Economic development Flashcards
What do we look at in economic development?
What we are looking at are the problems that poor countries have in increasing their standard of living.
We can divide most of the countries in the world into 1 of 3 main types. What are these types?
1 - The most economically developed countries (MEDC’s)
2 - The emerging economies
3 - The less economically developed countries (LEDC’s)
What are the MEDC’s?
These tend to be the richest countries in the world, with the highest gross national product per head.
In most of these countries, people who work in primary sectors (agriculture, raw materials) tend to be rather low, and most people work in either manufacturing or finance.
These countries tend to have the most advanced infrastructure and the most educated workforces. Often the majority of the young people are in education until they are 18, so worker productivity tends to be fairly high.
For example, the US, most of Europe, Norway, Japan.
What are the emerging economies?
These are the countries that for the last 20-40 years or so have been growing fairly fast, but most people still have much lower standards of living than those in MEDC’s.
Gross national product per head is going up quickly.
Although many of these people still work in agriculture, there has been a significant shift to manufacturing and services
Most things in the economy are getting better - Infrastructure, length of education.
Not all these countries have democratic governments, but, compared to the poorer countries the governments tend to be fairly stable.
For example, China, India, Brazil, Mexico, Indonesia.
What are the LEDC’s?
These are the poorest counties in the world. Their gross national product per head will be the lowest.
Their economies will tend to be dominated by the primary sector, e.g. mining, farming.
Their infrastructure tends to be fairly weak, and for most young people, their years in education will be much shorter, therefore the workforce is less educated.
These countries tend to have so much poverty it’s hard for governments to meet their expectations, so they may not be very stable.
For example, Ethiopia, Bangladesh, Cambodia.
What does GNP stand for?
Gross national product. This is the total market value of the final goods and services produced by a nation’s economy during a specific period of time (usually a year).
What is the distinction between economic growth and economic development?
Economic growth refers to increases in output each year.
Economic development refers to a fundamental change in how that economy works, from one based largely on agriculture, to one based largely on manufacturing and services.
Because the productivity in manufacturing tends to be much higher than in farming, this will enable the economy to keep growing on a sustainable basis from year to year.
Therefore, economic growth is essential for economic development, however it is not enough on its own. You also need a shift towards manufacturing.
What are the barriers to development? (7)
1 - Low level of savings 2 - Relatively poor infrastructure, e.g. roads, energy suppliers and public services i.e. services provided by the government e.g. healthcare and education. 3 - Increasing population 4 - Dependence on primary products 5 - Limited domestic markets 6 - Effect of MEDC's trade policies 7 - Lack of political stability
Why is a low level of savings a barrier to development?
In most of the poorer countries, the level of savings (in the population) tends to be fairly low. Theres a number of reasons for this:
- Most people are too poor to save
- People who can afford to save will tend to save their money in other countries
- For most people, even if they can save, may have very limited access to banks.
Because savings are low, banks will fins it very hard to attract money, and will have less money to lend out to businesses. This means businesses will have a hard time raising money for investment (e.g. bank loans), making it harder for the economy to develop.
Why is having relatively poor infrastructure a barrier to development?
Theres a number of reasons why these services tend to be limited:
- The government needs to raise revenue to provide services, and its often difficult for these countries to raise much from taxes, because most people are too poor to pay, and the rich will avoid it e.g. take their money abroad.
- Because these countries are poor, and the government is fairly weak, a lot of the money will disappear from corruption.
Because infrastructure and public services are too poor, development is held back as they cannot raise revenue to improve it. This causes problems such as:
- It will be a lot harder for businesses to transport their goods, which will increase their costs, making them less competitive, making it even harder for infant industries.
- Harder to attract multi-national businesses to go to those economies, too much high risk/high costs.
- The low level of education makes it harder for workers to develop skills in the future, making their productivity low, making it difficult to develop.
Why might poorer countries have a growing population?
For most of the poorer countries, their birth rate tends to be much higher than for the richer countries, meaning population tends to increase quicker. Theres a number of possible reasons for this:
- Access to contraception tends to be far more limited
- Their infant mortality rates tend to be high (Under 5 deaths). Because of this, they tend to have larger families incase some of the children die.
- Particularly in rural areas, having lots of children can be beneficial - more hands to help out on the farm, and care for parents when they are older (there may not be pensions from the government.
Why is having an increasing population a barrier to development?
Theres a number of reasons why this high population growth may make it harder for these countries to develop:
1 - It puts more pressure on their resources, particularly services provided by the government, e.g. education.
2 - If their population is increasing, it will make it harder for them to increase their income per head of population, making it harder to improve living standards.
3 - If population is going up too quickly, particularly in urban areas, theres going to be more pressure for jobs, because of this there will be an increasing problem of unemployment.
But these countries tend to have a fairly young populations, and young people tend to be more energetic, entrepreneurial, willing to take risks, which MIGHT help them develop in the future.
How do you work out the income per head of population?
Gross national product (GNP) / Population = GNP per head
Why is a dependence on primary products a barrier to development?
1 - the supply of these products is often influenced by natural factors i.e. the weather, over which they have no control. This means what they earn may vary year to year.
2 - Because many of these products are just natural resources, it’s very difficult to add value i.e. improve them, meaning it’s harder for them to increase their prices, limiting their ability to develop.
3 - The poorer countries will tend to sell most of their raw materials to richer countries, therefore the demand for their products and their amount of income is going to be almost completely dependent on how the rich countries are doing. IF they go into a recession, prices may have to fall.
4 - In the SR, because of the effect commodity prices might have on the exchange rate in the short term, poorer countries may even lose out when the price of these commodities are increasing due to their exchange rate increasing, making other products they produce less competitive overseas (Most of which will be infant industries)
Why do markets tend to be very limited in poorer countries?
Most people in these countries do not have very much to spend. Theres 2 main reasons the markets tend to be very limited:
1 - For most, their incomes are very low, and what they do buy are necessities
2 - Their infrastructure also tends to be very limited, making it harder for businesses to reach their customers. (Rural areas etc.)
