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Economics Paper 2 > Development Globally > Flashcards

Development Globally Flashcards

1
Q

What are the 8 factors constraining growth and development

A
  1. Education and skills
  2. Population Growth
  3. Health
  4. Savings gaps
  5. Landlocked countries
  6. Corruption
  7. Poor infrastructure
  8. Infant industries
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1
Q

What are landlocked countries

A

countries surrounded by other countries an have no coastline

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2
Q

Effect of landlocked countries

A

High shipping costs, shifts SRAS left decreasing growth. Less competitive prices, less profit, less corporation tax revenue, limited development

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3
Q

Impact of less income or corporation tax revenue

A

Less money to fund government spending on development

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4
Q

Example of a landlocked country

A

Burundi in Africa

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5
Q

How much money did Burundi borrow from the World Bank

A

$833 million

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6
Q

How to solve national debt

A

Debt relief

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7
Q

What is debt relief

A

means to either write off debt or refinance it to make it easier for the borrower to repay it

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8
Q

What is the HIPCI

A

Heavily Indebted Poor Countries Initiative.
Writing of national debt for poor countries

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9
Q

Effect of debt relief on development

A

Government has more ,only to then spend on development instead of debt repayments

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10
Q

Limitation of Debt Relief

A

Corrupt government officials don’t use the saved money for development, instead for personal gain

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11
Q

What are two causations of poor health in a country

A

Poor sex education (eg Kenya)
Poor healthcare and lack of trained professionals so cannot provide adequate care

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12
Q

Effect of Poor health

A

Decreased productivity, causing LRAS to shift left, reducing economic growth

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13
Q

Impact of low productivity on firms

A

Less output
Less profit made
Less corporation tax revenue made
Less money to spend on dev
Limited development

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14
Q

Impact of poor health on children

A

Children spend more time out of education
Acquire less knowledge and skills
Lower human capital

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15
Q

Effect of lower human capital in the future

A

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

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16
Q

Name a strategy to improve health

A

Foreign Aid

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17
Q

What is Aid

A

Donations from one country to another country to help them become a more developed nation

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18
Q

Real world example of Aid

A

In 2016 US send $650 million in foreign aid over to Kenya

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19
Q

What can foreign aid be used for

A

Improve healthcare infrastructure and for government training schemes to train healthcare staff

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20
Q

Why might foreign aid not work

A

Corruption

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21
Q

Impact of Poor education

A

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

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22
Q

Effect of lower human capital

A

Less productivity, less output and less profits for firms, reduced revenue for gov
Lower income jobs, less income tax rev for gov

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23
Q

What happened in Madagascar?

A

Poor education led to a lost generation of low skilled workers who struggled to find work

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24
Q

Evidence for poor education and incomes in Madagascar

A

In !980-1990, GNI per capita in Madagascar fell from $460 to $240

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25
Q

Interventionist strategy to improve education

A

Government investing in education

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26
Q

What did the Madagascan President do to improve education and what year?

A

2002
Built schools in remote areas of Madagascar to improve access to education

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27
Q

Limitation of building loads of schools

A

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

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28
Q

Impact of Poor infrastructure

A

Decreases efficiency of business
Decreases productivity

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29
Q

Impact of Poor transport infrastructure

A

E.g in India, leading to overcrowding dangerously, slow transport leads to firms costs increasing

30
Q

effect of increase in cost

A

SRAS shifts left
Price level increases
Real GDP falls, decreasing growth

31
Q

Effect of higher price level

A

less competitive
less profit
less corporation tax revenue to gov
less money to spend on dev
limited development

32
Q

What would happen if firms decreased wages of workers to reduce costs?

A

Lower incomes
Less income tax revenue for gov
Less money to spend on dev
limited development
Less consumption
Lower AD
less economic growth

33
Q

Effect of lower productivity diagrammatically

A

LRAS to the left because potential productive capacity of the economy has decreased

34
Q

What is a strategy for solving poor infrastructure

A

Promoting FDI

35
Q

What is FDI

A

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.

36
Q

How much FDI did India receive in 2015?

A

$31 billion in FDI

37
Q

What are two ways of promoting FDI?

A
  1. Reduction in corporation tax
  2. Lowering wage costs
38
Q

How did India decrease wage costs?

A

in 2001 the Indian government made it easier for firms to fire workers which reduced their costs of labour

39
Q

Effects of lower wage costs and corporation tax

A

More profit can be made encouraging FDI

40
Q

Indias reduction in corporation tax

A

In 1990 cut from 50% to 40%

41
Q

What is the effect of FDI for firms

A

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.

42
Q

Negative impacts of promoting FDI

A

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

43
Q

Impact of population growth and name a country struggling from this

A

Tanzania.
Rapid population growth
Hospitals and schools overcrowded and overrun
Cannot provide adequate care or teaching

44
Q

Population growth on education

A

Less adequate teaching
Lower human capital
reduces productivity for future workforce
Shifts LRAS to the left
reduces real GDP, in turn economic growth decreases

45
Q

Low incomes effect

A

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.

46
Q

What is a solution to rapid population growth

A

Improvements in education, building new schools

47
Q

Who are the Immaculate Heart Sisters of Africa

A

Community dedicated for improving education girls, building new schools, and providing sex education for girls.

48
Q

How can educating women help productivity and stop rapid population growth?

A

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

49
Q

What is a savings gap?

A

Gap between banks savings and the money that firms want to borrow from the bank

50
Q

What are savings gaps caused by?
And what country suffered for these

A
  1. Low incomes where people don’t have enough to save as its all spent on survival
  2. Poor access to banks - often far away and so inaccessible

Bangladesh

51
Q

Impact of saving gap on firms

A

Not granted loans
No money to invest
Low investment, low AD
Low investment, less productivity, LRAS shifts left
Less real GDP, lower growth

52
Q

What happens if firms are less productive

A

Less output
Less profit
Less corporation tax revenue for government
Less money to fund spending on Development
Limited development

53
Q

What is a strategy to tackle the problems of saving gaps

A

Microfinance

54
Q

What is Microfinance?

A

Small loans are made to businesses who otherwise wouldn’t have access to financial services

55
Q

Effect of Microfinance

A

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

56
Q

If Microfinance can increase profits, how can this reduce a savings gap?

A

Small businesses earn more money which can then be saved in banks. So banks now have more money they can lend out

57
Q

Harrod-Domar Model

A

Low incomes→low savings →No money to lend →Low investment→ low economic growth→Low incomes (cycle continues)

58
Q

Why might Microfinance not reduce a savings gap?

A

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

59
Q

What is corruption?

A

Corruption is when government officials use public funds for their own private gain

60
Q

How can corruption be avoided?

A

Fair trade schemes

61
Q

In Venezuela how much public funds have gone missing in the past decade?

A

$300 billion due to corruption

62
Q

How is development improved in corrupt countries

A

Using the fair trade premium

63
Q

What is the fair trade premium?

A

A communal fund that fair trade farmers can spend in development themselves

64
Q

Limitation of Fair trade premium

A

May not be used by farmers appropriately and instead use the money to spend on other things that don’t improve development

65
Q

What is a huge limitation of fair trade schemes

A

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

66
Q

What are infant industries?

A

Small industries that are not yet experiencing economies of scale

67
Q

Infant industries are usually inefficient and unproductive, what happens as a result of this?

A

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

68
Q

How can infant industries be helped?

A

Protectionism, through subsidies

69
Q

What can subsidies do for infant industries

A

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

70
Q

What subsidy did the Malawian Government introduce in 2006

A

Agricultural Input Subsidy Programme
Helped infant industries in agri to pay for fertilisers
Decreased costs, shifting SRAS to the right
Increases growth

71
Q

Can subsidies encourage inefficiency for infant industries?

A

Yes
Creates a culture of dependency on the government support
Producers become lazy
Infant industries feel government will cover them

72
Q

What is competitive devaluation

A

when a country devalues its currency’s fixed exchange rate in order to keep exports competitive

73
Q

Whats the effect of a devaluation

A

Depreciates the exchange rate, causes imports to be more expensive and exports cheaper, more competitive, more profit made

Economics Paper 2 (14 decks)

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