Developmental Economics Flashcards
1
Q
What is the definition of economic development?
A
Economic development refers to an improvement in the standards of living.
It can be measured using the HDI ranking
2
Q
What are the sources of economic growth?
A
- Natural factors - anything that improves quantity or quality of a factor of production should lead to growth.
- Human Capital - Quantity can be increased by encouraging population growth or increasing immigration levels. However, quality is most common and this involves health care, education, vocational training, re-training for unemployed.
- Physical/technological factors - Improving quantity or quality of physical capital (Factory buildings, machinery, shops, offices and motor vehicles.
Quantity - Saving, dometic/foreign investment, etc.
Quality - education, research development.
- Institutional factors - It is an requirement to allow for economic growth to take place. (Banking systems, legal system, schools, poltical stability, etc.)
3
Q
Does economic growth lead to economic development? (Points for and against)
A
Economic growth may or may not lead to economic development…
- Higher incomes - Higher levels of economic growth - increase in GDP per head - Increase in income - to an extent it should improve standards of living.
However, depends on income distribution.
- Higher government revenue - Increased GDP –> increased government revenue through taxation. It can provide the necessary infrastructure (health, road, etc.)
Counter –> Corruption
-
Creation of inequality - Some argue —> Increase in economic growth —> Increase in inequality. But eventually due to the trickle-down effect opportunities will be created for the poor.
but. .. - Negative externalities and lack of sustainability - Increase in economic growth correlated with negative impacts on the environment (consumerism, energy needs, etc.). This is referred to as uneconomic growth - Increase in output accompanied negative effects on resources availability and well-being.
4
Q
Common characterisitics of developing countries?
A
- Low standards of living - Low income, inequality, poor health, inadequete education.
- Low levels of productivity
- High rtes of population growth and dependency burdens ( Ratio of dependent young/old people to the working population).
- High and rising levels of unemployment
- Substantial dependence on agriculture production and primary product. Reliant on weather conditions and food is only grown to be eaten. Nothing is sold and thus there is no contribution to economic growth.
- Prevelance of imperfect markets and limited information. Lack of banking, legal system, infastructure, information systems.
- Dominance, dependence and vulnerability in international relations. Depedent on developed countries for trade, technology and investement.
5
Q
What are the international development goals?
A
- Eradicate extreme poverty and hunger
- Acheive universal primary education
- Promote gender equality and empower women
- Reduce child mortality
- Improve maternal health
- Combat HIV and Aids, malaria and other diseases.
- Ensure enviornmental sustainability
- Develop global partnership for development.
6
Q
WHat are some barriers to development?
A
Barriers that can be overcome to acheive devlopment
- Corrupt government
- Primary product dependency - ‘Anything extracted from the earth’.
- Reduce the prevelance of HIV/AIDS/Malaria as this may reduce the quanitity and quality of the workforce.
- Low educational attainment - Reduces improvement in quality of physical capital (Research and development).
- Large debt repayments - Inhibits local governments to tackle the problems in their own economy.
- Geography - Land locked (lack of transport), difficult climate, etc.
7
Q
Provide some actions that can be implemented to achieve economic development?
A
- Microcredit
- Aid/loans/debt relief
- Development of industry
- Improvements in education
- Improvements in healthcare
- To some extent, economic growth
- decrease corruption
8
Q
What is import substitution? How can it be implemented?
A
This is a trade policy that adovcates for goods to be produced domestically rather than importing them.
Implementation
1) Adopt policy of organising that adovates the production of domestic goods.
2) Subsidies are made avaliable to domestic producers
3) Protectionist system implemented with tarrifs for foreign imports.
9
Q
Why can import substitution be beneficial?
A
It can potentially increase the revenue for domestic producers
In developing countries - import substitution can make domestic producers more competitive in a global market thus benefiting from economies of scale (unit cost decreases as output increases).
Economic growth –> creates jobs domestically
Protects local firms from international competition
10
Q
Problems with import substitution?
A
When a economy relies on import substitution, it may place too much pressure on the workforce. This is especially problematic when an economy relies on low skilled manufactured workers (clothing) as it is labour intensive.
11
Q
Can growth and development be shown on a PPF?
A
Economic growth can be shown in a PPF diagram as an outward shift.
Economic development - Represented by an increase in the number of capital goods (equipment to produce other goods) rather than consumer goods (goods that are imply consumed).
12
Q
What are some methods to improve economic development? (general)
A
- Reducing widespread poverty
2. Raising living standards
3. Reducing income inequalities
4. Increasing employment opportunities
13
Q
What is the link between economic growth and economic development (short and long term)?
A
Economic growth and economic development are NOT the same thing:
o Some limited economic development is possible in the absence of economic growth
o Long term economic growth is usually necessary for long term economic development (however, certain circumstances economic growth may not lead to economic development - High inequality)
14
Q
What are common differences between LEDCS?
A
- Resource endowment - Variety in natural resources avaliable.
- Geographic and demographic - Large variety in climate, enviornment, population size etc.
- History - Many developing countries were once colonised but the effect of colonisation varies (some positive impacts other negative).
- Political system - Many political systems / different economic ideologies –> hard to have one size fits all solution to their problems.
- Political stability - Different countries might be experiencing interal conflict.
- GDP per capita income levels are not always the same.
- Ethnic and religious backgrounds.
15
Q
What are some examples of financial/economic indicators?
A
Adding to that GDP per capitta figures (with or without PPP) can be used.
16
Q
What is the definition of PPP (Purchasing power parity)?
A
Purchasing power parity means equalising the purchasing power of two currencies by taking into account these cost of living and inflation differences.
PPP is used when comparisons are made between countries which use different currencies
17
Q
What is the poverty trap/cycle?
A
A poverty trap is any linked combination of barriers to growth and development that forms a circle, thus self-perpetuating unless the circle can be broken.
18
Q
What are some examples of health indicators?
A
1) Life expectancy
2) Infant mortality rate
3) Number of patients per doctor
4) HIV/ AIDS
5) Malaria
6) Malnutrition
19
Q
What are some education indicators?
A
1) Adult literacy rate
2) Net enrolment ratio in primary education
20
Q
What is the HDI (Human development index)?
A
This is a composite index that measures economic developed which is based on life expectancy, education, GNI.
Preferred indicator for development.
It is possible for a country to have a GDP/GNI per capita global ranking which is lower, or higher, than its HDI global ranking (since GDP/ GNI is only one of the components of HDI)
21
Q
What are some alternatives to HDI?
A
1) Gender related development Index - Same as HDI but takes into account inequalities between men and women within the indicators.
2) Gender empowerment Measure - The extent to which women are able to actively participate in economic and political life.
3) Human Poverty index - Measures the propotion of people who are deprived of the oppertunity to reach a basic level of human needs.
22
Q
What are the domestic factors that contribute to economics development?
A
- Education and health
- Appropriate use of technology
- Acess to credit and microcredit
- empowerment of women
- Income distribution
- Political stability - reduction in corruption
- Infrastructure
23
Q
How does education lead to economic development?
Benefits? Barriers?
A
Education is a primary and fundamental strategy for eradicating poverty. (People are more informed, better employment (higher wages), increases in productive efficiency due to improvements in the quality of physical capital, etc.)
A nation’s human capital is its most vital resource, and the road to prosperity requires an effective education system that does not discriminate based on race, gender, or socioeconomic status.
Benefits:
- Improve the role of women in society - Gender equality.
- Improved levels of health
- Improved levels of productive efficiency - economic growth - government revenue increases
- Increased communication/debate - leading to further innovation and improvement.
- Better chance of employment –> higher wages.
Barriers:
- Provision of education require funding
- Education funding not well distributed (rural and urban
- Children required for work at home/farm
24
Q
How does the appropriate use of technology lead to economic development?
A
Technology can benefit LEDCs in many ways….
Increases in productive efficiency
Examples…
Enabling businesses in remote areas to access banking facilities on mobile phones.
Providing farmers with weather information online - Increase in output –> more revenue/income.
Enabling students to access online study materials.
Note - One must be careful with implementation as it may put may unskilled workers out of employment.
25
What is the definition of microcredit?
Microcredit - **The extension of very small loans at low-interest rates to impoverished borrowers who typically lack collateral, steady employment and a verifiable credit history.**
26
What are the strengths of microfinance?
1. Allows individuals to **escape the poverty trap** - Low income individuals borrow at low interest rates without collaterals, thus allowing them to **increase production and thus income**. (Invest in the quantity/quality of human and physical capital)
2. Improves physical and social well-being of women who are often repressed by societal norms. Opportunity to raise the standard of living for themselves and their children.
3. Creates employment opportunities for the community.
4. No need for collateral (property of asset that the borrower offers to the lender to secure the loan), unlike other financial institutions that require yo to offer security.
5. Save people from 'Loan sharks' by offering low interest rates.
6. It encourages self-reliance and the use of entrepreneurial skills through self-employment
7. It is often accompanied with the provision of basic skills.
27
What are the limitations to micro-credit?
1. It may make governments feel that they no longer need to invest into poverty reduction.
2. Insufficient regulations in the growing informal sector - leading for new avenues for 'Loan sharks'.
3. Borrowers are not natural entrepeneurs and have no appropriate buisness experience. Possibility that they can't pay back the loan.
4. Microcredit loans are small - It can help individuals but not necessarily the whole economy.
5. To ensure individuals receive the loan a functioning system needs to be put into place. Thus, corruption and mis-management might negatively impact microcredits effectiveness.
28
How can the empowerment of women lead to economic development?
Access to basic human rights --\> Improves Standards of living.
Employed women - productive effieciency --\> increase income --\> improvements in standards of living (Growth + increase in household income)
Employed women - productive effieciency --\> increase income --\> increase gov. revenue --\> increased investment
Education --\> more infomred choices ---\> Healthier life i.e. informed on contraception --\> smaller family size --\> less strain on family.
29
How can income distribution lead to economic development?
Greater equality ---\> economic growth (opportunities -\> productive efficiency), for social cohesion, poverty elimination and health (access to healthcare).
Main downfalls of inequality:
1. Low income --- Low saving -- Low investment -- Low growth.
2. Rich dominate politics and economy --\> They make decisions that improve their own standard of living.
3. Rich tend to resort to capital flight (less investment) and they purchase foreign goods.
4. People don't have the same opportunities or access to resources (health, education, etc).
30
How does improvement in health lead to economic development?
Quality (health) of Human capital is also improved by better health care.
Improvements of health lead to improvements in the Standards of living and ensures that country is working towards maximum potential output.
31
How does infastructure lead to development?
Infastructure - The essential facilities and services such as roads, airports, sewage treatment, water systems, railways, telephone and other utilities that are nexessary for economic activity.
Such facilities will imporve the well-being of people by providing transport, clean water, communication etc.
32
How can improvements in political stability lead to economic development?
1. More stability --\> more foreign direct investment and aid and more domestic savings and profits stay in the country.
FDI ---\> lead to growth and maybe development
Aid ---\> Will lead to development.
2. More stability - Citizens will have more input into the economy and the government will be more structured --\> increase output --\> growth (i.e. Laws set in place to protect peoples rights --\> people work).
3. Good governance --\> less corruption --\> government invests into projects that improve the standard of living (infrastructure, health and education).
33
How can a reduction in corruption lead to economic development?
Corruption - dishonest exploitation of power for personal gain.
1. Negative impact on the legal system
2. Unfair allocation of resources
3. Bribes increase business costs --- lead to higher prices.
4. Reduction in trust - Less FDA (Contracts don't get honoured).
5. Public investment is diverted into another project which won't benefit peoples well-being.
6. Officials turn a blind eye to construction and environmental regulations.
7. Capital is moved out of the country - Less capital for internal investment.
34
How can a functioning legal system benefit economic development?
Legal systems are very important to enforce contracts and property rights. This includes
The right.....
1. to own assets (land and buildings)
2. to establish the use of the asset
3. to benefit from the asset - renting
4. to sell the asset
5. to exclude others from using it
No property rights? Investment and growth will stagnate leading to negative impacts on economic development.
35
How can taxation lead to economic development? Barriers?
Tax revenue allows governments to invest into public services and infastructure (i.e. education and health care).
Barriers:
1. A lot of tax exemptions + inefficient/corrupt systems
2. Corporate tax is low - low levels of corporate activity
3. Large tax incentives to foreign firms in order to attract FDA.
4. Export/import taxes only significant if the country trades a lot.
5. Informal markets (Large in LEDCS) - does no contribute to tax. Informal sector has low worker protection, poor pay, poor working conditions, no social care.
Solution:
- Manage corruption
- Increase economic growth - Lead to increase tax revenue.
36
What are the international barriers to development?
1. Over-sepcialization on a narrow range of products
2. Price volatility of primary products
3. Inability to access international markets (tariffs, tariff escalation, quotas, subsidies, etc).
4. Long term changes in terms of trade (Increases in income)
37
How does over-sepcialization on a narrow range of products act as a barrier to development?
Countries that are dependent on a narrow range of primary exports will find it difficult to gain much growth through international trade.
Due to....
Price volatility
Narrow range of goods/sevices might be vunerable to specific changes/events. Tourism and terroism don't go well together.
38
How does price volatility of primary products act as a barrier to development?
The price elasticity of demand and supply for commodities tend to be inelastic.
Hence, a small change in demand/supply conditions will lead to a large change to price.
Significant impact on export revenue. Negative impact on growth and thus on income/ gov revenue --\> low investment --\> No development
39
What are the problems associated with barriers to international markets?
Protectionism - economic policy that aimed to support domestic producers at the expense of foreign producers (tariffs, subsidies, quotas, non-tarrif barriers, etc.)
Negatively impacts firms in developing countries that aim to trade on a global scale.
Other related problems:
Developed countries - by subsidising farmers they can producer at lower costs thus driving down world prices.
Tariff escalation - Rate of tariff increases as goods become more processed. This then acts as a detterant to diversify away from commodities.
Currency in developing countries can sometimes not be converted and thus traders would be taking risks when dealing with non-convertable currency.
40
How does long term changes in terms of trade act as a barrier to development?
1. Impacts ability of developing countries to trade internationally --\> Price volatillity (commodities) --\> export revenues fall --\> ability to buy imports fall.
2. Income
Increases in income --\> increase in prices for manufactured goods (income elastic) but agricultural products don't change much (income inelastic).
Worse of for developing countries TOT as they import manufactured goods (more expensive) and export commodities (less expensive)
41
What are the trade strategies for economic growth and economic development?
1. Import subsitution
2. Export promotion
3. Trade liberalisation
4. Bilateral and regional prefernetial trade agreements.
5. Diversification
6.
42
How can export promotion lead to economic growth and development?
Outward growth strategy based on openness and increased international trade.
**Aim --\> Increase growth (AD) ---\> increasing exports --\> higher incomes ---\> improve standards of living.**
Focusing on manufactured goods (requires education) tend to result in more economic growth in comparison to primary products (downward price trend).
Plan:
1. Liberalised trade -- open up domestic marketto foreign competition in order to gain acess to foreign markets.
2. Liberalised capital flow -- Reduce restrictions on foreign direct investment
3. A floating exchange rate
4. Investment in infastructure that promotes trade
5. Deregulation and limited government intervention.
43
Problems with export promotion?
1. Developed countries trade tarrifs/quotas negatively impact export promotion as well as tariff escalation.
2. Attracting MCS might be negative as they can become to powerful and thus negatively impact local buisness.
3. Free-market export led growth may lead to increased inequality. Growth acheived at the expense of development.
44
What is trade liberalisation?
Trade liberalisation --\> removal/reduction of trade barriers that block free trade.
Negative - MNCs might take advantage - abuse power, not comply to regulations, not contribute to growth, etc.
45
How can bilateral and regional peferential trade agreements lead to economic development/growth.
Refers to giving preference to specific trading areas. Example: EU
More agreements --\> more ability for developing countries to trade ---\> growth ---\> development.
46
How can diversification lead to economic development and growth? Barriers?
Primary problem --\> over-dependence on primary commodities.
Aim --\> process commodities to create manufactured goods which will sell for more (added value) + also protects them from volatile prices.
Increase export revenue --\> increased revenue for government/exporting industries --\> increase growth/investment.
Barriers:
1. Tariff escalation
2. Highly qualified workers
47
What is fairtrade?
Scheme that ensures that producers of food and some non-food, products in developing countries receive a fair price when they sell their products.
Products can be certfied if producers reveive a fairtrade certificate (1500 pounds).
48
What are some benefits for fairtade?
1. There is a reduction in the number of intermediaries which could increase farmers revenue
2. Product must be purchased atleast at F.T minimum price.
This price covers costs of production and provides living income (sustainable production) --\> Improvement in Standards of living and oppertunity to invest into capital
3. Long-term contract --\> security to producer
4. Sustainable farming -- Protects the enviornment
5. Protection for workers rights
6. Premium is paid to producers community
49
What are some negative aspect of Fairtrade?
1. The organisation has a lack of transparency --\> creates doubt about the benefits for farmers. Misleading consumers.
2. A lot Fairtrade farmers are not located in the poorest nations.
Instead slightly wealthier farmers benefit --\> increase production --\> downward pressure on the price --\> lower global price --\> poorest farmers suffer.
3. Certification cost ---\> Barrier to entry
4. No the best method for development because..
- Is the increase in revenue significant
- If they do receive extra money -- will it be invested efficiently (lack of education).
5. More emphasis on the mechanisation/industrialisation to improve productive efficiency.
6. Dependency on international markets ---\> fluctuations ---\> drop in demand due to higher prices (minimum price).
50
What is foreign direct investment (FDI)?
Long term investment by private multinational corporations (MNCs) in countries overseas.
51
Why are MNCs attracted to foreign countries?
1. Rich in natural resources
2. Huge and growing global markets -- potential for demand. (Brazil, China, India, etc)
3. Lower cost of labour
4. Less regulation - Easier to setup operations.
5. Governments offer tax concessions
52
What are the advantages of FDI?
1. Increased savings ---\> reductions in savings gap --\> allows for economic growth
2. MNCs Provide employment and education
3. MNCs - Access to new technology
4. MNCs - Host government gain tax revenue -- reinvested for increased development
5. Buying local buisnesses? Injecting foreign capital --\> increase in AD.
6. MNCs - Improvements in infastructure - Physical and financial
7. MNCs - More choice at a lower cost
53
Disadvantages of FDI?
1. MNCs might bring in employment from overseas
2. Too much power -- Don't contribute to government revenue (no taxes) and they can manipulate policies in institutions (WTO).
3. Take advantage of transfer pricing --\> sell goods/services to another division in other countries --\> reduces tax revenue
4. Take advantage ---\> non-sustainable production (pollution) ---\> exploitation of workers
5. Deprive host nation of natural resources
6. Use capital intensive (machines) production -- no need for labour.
7. Transfer profits out of the host nation.
54
What is aid defined as? What are the reasosn for aid?
Aid, or foreign aid, is defined as **any assitance that is given to a country that would not have been provided through normal market forces.**
Reasons:
- Help people who experienced natural disaster/war
- Economic development
- Strengthen political or strategic alliances
- Fill savings gap - encourage investment
- Improve quality of human resources
- Improve technology
- Fund specfic developmental projects
55
Difference between official and non-official aid?
Official --\> Organised by government/official government agency.
Unofficial --\> non-governmental organisation (NGO) - Oxfam
56
What is humanitarian aid?
Aid given to alleviate short-term suffering caused by droughts, wars and natural disasters.
Three forms of grant aid (not repayed)
1. Food
2. Medical
3. Emergency.
57
What is developmental aid?
Also known as ODA
Aid that is given to alleviate poverty in the long run and improve the welfare of individuals.
It consists of grants, concessional long term loans, project aid (which includes support for schools and hospitals) and programme aid (which includes support for sectors such as education and financial)
58
What are the types of developmental aid?
Long term loans - Loans that are usually repayble (10-20 years).
Tied aid - Grants or loans given to developing countries but on the condition that funds are used to buy goods/servies from donor country.
Project aid - Money for specific project (i.e. infastructure).
Technical assistance aid - Raise level of technology and also raising quality of human capital (training/guidance).
Commodity aid - Grant used to increase productivity.
59
Apart from official/unofficial, what other ways can devlopmental aid be classified as?
Bilateral - Aid given directly from one rich country to another country.
Multilateral aid - Aid given by rich countries to international aid agencies. The agency will then decide where the aid is most needed.
60
What is charitable aid?
Aid funded by donations from the public through organisations such as OXFAM.
61
What does Aid from NGOs normally entail?
This is given by non- governmental organisations such as CAFOD.
The main priority of NGOs is usually to provide aid on a small scale to achieve development objectives.
Two methods:
1. Specific projects acting as lobbyists trying to influence public policy (workers rights, enviornment, etc)
2. Working directly ---\> literacy programmes, health educations, aids prevenetion, micro-creidt schemes etc.
62
Summarise the main concerns about aid?
1. Government does not have the public welfare at heart --\> Aid not invested in beneficial projects
2. Corrupt governments
3. Aid is often given to countries which the donor has political and economic interest in.
4. Tied aid -- More expensive choices, no growth in developing country as money is not spent there and imports replace domestic products.
5. Aid of any good might drive down local prices for firms which puts them out of business.
6. Continued aid? Less incentive to innovation/risks by entrepreneurs/less productive efficiency --\> dependency.
7. Aid focus on industrialisation --\> Greater gap in income and living standards. (Industrialisation vs agriculture)
8. How does the donor know the exact needs??? Information failure --\> waste of resources/misallocation
63
What is one of the main problems with aid?
**Indebtedness**
1. This takes away from the avaliable funds that could be spent on other sectors within the economy.
For example:
Negatively impact economic growth - Less investment into infastructure.
Negtaively impact economic development - They can't afford essential services.
2. In the past the IMF support countries suffering from inbetness but they needed to adopt new policies which negativley impacted development.
Solution? - Debt releif
- Less strain on the economy --\> more economic growth --\> more development.
3. Growing levels of debt can discourage foreign and private investment
64
What is the IMF? What does the organisation do?
IMF - International monetary fund
It aims was to help stabilise exchange rates and provide loans to countries in need.
Functions
1. International Monetary Cooperation
2. Promote exchange Rate stability
3. To help deal with Balance of Payments adjustment
4. Help Deal With Economic Crisis by providing international coordination
65
Is debt relief fair?
Odious debt - debt that is incurred by a regime and is then used for purposes that do not serve the interest of the pople.
A lot of debt that has accumulated is Odious debt. Thus, the citizens should no have to suffer from the affects of indebtness.
Some argue that the lenders should be held responsible as they were careful when giving the aid.
66
What is the world bank? What do they do?
The World Bank concentrates on **long term loans to developing countries and poverty reduction** by providing **technical and financial support** to help countries reform certain sectors or implement specific projects.
This is acheived by providing low-interest loans, zero to low-interest credits, and grants to developing countries.
67
What are market led policies?
Market led policies - Policies that are designed to minimise the role of the government and to maximise the free operation of supply and demand in markets.
Examples - Export led growth, FDI, deregulation, privatisation etc.
68
What are interventionist strategies?
Interventionist strategies - Policies involving an active key role by the government and manipulation of the workings of the markets in the economy.
Examples - Import substitution, protectionist trade policies, exchange rate intervention, regulations, etc.
69
Positve aspect of interventionist strategies?
1. Greater equality – redistribute income and wealth to improve equality of opportunity and equality of outcome. I.E. Ensuring the workers are not been exploited.
2. Ensure the provision of public services such as education and health care (development).
3. Investment into infastructure - Road/trains --\> improved communication
70
Negative aspects of interventionist stategies?
1. Public sectors grow too large -- Bureaucracy and red tape leading to ineffieciency.
2. If political instability is present then it will allows for the growth of corrupt practises.
3. Nationalised industries - inefficient --\> not encouragement to innovate --\> no extra profits
4. Government spending is excessive -- large debt --\> more borrowing.
5. Increase money supply lead to inflation
6. Government failure --\> Infastructure project fall.
71
Positive aspects of market led strategies?
1. It frees up domestic markets, by eleimating price controls and subsidies thus increasing competition. Lead to innovation -- growth -- development
2. Liberalising international trade (no trade restrictions) - opens up new markets -- lowers costs - cheaper prices, increased exports, allows economies to specialise - benefit from economies of scale.
3. Reduces government expenditure --\> reduces budget deficit.
4. Privatizing nationlized industries - Increase gov revenue, buisnesses no influenced by politics, improved efficiency.
5. Encourages FDI (benefits outlined previously)
72
Negative aspects of market-led policies?
1. Infrastructure is unlikely to be created --\> insufficient infrastructure for free market economy
3. Governments can't ensure adequate investment into health and education.
4. Free market - long term economic growth but short term results in costs to poorest. For example, uneployment rises, prices of essential products, provision of public services fall.
5. Attention directed toward urban areas --\> increasing wealth divide between urban and rural leading to migration towards cities and construction of city slums.
6. Governments lack poltical stabilty for FDI.
73
Conditions needed for both economic growth and development?
1. Trade justice - Developing countries trade on a fair basis - not hampered by protectionist policies
2. Debt relief - Allows for funds to be invested into human and physical capital.
3. Free working of domestic market in order to push innovation --\> However, only when market is competitive, has sufficent support in terms of infastructure, quality of labour and technological/managerial expertise.
4. Poltical stanility and good governance - no corruption
5. Effective, targetted aid for pro-poor growth.
74
Test Tips?
1. Any definitions? Include example where possible!!!
2. Diagrams? Title, axis labelled with units, curves labelled.
3. Explain question --\> draw diagram + explain (answering the question) + include example (preferably from the text --\> if not you own)
4. Evaluation --\> At least 2 main points --\> Using examples from the text!!!!!
- Each point needs balance!
- Each body paragraph needs a mini conclusion
75
How can free trade lead to development?
1. Trade ---\> Increase export revenue ---\> growth --\> increased income + more employment ---\> reduction in poverty --\> Development.
2. Trade --\> reduce costs of the factors of production \> revenue ---\> growth --\> development **AND** Lower prices for consumers --\> more goods/services available.
3. Facilitates export diversification
4. Exchange of information/technology --\> improvements in the standards of living.
5. Increase in competition --\> drive innovation.
76
Criticism of HDI?
1. Does not take into account differences within a country.
2. Weighting between the three main components is rather arbitrary.
3. Does not assess freedom. eg internet access/ freedom to vote.
4. There is no consideration of the distribution of income.
5. In addition, the HDI excludes many aspects of economic and social life. I.E. crime, corruption, poverty, deprivation, and negative externalities.
6. GDP is calculated in terms of purchasing power parity, and the value can change.
77
Definition of primary product dependency?
Heavy dependence measured as a share of GDP, on the extraction / cultivation and selling of primary commodities such as copper and oil.
78
Definition of a Concessional loan?
These are loans that are extended on terms substantially more generous than market loans. They have low-interest rates/repaid in a long period of time.
I.E. World bank.
79
Country profile for Venezuela.
Include
Status
GDP + GDP per Capita
Economic structure
Key macroeconomic data
Development data (HDI, Gini, life expectancy, etc)
Economic drivers
Economc limiters
Location - South America
1. **Status** - Developing (LEDC)
2. **GDP** - 344 Billion USD / Per capita (PPP) 15,602
3. **Economics structure** - % of GDP comes from
Agriculture - 4%
Industry - 36.1 %
Services - 59.9%
4. **Key Macroeconomic data**
GDP growth - -10%
Inflation - 720%
Unemployment - 20.6%
Gov. Debt - 36.7 of GDP
BoP - 3.87 Billion deficit
5. **Development Data**
HDI ranking - 71
Corruption perception ranking - 166/176
Inequality data (Gini) - 0.47 (0 = equality/1 - inequality)
Life expectancy - 74.4
WEF (competitiveness index) - 127/137
Strongest - Health and primary/higher education
Problematic - Inflation, foreign currency regulation
6. **Economic drivers** - Oil/petroleum industry
7. **Economic limiters** - High inflation, shortage of consumer goods (medicine, food, etc), Multinationals are driven away (Regulations + political problems), corruption.
80
Country profile for Palau.
Include
Status
GDP/GDP capita
Economic structure
Key macroeconomic data
Development data (HDI, Gini, life expectancy, etc)
Economic drivers
Economc limiters
Location - Oceania
1. **Status** - Developing
2. **GDP** - 310 million USD - Per capita (PPP) - 16,200
3. **Economics structure -** % of GDP from
Agriculture - 3.2%
Industry - 20%
Services - 76.8%
4. **Key macroeconomic data**
GDP growth - 9.4%
Inflation - 2.2%
Unemployment - 1.7 %
Debt - 24.1 % of GDP
B.O.P current account - -32 million USD
Main exports - Tuna and Shellfish
Note - Recipient of Overseas aid from the US
5. **Development data**
HDI - 60
Corruption perception index - No Data
Life expectancy - 72.9
Gini coefficient - 0.49 (0 = equality --\> 1= inequality)
WEF (competitiveness index) - No data
6. **Economics drivers** - Tourism
7. **Economic inhibitors** - Reducing reliability on foreign aid, subsistence agriculture.
81
Country profile for Afghanistan.
Include
Status
GDP/GDP per capita
Economic structure
Key macroeconomic data
Development data (HDI, Gini, life expectancy, etc)
Economic drivers
Economc limiters
Location - Asia
1. **Status** - Developing
2. **GDP** (PPP) - 66.65 billion USD / Per capita -$2,000
3. **Economic structure** - % of GDP from
Agriculture - 24%
Industry - 21%
Services - 55%
4. **Key Macroeconomic data**
GDP growth - 2%
Inflation - 4.5%
Unemployment - 35%
Debt - 1.28 billion
B.O.P current account - 1.372 billion
5. **Development Data**
HDI - 169
Corruption Perception Index- 169/176
WEF - No data
Inequality (gini) - 0.28
Life expectancy - 60
6. **Economic drivers** - International assistance driving growth (Aid) (USA, Germany Japan, etc.)
7. **Economic limiters** - Living standards (shortages of housing, clean water, electricity, medical care, and jobs), high Corruption, lack of infrastructure, instability in the government (weak government), reliance on agriculture, lack of investment (insecurity).
82
What is an example of education and health contributing towards economic development?
Country Namibia
There was an average growth rate in GDP of 4.38% between 2006 to 2012. They also experienced improvements in well being - access to basic needs, such as food, clothes, shelter, healthcare, and education (employment --\> people can afford)
Stable budgetary allocation towards education has lead to improvements in the level of education between that time period.
The government correlates these improvements to economic development due to increased employment as a result of the improved education.
Unemployment 2008 - 51%
Unemployment 2012 - 27.4%
83
What is an example of how technology has contributed towards economic development?
**Kenya - M- PESA Project launched 2007**
M-PESA is a mobile payment solution --\> significant impact on economic development in Kenya.
Useful as less than 10% of Kenyans have access to financial services but 90% have access to mobile phones.
Benefit?
- Offers a safe place to keep savings
- Reduces transaction costs
- Enabled 185,000 women to move out of subsistence farming and into business or sales occupations ---\> has lifted an estimated 2% of Kenyan households (some 194,000) out of extreme poverty.
84
What is an example of how credit/microcredit has contributed towards economic development?
Bangladesh - Grameen Bank
Great success --\> 20.5 million borrowers/average loan of $114.
Focuses on small groups 'lending circles' of largely female entrepreneurs from the poorest level in the society.
**Benefits**
- Microcredit accounted for a 10 percent reduction in rural poverty.
- Lifted some 2.5 million Bangladeshis from the ranks of the poor.
- Allows households to diversify away from agriculture which normally results in a 29% increase in income.
85
What is an example of how improvements in infrastructure have contributed towards economic development?
Kenya's railway
Benefits
- Expect to see a boost in Kenya's GDP by 1.5% --\> should allow Kenya to pay back its loan.
- Transport large quantities of cargo --\> less damage to local roads due to overuse.
- Jobs created from construction.
- Passengers will enjoy a faster + cheaper journey (improves standard of living).
- More affordable rail option is a relief for businesses.
Costs
- High costs to make - 5.6 million dollar per Km of tack (total of 3.2billion)
- Doubt about whether they can pay back the debt (Public debt has risen but there has been no increase in revenue).
- Does the price of tickets (Economy $9/Business $30) still prevent poor individuals form accessing the trian
86
What are terms of trade?
Terms of trade
It is an index that shows the value of a country's average export price relative to their average import price.
Equation
TOT = [(Weighted index of average export prices)/(Weighted index of average import prices)] x 100
87
What does a developing country's terms of trade look like?
A developing country tends to have...
1. I high weighted average of import prices because...
Import expensive goods --\> manufactured goods/technology as they don't tend to produce such goods domestically.
2. A low weighted average of export prices because...
Export products which have a low price --\> agricultural products.
88
What are the results of the terms of trade equation?
TOT \> 100 --\> High export price and low import price
TOT \< 100 --\> Low export prices and high import price.
Increasing TOT --\> improving terms of trade.
89
Implications in Terms of trade improvement?
Caused by increasing value of exports or decreasing value of imports or both.
Improvement in terms of trade means that you will be able to buy more imports with the money received from exports (as exports are more expensive --\> increase revenue).
This is especially beneficial for developing countries that rely on imported manufactured goods.
90
What are short run factors that lead to changes in the terms of trade?
1. Demand and supply of exports/imports
Examples:
Increase in demand for exports (i.e. changing taste/fashion) ---\> increase in price
Increase in supply (improved weather) --\> decrease price of agricultural products
2. Relative inflation rate
It can lead to an improvement in the terms of trade (higher export prices) but reduces competitiveness --\> impact depends.
3. Exchange rate movements
Exchanges the price of export or imports.
Exchange rate Improves --\> lower prices of imports --\> improvement of TOT.
91
What are long-run factors that lead to changes in the terms of trade?
1. Income
Increases in income --\> increase in prices for manufactured goods (income elastic) but agricultural products don't change much (income inelastic).
Bad for developing countries.
2. Productivity
3. Technology
Both productivity and technology --\> lower production costs --\> lower prices of exports --\> Deterioration in TOT bad? Not always as it improves competitiveness.
92
Definition of diversification?
The reduction of risk achieved by replacing a single risk with a larger number of smaller unrelated risks for example...
93
What is the Lorenz curve?
The Lorenz Curve is a graphical method of showing the degree of income inequality in a given economy or population.
Y axis - % of total income
X axis - % of population
Line of equality - 45% --\> Equal distribution of income.
The further away the Lorenz curve is from the line of absolute equality (the 45° line), the greater the degree of income inequality.
94
What is the Gini-coefficient?
**The Gini coefficient** --\> measure of income inequality that condenses the entire income distribution for a country into a single number between 0 and 1.
Higher --\> more inequality
Lower --\> less inequality
The Gini-coefficient is derived from the graph --\> calculation of the area between the Lorenz curve and the line of equality.
