Development economics Flashcards
Absolute poverty
ABSOLUTE POVERTY: a state when basic necessities needed to sustain life cannot be accessed.
Relative poverty
RELATIVE POVERTY: a state when living standards are well below an observed average in an economy.
HDI
HDI is an index cretated by the UN to measure countries’ economic and social development.
Components:
- Life expectancy at birth
- Education enrollment rate
- Living standards (GNI adjusted for PPP)
Millenium Development Goals (MDGs)
- universal primary education
- gender quality, women’s empowerment
- combating HIV/AIDS, malaria
- eradicate extreme poverty, hunger
- reduce child mortality
- environmental sustainability
- improve maternal health
Economic growth
ECONOMIC GROWTH: increase in the real GDP over a period of time
Define economic development
ECONOMIC DEVELOPMENT: improvement in standards of living: reducing poverty, improving public provision of education, healthcare and maintanance of infrastructure
Define tied aid
TIED AID: grants or loans given to a developing country but only on condition that the funds will be used to buy goods and services from the donor country
Define infrastruture
INFRASTRUCTURE: the essential facilities and services such as roads, airports, sewage treatment, water systems, railways, telephone and other utilities that are necessary for economic activity
Define aid/foreign aid
AID/FOREIGN AID: any assitance that is given to a country that would not have been provided through normal market forces
Reasons for aid
- help overcome natural disaster
- help achieve economic development
- political alliances/strategies
- encourage investment
- improve human resources in developing countries
- improve technology levels
- fund development projects
Define official development assitance (ODA) (2 def)
ODA: aid that is organised by a government or an official government agency of a donor country and unofficial aid which is organised by non-government organisations (NGO)
or
flows to developing countries and multilateral institutions provided by official agencies, including state and local govs, or by their executive agencies when each transaction meets the following:
- administered with promotion of development and welfare
- concessional (lengvatinis) in character and contains a grant element of at least 25%
Types of aid
- Humanitarian
- Development
Define humanitarian aid
HUMANITARIAN AID: aid given to ease short-term suffering, which may be caused by wars or natural disasters
Define grant aid
GRANT AID: short-term aid provided as a gift and does not have to be paid back
Main forms of grant aid
- Food aid: provision of food or money for food, includes transportation, storage, distribution
- Medical aid: provision of medical services or money for medical services
- Emergency aid: provision of emergency supplies including temporary shelters, tents, clothing, fuel, heating, lighting
Define devlopment aid
DEVELOPMENT AID: aid given in order to ease poverty in the long run and improve the welfare of individuals
Types of development aid
- Long-term loans: repayable over 10-20 years, consessional/soft loans, repayed in both foreign and domestic currency, can be both official, unofficial
- Tied aid: grants or loans given to a developing country on teh condition that the money will be used to purchase goods and services from the donor country
- Project aid: for a specific project, often in grant aid - no repayment, usually to improve infrastructure, common donor - World Bank
- Technical assitance aid: may be included in project aid, two aims: raise level of techno/raise quality of human capital, sometimes provided in foreign scholarships - study abroad
- Commodity aid: to increase productivity, funds to purchase commodities (edible oils, seeds, fertilisers, chemicals, cement, steel)
- Bilateral aid: official aid, given directly from one country to another
- Multilateral aid: official aid, given by rich countries to international agencies (World Bank, UN, International Monetary Fund), distributed by agencies
Why is tied aid not as effective as untied aid
Because:
- recipient country cannot look for chepaest products but has to buy the donor’s
- does not create employment or extra output
- imports may replace domestic products - harm domestic industries
- politically motivated - wants to use
Why continued dependency on aid is harmful
- little incentive to be innovtive
- welfare mentality - feel that aid will always be there
- aid focused on industrializtion - may create huge gaps between industry and agriculture
- might lead to indebtedness of developing countries
Define non-governmental organisation (NGO)
NGO: organisations that are not controlled by the government that promote economic development, humanitarian ideals and sustainable development in developing countries
Examples: Oxfam, CARE, Doctors without borders
Two main activities carried out by NGOs
- plan and implement specific projects
- try to influence public policy in areas such as human rights, poverty reduction, workers’ rights, the environment
What are the structural adjustment policies
- encouraging trade liberalisation
- devalueing the currency
- encouraging FDI
- privatisation of nationalised industries
- charging for basic services (education, healthcare)
- Reducing corruption
What is International Monetary Fund (IMF)
INTERNATIONAL MONETARY FUND: organisation of 184 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sutainable economic growth
Three parts: surveillance (discussing exchange rates and growth), technical assitance (free trainig) and financial assitance (can lend to balance payments) - orginially Structural Adjustment Polices (SAPs) - critised by economists
Each members deposits quotas - size depends on economic terms of the member
Responsibilities of IMF
- promote international monetary cooperation
- facilitating expansion of international trade
- promoting exchange stability
- assiting in establishment of multilateral systems
- makking its resources available for members whi are experiencing difficulties in balancing their payments
Debt relief for developing countries
in 1970s developing countries took loans from developed - did not manage to pay back - stil indebted - thinking of debt reliefs - worsens the developing countries and debt is still growing - debt relief would improve public goods in developing countries + odious debt is dictators who borrowed used for personal purposes
Define odious debt
ODIOUS DEBT: debt that is incurred by regime and is then used for purposes that dod not serve the interests of the poeple
What is HIPC
Heavily indebted poor countries initiative - commit poverty reduction through policy changes demostrating good record
Examples:
Define FDI
FDI: ling term investment in by private MNCsin countries overseas
Advantages of FDI
Explain import substitution
Advantages of import substitution
Disadvantgaes of import substitution
Explain export promotion
What is needed to be done to implement export promotion strategy?
Disadvantages of export promotion
Disadvantages of FDI
Contributes to economic growth but hinders (sustainble) development
Indicators of development
List composite indexes
Explain HDI
Value from 0 to 1 (the higher the higher develop)
Measures:
- health
- education
- GDP converted at PPP
Explain GDI
HDI + take into account inequalities between men and women (lower than HDI)
Explain GEM
Gender empowerement measure
measures the involvement of women in leadership, tech, politics, share of national income - try to assess actual development
Expplain HPI
Opposite of HDI - how evenly development is spread across country
Expressed as percentage - the higher, the worse
Composite:
- long and healthy life
- education
- ability to meet basic needs
Might have same HDI but different HPI
List single indicators of development
Here GDP -> total economic activity performed in a country regardless of who owns the productive assets divided by the size of population (foreign companies included but own outside of home country - not)
GNI -> total national income earned regardless of where the assets are located divided by the number of people in a population (income of foreign companies not included but own income earned in foreign countries included)
Explain IMF
Offers assistance, training, can offer loans - made from quotas from members
Originally called SAPs - structural adjustment policies but now Poverty reduction strategy papers (PRSPs)
Provides debt relief to HIPC
Explain world bank group
Several memebrs which grant, lend money to developing countries at lowest interest rates from developed countries
- might include certain policies
- different conditions for paying back
Does economic growth lead do development?
Long run yes but in short run debatable
Concerns of aid
Common characteristics of developing countries
