Disparities in Wealth and Development Flashcards

Question

terms of trade and trade deficits

Answer 1

the relative price of exports in terms of imports and is defined as the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods. Poor terms of trade lead to **trade deficits** * Leads to further debt as a country tries to borrow money from Western lenders in order to improve techniques and equipment * Creates a cycle of dependency

Answer 2

**_advantages_** * local companies can become global companies * faster economic growth in countries * TNCs have more capital, that can, in emergencies, be spent to clean up any accidents, thanks to free trade * Mexico has increased its exports since joining NAFTA * improves relationships between countries, **less wars** (McDonalds Theory) * Job creation * Workers may improve skill and education level Infrastructure like roads and ports are improved for the whole country (FDI) * Laws can be put in place to protect worker rights * More money can be made by selling to external markets rather than just domestic market * Greater variety of products * Increased competitiveness and lower prices * It is hard for countries to be self-sufficient because they may lack fertile soils or fossil fuels - they need to trade to survive and grow **_disadvantages_** * TNCs may take over local producers (e.g. Walmart) * Exploitation of workers by TNCs and paid low wages for long hours * Dependency on foreign countries imports e.g. Europe relies on Russian gas * Countries may become reliant on foreign workers e.g. UAE rely on European, South Asian and Filipino workers * Producing locally should reduce transport costs and certainly reduce air miles * Local companies will use more appropriate technology and take greater care of the environment * The most skilled jobs will be taken by foreign workers and may lead to unemployment * Much of the profits will go overseas e.g. economic **leakage** e.g. Hiper Piaz profits go back to Walmart in US * TNCS often don’t care about the environment of other countries and may cause pollution e.g. Union Carbide in Bhopal, India * Fast food franchises like Starbucks and Burger King may cause local traditional restaurants to close * Fast food restaurants may worsen people’s diets * TNCs may close factories during economic recessions leading to unemployment * Countries may be forced to change policies to suit TNCs e.g. lower taxes.

Answer 3

An arrangement among a group of nations to allow **free trade** between member countries but to impose **tariffs** (charges) on other countries wishing to trade with them. This free access to each other’s markets is important as it allows a much **bigger market**.

Answer 4

Having organisations that try to bring benefits to people at virtually every step of the production process, helps to **alleviate poverty** in some of the world’s most marginalised communities. *health and safety at work, use of pesticides and chemical fertilisers, employment of children, pay and conditions, and even the freedom of workers* * Ethical trading increases productivity and sales. * Nevertheless, there are **conflicts of interests**. **Fair Wage** — as most people want paid work, but the opportunities are very limited, Fair Trade is a much needed service where people receive a fair pay; multiplier effect, debts paid, etc. **Social Benefits** — improvements in wellbeing (e.g. respected women, confidence, rights) **Gender equality and women’s empowerment** — as a stated goal of Fair Trade, and often difficult to change, Fair Trade is able to help with the employment and a higher than average wage in culturally acceptable conditions. In addition, women can meet, socialist and discuss problems. **_Conclusion_** **Fair Trade contributes to development.** The economic and social benefits provide a means for families to cope with poverty, to improve their conditions though education and healthcare, to acquire assets, and to develop the skills and confidence to engage in new economic activities — multiplier effect. The voices of the women themselves are a testimony to the many “good changes” they feel are attributed to being a Fair Trade producer. However, while Fair Trade helps individuals and provides a model of good business practice, **it cannot alone deal adequately with the structural causes of poverty** and underdevelopment in countries such as Bangladesh.

Answer 5

**Top-Down Development (Emergency Relief)** * Usually large in scale * Carried out by governments, international organisations and “experts” * Done by people from outside the area * Imposed upon the area or people by outside organizations * Often well funded and quickly responsive to disasters * Does not involve local people in the decision-making process **Bottom-Up Development** * Small in scale * Labour intensive: common projects including building earthen dams, creating cottage industries * Involves local communities and local areas * Run by locals for locals * Limited funding available * Involves local people in the decision-making process

Answer 6

**When Aid Is Effective** * provides humanitarian relief * can support better economic and social policies * helps expand much-needed infrastructure * contributes to personnel training and builds technical expertise * provides external resources for investment and finances projects that could not be undertaken with commercial capital. **When Aid Is Ineffective** * Corruption * It might allow countries to postpone improving economic management and mobilisation of domestic resources. * It replaces domestic saving, direct foreign investment and commercial capital as the main sources of investment and technology development - dependency. * **The provision of aid might promote dependency rather than self-reliance.** * Some countries have allowed food aid to depress agricultural prices, resulting in greater poverty in rural areas and a dependency on food imports. It has also increased the risk of famine in the future. * Aid is sometimes **turned on and off** in responses to the political and strategic agenda of the donor countries, making funds unpredictable, which can result in interruptions in development programs. * The provision of aid might result in the transfer of inappropriate technologies or the funding of environmentally unsound projects. * Emergency aid does not solve the long-term economic development problems of a country. * Too much aid is tied to the purchase of good and services from the donor country, which might not be the best or most economical. * A lot of aid does not reach those who need it, that is, the poorest people in the poorest countries.

Answer 7

**Charity Aid**: (small projects such as water pumps, giving a family a goat or food) (NGO’s, individuals) **National Aid**: (government agencies that tax payers spend to fund financial and technical assistance). Most money comes from here. **International Aid**: World Bank, IMF, and UN (MGO’s) *also*, bottom up, top down, official, unofficial

Answer 8

*mainly sub-saharan countries* _What has been done to deal with debt?_ **_Debt Relief Initiatives_** * The problem of **toxic** or “**odious**” **debt** * This is debt that was given for development projects but **ended up in private hands leading to corruption** (most of the time, these loans should never be given!) **Jubilee Debt Campaign (Jubilee 2000)** * A movement that helped relieve much of the debt for HIPC’s (because many owed this huge to corrupt leaders who did stupid things with the money e.g. Iran Irak War) * The “**moral hazard**”: a counter argument to debt relief that suggests relieving debt will only encourage greater borrowing in the future and further defaults on existing loans **_Structural Adjustment Programs (SAPs)_** Designed to cut government expenditure, reduce the amount of state intervention in the economy, and promote liberalisation and international trade. Four main elements: 1. greater use of a country’s resource base 2. policy reforms to increase economic efficiency 3. generation of foreign income through diversification of the economy and increased trade 4. reducing the active role of the state and encouraging privatisation of state companies and austerity measures The measures were sometimes divided into two main groups: * **stabilisation measures**, short-term steps to limit any further deterioration of the economy (e.g. wage freeze, reduced subsidies on food, health and education * **adjustment measures**, longer-terms policies to boost economic competitiveness (tax reductions, export promotion, downsizing of civil service, privatisation and economic liberalisation) **_The Heavily Indebted Poor Countries (HIPC) initiative_** launched in 1996 by the international Monetary Fund (IMF) and the World Bank and endorsed by 180 governments has two main objectives: * to relief certain low-income countries of their unsustainable debt to donors * to promote reform and sound policies for growth, human development and poverty reduction. Debt relief occurs in two steps: 1. At the decision point the country gets debt **service relief** after having demonstrated adherence to an IMP program and progress in developing a national poverty strategy. 2. At the completion point the country gets debt **service relief** upon approval by the World Bank and the IMF. The country is entitled to at least 90% debt relief from bilateral and multilateral creditors to make debt levels sustainable.

Answer 9

**_Expanding Market Access_** Is essential to help countries diversify and expand trade. Trade policies remain highly discriminatory against developing country exports. * Average OECD tariffs on manufactured goods from developing countries are more than four times those on manufactured goods from other OECD countries. * Cotton farms in developing countries have improved productivity and achieved lower production costs than their richer country competitors and still can barely compete. **_MEDCs should set targets to:_** * increase official development assistance to fill financing gaps (estimated to be at least $50 billion) * remove tariffs and quotas on agricultural products, textiles and clothing exported by developing countries * remove subsidies on agricultural exports from developing countries * agree and finance, for HIPCs, a compensatory finance facility for external shocks, including collapses in commodity prices * agree and finance deeper debt reduction for HIPCs that have reached their completion points, to ensure sustainability **_The role of Micro Credit: Break Poverty “trap”_** *Nobel Peace Prize winner **Muhammad Yanus** developed the Grameen Bank in **Bangladesh** to battle poverty.* Tiny loans and financial services to help the poor, mostly women, start businesses and escape poverty (PPP makes 5$ a lot money to poor people) Poverty trap: being born poor, no school, no job, big family, etc. money needs to be injected into this cycle of poverty. The method cuts out the corrupt government and gives the money directly to the people who need it. Mortgage loans is when the bank gives you money, and then you can buy stuff, and then have to pay back over years every month. But banks will only give you money if you can prove to them that you have a stable income of money. **The Grameen Bank Project** Came into operation with the following objectives: * extended banking facilities to poor men and women; * eliminate the exploitation of the poor by money lenders; * create opportunities to self-employment for the cast multitude of unemployed people in rural Bangladesh; * bring the disadvantaged, mostly the women from the poorest households, within the fold of an organisation format which they can understand and manage by themselves; * reverse the age-old vicious circle of “low income, low saving & low investment”, into virtuous circle of “low income, infection of credit, investment, more income, more savings, more investment, more income”.

Answer 10

1. **average real incomes** in the poor world have more than double in the past 40 years, despite population growth 2. **under-five death rates** have been cut by 50% or more in every region over the past 40 years 3. **average life expectancy** has rise by more than a third in every region since 1950 4. **access to safe water** has risen from about 10% to 60% in rural areas since 1975