Development Globally Flashcards
What are the 8 factors constraining growth and development
- Education and skills
- Population Growth
- Health
- Savings gaps
- Landlocked countries
- Corruption
- Poor infrastructure
- Infant industries
What are landlocked countries
countries surrounded by other countries an have no coastline
Effect of landlocked countries
High shipping costs, shifts SRAS left decreasing growth. Less competitive prices, less profit, less corporation tax revenue, limited development
Impact of less income or corporation tax revenue
Less money to fund government spending on development
Example of a landlocked country
Burundi in Africa
How much money did Burundi borrow from the World Bank
$833 million
How to solve national debt
Debt relief
What is debt relief
means to either write off debt or refinance it to make it easier for the borrower to repay it
What is the HIPCI
Heavily Indebted Poor Countries Initiative.
Writing of national debt for poor countries
Effect of debt relief on development
Government has more ,only to then spend on development instead of debt repayments
Limitation of Debt Relief
Corrupt government officials don’t use the saved money for development, instead for personal gain
What are two causations of poor health in a country
Poor sex education (eg Kenya)
Poor healthcare and lack of trained professionals so cannot provide adequate care
Effect of Poor health
Decreased productivity, causing LRAS to shift left, reducing economic growth
Impact of low productivity on firms
Less output
Less profit made
Less corporation tax revenue made
Less money to spend on dev
Limited development
Impact of poor health on children
Children spend more time out of education
Acquire less knowledge and skills
Lower human capital
Effect of lower human capital in the future
Can’t access higher earning jobs
Lower incomes
Less income tax revenue
less money to spend on dev
Limited dev
Also less consumption so lower AD and lower growth
Name a strategy to improve health
Foreign Aid
What is Aid
Donations from one country to another country to help them become a more developed nation
Real world example of Aid
In 2016 US send $650 million in foreign aid over to Kenya
What can foreign aid be used for
Improve healthcare infrastructure and for government training schemes to train healthcare staff
Why might foreign aid not work
Corruption
Impact of Poor education
children deprived of knowledge and skills to make them productive workers. Lower human capital, lower productivity,
LRAS shifts left as quality of labour has fallen
Effect of lower human capital
Less productivity, less output and less profits for firms, reduced revenue for gov
Lower income jobs, less income tax rev for gov
What happened in Madagascar?
Poor education led to a lost generation of low skilled workers who struggled to find work
Evidence for poor education and incomes in Madagascar
In !980-1990, GNI per capita in Madagascar fell from $460 to $240
Interventionist strategy to improve education
Government investing in education
What did the Madagascan President do to improve education and what year?
2002
Built schools in remote areas of Madagascar to improve access to education
Limitation of building loads of schools
Children in agriculture sector helping family gain income
Children go to school
Less on farms working and producing output
Less incomes for families
Less tax revenue for gov
Less money to spend on dev
Impact of Poor infrastructure
Decreases efficiency of business
Decreases productivity
Impact of Poor transport infrastructure
E.g in India, leading to overcrowding dangerously, slow transport leads to firms costs increasing
effect of increase in cost
SRAS shifts left
Price level increases
Real GDP falls, decreasing growth
Effect of higher price level
less competitive
less profit
less corporation tax revenue to gov
less money to spend on dev
limited development
What would happen if firms decreased wages of workers to reduce costs?
Lower incomes
Less income tax revenue for gov
Less money to spend on dev
limited development
Less consumption
Lower AD
less economic growth
Effect of lower productivity diagrammatically
LRAS to the left because potential productive capacity of the economy has decreased
What is a strategy for solving poor infrastructure
Promoting FDI
What is FDI
When MNC’s set up operations and invest in physical capital in a country that is not their own. FDI can also involve another firm in one country taking ownership of a a firm in a different country.
How much FDI did India receive in 2015?
$31 billion in FDI
What are two ways of promoting FDI?
- Reduction in corporation tax
- Lowering wage costs
How did India decrease wage costs?
in 2001 the Indian government made it easier for firms to fire workers which reduced their costs of labour
Effects of lower wage costs and corporation tax
More profit can be made encouraging FDI
Indias reduction in corporation tax
In 1990 cut from 50% to 40%
What is the effect of FDI for firms
Enables firms to expand and invest in new and improved capital. Makes production more efficient. Productivity increases. More profits made. Increased corporation tax revenue for government which can be used to fund government spending on improving development.
Negative impacts of promoting FDI
Cutting wage costs lowers incomes for workers. Less consumption so AD falls and as so does economic growth. Lower incomes mean less income tax revenue so development is limited
Impact of population growth and name a country struggling from this
Tanzania.
Rapid population growth
Hospitals and schools overcrowded and overrun
Cannot provide adequate care or teaching
Population growth on education
Less adequate teaching
Lower human capital
reduces productivity for future workforce
Shifts LRAS to the left
reduces real GDP, in turn economic growth decreases
Low incomes effect
Less consumption in the economy so AD falls and economic growth falls
As well as this, low incomes means less income tax revenue for government.
Less productivity means less profit and less corp tax revenue.
Less money to spend on development.
What is a solution to rapid population growth
Improvements in education, building new schools
Who are the Immaculate Heart Sisters of Africa
Community dedicated for improving education girls, building new schools, and providing sex education for girls.
How can educating women help productivity and stop rapid population growth?
More aware of contraception so will be more cautious. As well as this women will be more focused on careers rathe than children if they have increased human capital and a good job so less likely to have loads of children, increasing productivity and reducing the birth rate
What is a savings gap?
Gap between banks savings and the money that firms want to borrow from the bank
What are savings gaps caused by?
And what country suffered for these
- Low incomes where people don’t have enough to save as its all spent on survival
- Poor access to banks - often far away and so inaccessible
Bangladesh
Impact of saving gap on firms
Not granted loans
No money to invest
Low investment, low AD
Low investment, less productivity, LRAS shifts left
Less real GDP, lower growth
What happens if firms are less productive
Less output
Less profit
Less corporation tax revenue for government
Less money to fund spending on Development
Limited development
What is a strategy to tackle the problems of saving gaps
Microfinance
What is Microfinance?
Small loans are made to businesses who otherwise wouldn’t have access to financial services
Effect of Microfinance
Small businesses can invest into new technology and capital, aiding their production making them more productivity so costs of producing one unit decrease. Can sell prices lower, more competitive, more profit made, more corporation tax revenue to the government so fun spending on development
If Microfinance can increase profits, how can this reduce a savings gap?
Small businesses earn more money which can then be saved in banks. So banks now have more money they can lend out
Harrod-Domar Model
Low incomes→low savings →No money to lend →Low investment→ low economic growth→Low incomes (cycle continues)
Why might Microfinance not reduce a savings gap?
High interest rates (often 100%)
Any extra incomes or profits has to be paid to to the Microfinance lenders, so no more money to then save in banks, savings gap persists
What is corruption?
Corruption is when government officials use public funds for their own private gain
How can corruption be avoided?
Fair trade schemes
In Venezuela how much public funds have gone missing in the past decade?
$300 billion due to corruption
How is development improved in corrupt countries
Using the fair trade premium
What is the fair trade premium?
A communal fund that fair trade farmers can spend in development themselves
Limitation of Fair trade premium
May not be used by farmers appropriately and instead use the money to spend on other things that don’t improve development
What is a huge limitation of fair trade schemes
An investigation once found fair trade farmers were receiving less than 1% of the profits made. Doesn’t increase incomes much, low consumption, low AD, low growth
What are infant industries?
Small industries that are not yet experiencing economies of scale
Infant industries are usually inefficient and unproductive, what happens as a result of this?
Higher costs of production
SRAS shifts left
Fall in real GDP
Less growth
Price level increases for consumers
Less competitive
Less profits
Less corporation tax revenue to gov so less development
How can infant industries be helped?
Protectionism, through subsidies
What can subsidies do for infant industries
Help them invest
Improve tech and capital
Increase productivity
Increased output and efficiency
Lower costs
Lower prices so more competitive
Increases profit
Corporation tax revenue for gov
Money spent on development
What subsidy did the Malawian Government introduce in 2006
Agricultural Input Subsidy Programme
Helped infant industries in agri to pay for fertilisers
Decreased costs, shifting SRAS to the right
Increases growth
Can subsidies encourage inefficiency for infant industries?
Yes
Creates a culture of dependency on the government support
Producers become lazy
Infant industries feel government will cover them
What is competitive devaluation
when a country devalues its currency’s fixed exchange rate in order to keep exports competitive
Whats the effect of a devaluation
Depreciates the exchange rate, causes imports to be more expensive and exports cheaper, more competitive, more profit made
