Development Economics Flashcards
growth diagram with and without development
poverty cycle diagram
dependency ratio
percentage of old-age adults and below-working age children relative to the number of working-age adults
extreme poverty
earning less than $1.25, in purchasing poewr parity-adjusted terms, per day
millenium development goals
- eradicate extreme poverty and hunger
- achieve universal primary education
- promote gender equality and empower women
- reduce child mortality rate
- improve maternal health
- combat HIV/AIDS, malaria and other diseases
- ensure environmental sustainability
- develop a global partnership for development
expand on two millennium development goals
eradicate extreme poverty and hunger
- target: halve the proportion of people living on less than $1 per day
- indicators: PPP values, poverty gap ratio, share of poorest quintile in national consumption
promote gender equality and empower women
- target: eliminate gender disparity in primary and secondary education
- indicators: ratio of girls to boys in primary, secondary and tertiary education, share of women in wage employment in non-agricultural sector, proportion of seats held by women in national parliament
human development index
composite indicator of development created by the UN which ranks country development on the basis of average income, education levels and life span
gender inequality index
composite indicator of the disparity in well-being between women and men in three areas: reproductive health, empowerment and the labor market
poverty trap
self-perpetuating mechanism that contributes to the persistence of poverty in a nation
natural resource trap diagram
geography trap diagram
education/poor governance trap diagram
conflict trap diagram
institutional and political obstacles to economic development
- ineffective tax structure: nation is unattractive to foreign investors because of uncertainty, rich households keep savings abroad
- lack of property rights
- political instability
- inequality in income distribution
- lack of infrastructure
- lack of access to credit: ineffective banking systems
social and cultural obstacles to economic development
- religion: especially if conflict exists
- tradition
domestic factors that contribute to economic development
- education
- health
- banking, credit, micro-credit
- reduced fertility rates: reduces burden on working members of society
- women in workforce increases productive capacity
international obstacles to economic development
- narrow range of exports
- over-dependence of primary products: commodity prices fluctuate
- if value of dominant export declines, standard of living declines over time
- protectionist policies by rich countries
micro-credit
provides financial credit or technology loans to entrepreneurs in poor communities to create small businesses (especially those with a socially beneficial purpose)
import substitution policies
protectionist policies meant to reduce domestic consumers’ dependence of imported goods, for which they substitute domestic goods and services thus promoting the development of domestic industries
international factors that contribute to economic development
import substitution policies
export promotion policies
trade liberalization
WTO
export promotion policies
- protectionist measures aimed at increasing the competitiveness of domestic producers in foreign markets
- subsidies for domestic producers of exportable goods and intential devaluation of the nation’s currency give domestic producers an advantage in international markets and promote export-oriented growth
diagram showing aid and FDI influence on poverty trap
foreign direct investment
long-term investment by foreign firms into the domestic markets of other countries
multinational corporation
large company with trading, manufacturing or service operations across several countries
why are MNCs attracted to developing countries?
low-cost labor
natural resource potential
political stability
examples of deregulation
- profit repatriation
- tax reduction for foreign companies
- property rights
- health and safety deregulation
liberalised free market conditions
- free trade
- privatisation
- tradable foreign currency
advantages of FDI: capital improvements
- capital injections can break poverty cycle
- money increase in capital account leading to more imports of foreign goods
- investment in domestic infrastructure
- provides opportunities for research and development
- stimulate domestic industry if MNC buys locally produced capital goods and services
- technology transfer improves country’s capital stock
advantages of FDI: income, employment and training
- employment is increased if MNCs hire significantly from domestic workforce, improve skills of local workers
- increased income for workers subject to taxation
advantages of FDI: market efficiency and choice
- MNCs may compete with complacent domestic industries
- MNCs may help country realise its comparative advantages
- greater choice in goods and services for domestic consumers
disadvantages of FDI: muted effects on employment
- foreign firms may bring in foreign management which only increases employment in low-skilled workforce, less improvement in skills
- some industries are capital, rather than labor, intensive
disadvantages of FDI: limited income benefits
- repatriation of a foreign firm’s profits limits the income growth benefits of FDI
- foreign firms use accounting methods to avoid tax
disadvantages of FDI: limited capital injections
- no guarantee that the investment spending from FDI companies comes from outside domestic economy
- pushes up borrowing costs and crowds out domestic firms
disadvantages of FDI: MNC power
- influence over regulatory environment
- reduced taxes
- environmental laws relaxed to attract foreign investment
- workers’ rights not valued
- overwhelming competition with local industry
developmetn aid
long or short-term loans, grants and technical assistance for the purpose of increasing the living standard of another country
what are the types of aid?
debt relief grants to indebted LDCs
technical assistance of LDCs such as experts
development assistance in the form of aid to whole sectors
humanitarian aid for emergency relief in disaster zones
commodity assistance such as the purchase of seeds, fertilizer, etc.
NGO
typically a non-profit group that is created for a set of specific, public action purposes, including development work
what is the trend in aid?
aid totals have increased steadily, but not at a rate that keeps pace with income growth of donor countries
criticisms of aid
- inefficient: aid given to showcase projects even though smaller scale projects could do the same job at lower cost
- corruption squanders aid
- aid rarely gets to those who need it: given to relatively well-off countries
- aid displaces local investment and markets: aid discouracges governments to enforce tax code and generate its own revenue
- fosters dependency: if aid accounts for majority of government revenue, situation is chronic rather than temporary
arguments for foreign aid
- delivery of aid is the problem - should go through NGOs
- aid addresses areas where growth alone will not: many pro-growth areas create negative externalities
- successes not celebrated because the need is still great
world bank
international development assistance organization that was created with the purpose of enhancing economic development and structural change
conditionality
macroeconomic requirements made by world bank before granting loans
evaluation of world bank
conditionality
loss of sovereignty
dominance of rich countries
mixed results: led to rising inequality in recipient counties
stabilisation policies
- government budget austerity: cut spending, often to social programmes
- supply-side policies: reduction of minimum wage laws, etc.
- inflation control: significantly higher interest rates
- currency floating: can lead to depreciation of currency
- trade liberalisation: reducing protectionist policies
evaluation of IMF
- rich-country dominance
- moral hazard: frees countries from fiscal responsibility
- harsh policies: hits hardest when population is most vulnerable
debt trap diagram
