, while investments in education equip individuals with skills for higher-paying jobs. This boosts productivity, increases income levels, and improves overall quality of life in recipient nations. 6. Targeted Aid Lifting Trend Growth & Benefits to Donor Countries Aid that focuses on industrial development, technological advancement, and skill-building can enhance long-term growth rates in developing nations. This not only reduces global income inequality but also benefits donor countries by creating new trade partners and expanding global markets, leading to increased exports and economic interdependence.

Answer 18

a theory that suggests that countries can achieve economic growth by transferring labour from the traditional agricultural sector to the modern industrial sector

Answer 19

- according to the LM, in a traditional agriculture economy, labour is abundant, as wages are low because workers are not highly skilled - As industrialisation begins, labour is gradually drawn from the agricultural sector to the modern industrial sector, leading to a shortage of labour in the agricultural sector - at the **Lewis Turning Point**, the supply of labour from agriculture becomes limited, and wages in farming begin to rise. This increase in wages leads to higher production costs in agriculture, which raises the price of agricultural goods - as a result, the modern industrial sector becomes more competitive, as they can produce goods at a lower cost than the agricultural sector

Answer 20

1. Surplus Labour in Agriculture → Migration to Industry → Industrial Growth In the early stages of development, agriculture employs a large share of the workforce, often at subsistence wages → Many workers are underemployed, meaning their marginal productivity is close to zero → The Lewis Model suggests that this excess supply of rural labor gradually moves to the industrial sector, where wages are higher → This leads to increased industrial output, higher economic growth, and greater capital accumulation, driving structural transformation in the economy. 2. Industrial Sector Benefits from Cheap Labour → Rising Profits → More Capital Investment Since labour migration keeps wages in industry low, firms in the industrial sector gain higher profits → These profits can be reinvested in capital equipment, leading to greater productivity and technological advancements → This cycle of investment-driven growth supports urbanization, expansion of secondary industries, and higher overall national income, shifting the economy from agriculture-based to industry-based. 3. Rural Labour Surplus Diminishes → Wage Pressures Begin → Labour Costs Rise Over time, as more workers leave agriculture for industry, the rural labour surplus begins to shrink → Once this happens, industrial firms struggle to find new low-cost workers, which pushes wages up → As wages rise, industrial profit margins start to decline, leading to less reinvestment in capital → This marks the Lewis Turning Point, where the industrial sector can no longer rely on cheap labour to sustain growth. 4. Higher Wages → Shift to Capital-Intensive Production → Need for Productivity Growth As wages rise, firms seek alternative ways to maintain competitiveness, such as investing in capital-intensive production methods (e.g., automation, machinery) → This transition requires higher-skilled workers, increasing demand for education and vocational training → Countries that successfully invest in human capital and innovation can transition into higher-value manufacturing and services, ensuring continued economic growth beyond the Lewis Turning Point. 5. Countries Struggle if Productivity Fails to Keep Pace → Risk of Stagnation → “Middle-Income Trap” If labour costs rise faster than productivity, firms lose competitiveness, and growth may slow down → Without innovation or industrial upgrading, countries can get stuck in the middle-income trap, where they are too expensive for low-cost manufacturing but not advanced enough for high-tech industries → This creates economic stagnation, where industrial expansion plateaus and wages fail to rise further, limiting long-term development.

Answer 21

China(as of 2020):~ - Rural population = 510 million (36%) - urban population = 891 million (63%)