Economic Development

Question 1

What is economic development

Answer 1

Increase in the quality of life of citizens of a country over time by expanding people’s freedom to live long, healthy and creative lives.

Question 2

What is human capital

Answer 2

A measure of the skills, education, capacity and attributes of labour which influence their productive capacity

Question 3

What is the difference between GDP and GNP (gross national product)

Answer 3

GDP measures the value of all goods and services produced within the country’s borders.
GNP measures the value of all goods and services produced by a country’s citizens both domestically and abroad

Question 4

Why is some human capital under-developed

Answer 4

Too few resources put into schooling
Poor access to education
Human capital flight (brain drain)

Question 5

What are the problems associated with lack of development due to poor education

Answer 5

Low labour productivity, as less skills in the workforce and less innovation
Lower earnings

Question 6

What does HDI measure

Answer 6

Economic development via a combination of average life expectancy, average number of years in school and gross national income

Question 7

Policies to promote economic development - market based

Answer 7

Trade liberalisation
Promotion of FDI
Removal of government subsidies
Floating exchange rate system
Microfinance schemes
Privatisation

Question 8

What types of strategies can promote development

Answer 8

Market based, interventionist and other

Question 9

Policies to promote economic development - interventionist

Answer 9

Development of human capital (education and training)
Protectionism
Managed exchange rates
Infrastructure development
Buffer stock schemes

Question 10

Other policies to promote economic development

Answer 10

Development of tourism
Development of primary industries
Aid
Debt relief

Question 11

Measures of economic development

Answer 11

HDI
Economic structure of the economy
More indirect indicators eg access to health and education, access to the internet and mobile phone usage

Question 12

What is purchasing power parity

Answer 12

A metric which compres economic productivity and standards of living between countries. It compares currencies through a basket of goods.

Question 13

What is the importance of PPP adjustments

Answer 13

When price levels in a country are much lower than US, using US dollars at market exchange rates will underestimate standard of living

Question 14

What is national income

Answer 14

A measure of the monetary value of the flow of output of goods and services produced in an economy over a period of time

Question 15

Evaluation of trade liberalisation

Answer 15

Making use of comparative advantage is at odds with helping a developing economy to move away from primary commodities because that is likely what its best at
Removal of tariffs may be one sided- trade partners leave tariffs in place
Can cause domestic workers to suffer if there is now less demand for domestic goods

Question 16

Evaluation of policies to encourage FDI

Answer 16

Impact of FDI from MNCs is often harmful due to its exploitative nature.
Most policies which make countries attractive to FDI also limit its benefits eg lower corp tax.
MNCs take advantage of cheap labour and exploit natural resources

Question 17

Obstacles to development

Answer 17

How beneficial is natural resource endowment?
Low levels of health and education
Low life expectancy
Impact of More Economically Developed Countries’ trade policies,
Impact of poor infrastructure, capital and tech
Institutional weakness
Poor governance
High public sector debt

Question 18

How does trade liberalisation raise development

Answer 18

Allows for comparative advantage, which increases world output and promotes efficient allocation of resources
Allows developing countries to access the protected markets of the developed world
Improves consumer welfare as lower prices

Question 19

How does international aid help development

Answer 19

Can increase life expectancy as investment can be directed into health care or improved infrastructure
Same with education
Better education means more income, AD up rGDP up

Question 20

What is international aid

Answer 20

The transfer of capital, goods or services from a country or international organisation for the benefit of the recipient country. Can be in the form of loans or money that isn’t required to be repaid

Question 21

Evaluation of international aid

Answer 21

Can create reliance on aiding country/organisation
Half of international trade is “tied”, meaning recipients have to use it to buy goods and services from the donor nation, so it’s less effective
Loans can worsen situation due to debt accumulating.

Question 22

How does debt relief help development

Answer 22

Countries can invest more as they don’t have to worry about repaying debt

Can lead to lower taxes as govt doesn’t need as much revenue to pay for debt. Disposable income up, consumption up. More savings, so cheaper investment

Question 23

Evaluation of debt relief

Answer 23

By providing an insurance policy against poor financial management by national governments debt relief causes moral hazard, so precautions preventing future debt aren’t taken.
Corrupt countries won’t make use of the help

Question 24

How does import and export substituting industrialisation help development

Answer 24

Growth in rGDP due to exports up (exploit comparative advantage) and imports down (improving domestic production)
Profits from exports can be invested

Question 25

Evan of import and export substituting industrialisation

Answer 25

Can allow inefficient industries to thrive because they don’t need to worry about international competition. Results in govt wasting money.
Specialising in sectors where you have comparative advantage can lead to Dutch disease in other sectors