Economic Development Flashcards
What is economic growth?
An increase in the size of a country’s GDP
What is economic development?
When living standards and people’s general welfare change over time
What are national income figures?
Figures that take into account the whole population, such as real GDP per capita or real GNI (Gross National Income).
What do national income figures indicate?
Standards of living within a country
What are some downsides to using national income figures to compare countries?
- Purchasing power parity is not taken into account
- Doesn’t tell us about quality of life
- Ignores economic welfare brought about by hidden economies
What is the Genuine Progress Indicator (GPI)?
An economic indicator that uses GDP, but also takes into account negative effects of growth, such as pollution, and things that affect quality of life
What is the Human Development Index(HDI)?
An attempt to describe people’s welfare and a country’s economic development
What does the HDI take into account?
- Health
- Education Level
- Standard of Living
What are the causes of inequality?
- Wage and Tax levels
- Unemployment levels
- Education levels
- Property ownership & inheritance laws
- Level of government benefits
Why does poor infrastructure make it difficult for countries to grow?
- Energy supplies may be unreliable so firms can’t operate efficiently
- Poor transport links mean that goods and services cannot be transported easily
- If phone and internet services are scarce, it is hard for firms to coordinate their operations and communicate with customers
How does a fast growing population lead to difficulties in attracting FDI?
Fast growing population means lots of children, lots of pressure on the education system, poor families not sending children to school. Low education standards mean less productive workforce. Less productive workforce will find it hard to attract FDI
How does disease affect an economy?
Can result in lower productivity and put a strain on country’s healthcare system
What is the savings gap?
The gap between the level of domestic savings in an economy and the investment needed to grow
What is capital flight?
When people start to hold their savings abroad
What is a foreign exchange gap?
Capital outflows from a country are greater than capital inflows
What is primary product dependency?
When a countries raw materials are the main source of their foreign exchange earnings and revenue
What are the disadvantages of primary product dependency?
- Demand for these products is price inelastic
- Supply is price inelastic, plants take time to grow
- Agricultural products are easily damaged in natural disasters
How does corruption affect an economy?
The country’s resources are diverted away from their most productive use by government officials for their own personal gain, so governments and private firms become less efficient
What are the main strategies used to help countries develop?
- Aid and debt relief
- structural change (development of agricultural, industrial and tourism sectors).
What is Aid?
The transferring of resources from one country to another
What are the different types of Aid?
- Bilateral Aid - one country to another
- Multilateral Aid - more than one country to one country, through an intermediate agency
- Tied Aid - Aid sent on a condition that the money is spent in a particular way
What are the advantages of Aid?
- Reduces absolute poverty
- Improvements in health and education, which increase human capital
- Fills the savings and foreign exchange gap
- Can result in a positive multiplier effect
What are the disadvantages of Aid?
- Conditions on the way aid is used means that resources are not used in the most efficient way
- Aid can be misused by corrupt governments
What is debt relief?
When countries cancel out some debts owed to them by other countries
What are the advantages of debt relief?
- Frees up money for improving infrastructure and public services
- Money saved by the country can be used to invest in capital goods to grow the economy
- Lower debts mean they can participate more in global trade
What are the disadvantages of debt relief?
- Cancelling debts may mean that there is a risk of moral hazard and dependency culture
- Cancelling debts in countries run by corrupt government officials means that even more money will be misused
What does development of the agricultural industry result in?
An increase in national income, which means more money for other sectors to be invested in
What does development of the industrial sector result in?
Higher profits in industries, which can lead to more money invested in capital goods, leading to greater productivity gains
What does development of the tourism industry result in?
- More FDI
- Increased employment
What is an inward looking policy?
Ones that seek to protect domestic industries until they are ready to compete internationally
What are the short term aims of inward looking policies?
- Create jobs
- Reduce poverty
- Improve balance of payments
What are the long term aims of inward looking policies?
- Growth in domestic industries
- Firms benefit from economies of scale
What is an outward looking policy?
Policies that emphasise free trade, deregulation and foreign investment
