ECONOMIC DEVELOPMENT Flashcards
1
Q
ECONOMIC DEV- SEN
A
process of improving wellbeing quality of life --> standards of living --> reduction in poverty --> improved health/education --> increase freedom and economic choice
2
Q
ECONOMIC DEV- TODARO
A
1) availability and distribution of life sustaining goods
- -> food, shelter, health
2) increase in standard of living (im/material)
3) expansion and economic social choices
3
Q
growth vs development
A
growth is a necessary but not sufficient condition for development
growth and economic development have different definitions!
* distribution of income should not be assumed as there may be income inequality= social unrest
*-ve externalities + un-sustainability: pollution/ resource depletion
* growth in one dominant sector: nigeria and oil
4
Q
growth vs development: increase in Y
A
- -> jobs/ quality of life/ material standard of living
- -> decrease income inequality
- -> reduction in poverty
5
Q
growth vs development: increase in profit
A
firms make profit and invest it in technology and job creation= sustainable economy
6
Q
growth vs development: fiscal divident
A
due to greater economic growth Gov revenue from taxes (corporate/ Y/VAT..) increase thus the Gov (if effective) invests it in infrastructure, health, education
7
Q
CHARACTERISTICS OF DEVELOPING COUNTRIES x8
4L PI 2H
A
- low standards of living (low Y/jobs/ poverty)
- low levels of productivity (low capital/I)
- low levels of savings (savings trap)
- high population growth (depend on children for labour force)
- primary sector dominant (agricultural–> fluctuations)
- incomplete markets (financial + undesired currency)
- high unemployment/ underemployment
- -> even greater if unregistered as disheartened - low economic power on international stage
BUT- THEY HAVE DIFFERING CHARACTERISTICS TOO
DO NOT VIEW THEM AS HOMOGENEOUS
THEY ARE UNIQUE/INDIVIDUAL
8
Q
MEASURES OF ECONOMIC DEVELOPMENT-
GDP PER CAPITA
A
average Y per person in the economy GDP/ population GDP has many limitations.... useful: blank measure of income but dev is more than just income!
GNI per capita is used more
more adapted to our current situation esp dev countries as lots of FoPs do not stay in that one country–> movement of LABOUR
also FDI profits are repatriated back to country of origin
–> inflating GDP/ capita
9
Q
MEASURES OF ECONOMIC DEVELOPMENT
SINGLE INDICATORS
A
GDP/ CAPITA (PPP)
HEALTH
EDUCATION
* problem: as development isn’t a single thing
10
Q
MEASURES OF ECONOMIC DEVELOPMENT- HEALTH
A
life expectancy: increase= health institutions are of good quality + many doctors–> education + jobs
infant mortality–> education+ infrastructure…
11
Q
MEASURES OF ECONOMIC DEVELOPMENT- EDUCATION
A
adult literacy enrollment in primary education = education is strong = jobs for teacher = potential for greater growth/ dev
12
Q
MEASURES OF ECONOMIC DEVELOPMENT- GNI as opposed to GDP/ capita
A
GNI per capita is used more
more adapted to our current situation esp dev countries as lots of FoPs do not stay in that one country–> movement of LABOUR
also FDI profits are repatriated back to country of origin
–> inflating GDP/ capita
13
Q
PURCHASING POWER PARITY
A
the same basket of goods in one country can cost much less than in another country
India and the UK
1 $ is worth a lot more in India than in the UK
PPP/ capita rate gives a more accurate measure!
14
Q
MEASURES OF ECONOMIC DEVELOPMENT-
COMPOSITE INDICATORS: HUMAN DEVELOPMENT INDEX (HDI) FACTORS
A
Pakistani economist Mahbub ul Haq and published by United Nations Development Program (UNDP)
- longevity (life expectancy/ infant mortality)
- knowledge (adult literacy/ school enrollment)
- standard of living (GDP/ capita PPP)
equal weighting
15
Q
MEASURES OF ECONOMIC DEVELOPMENT- COMPOSITE INDICATORS: MILLENNIUM GOALS (9)
2 MED work with PH
A
- Eradicate extreme poverty and hunger.
- Achieve universal primary education.
- Promote gender equality and empower women.
- Reduce child mortality.
- Improve maternal health.
- Combat HIV/AIDS, malaria, and other diseases.
- Ensure environmental sustainability.
- Develop a global partnership for development
16
Q
MEASURES OF ECONOMIC DEVELOPMENT-
COMPOSITE INDICATORS: HUMAN DEVELOPMENT INDEX (HDI) ADVANTAGES
A
- broad measure (brings in single indicators)
- focuses on development outcomes
- allows for progress to be measured/time (index value)
- attention/ allocating resources can be focused on those who really need it: low index= AID
17
Q
MEASURES OF ECONOMIC DEVELOPMENT-
COMPOSITE INDICATORS: HUMAN DEVELOPMENT INDEX (HDI) DISADVANTAGES
A
- distribution of income?
- why are they weighted equally?
- -> different countries= different needs
- -> inefficient allocation as there is no specific target - freedom of choice?
- crime/poverty levels/ corruption/ -ve E… NOT BROAD ENOUGH
MAYBE ITS SELECTIVITY MAKES IT SUCH A GOOD MEASURE
18
Q
HDI SHOULD BE COMBINE WITH?
A
LORENZ CURVE + GINI COEFFICIENT = Y inequality
cumulative income- Y axis
cumulative population - X axis
area A/ area A+B
0= perfect equality
1= perfect inequality
19
Q
INSTITUTIONAL FACTORS AND DEVELOPMENT
EDUCATION
A
MEASURE: adult literacy + school enrollment
BENEFIT productivity jobs: increase Y + choice gender equality if women are educated + empowered = more willing to spend health-vaccinations /HIV/ contraception technology
BUT funding --> private sector=exclusive underlying problem --> as soon as children reach a certain age they are seen as workers (high primary education but low secondary education- cultural)
20
Q
INSTITUTIONAL FACTORS AND DEVELOPMENT
HEALTHCARE
A
MEASURE: life expectancy/ infant mortality…
BENEFIT productivity jobs (educated jobs) standard of living= :) sanitation/ drinking water
BUT
funding
price- private sector
–> is it right to exclude people from health care based on price
21
Q
INSTITUTIONAL FACTORS AND DEVELOPMENT
INFRASTRUCTURE
A
bridges/ports/telecomunication…
BENEFIT
access to markets
access to schools/ hospitals
FDI= growth/dev
BUT
funding
22
Q
INSTITUTIONAL FACTORS AND DEVELOPMENT
TAXATION
A
BENEFIT- fiscal dividend from increase in gov R
education
healthcare
infrastructure
BUT
- corruption + tax exemptions
- low corporate activity and tax incentives
- informal markets
- role of WTO (decrease tariff = decrease gov R esp for dev countries :( )
23
Q
INSTITUTIONAL FACTORS AND DEVELOPMENT
APPROPRIATE USE OF TECHNOLOGY
A
BENEFIT
solar cooker
weather based technology
–> promote econ dev: sustainability
24
Q
INSTITUTIONAL FACTORS AND DEVELOPMENT
THE EMPOWERMENT OF WOMEN
A
BENEFIT children health education economic impact-productivity smaller families: increase Y
25
INSTITUTIONAL FACTORS AND DEVELOPMENT
| INCOME DISTRIBUTION
MEASURE: LORENZ/GINI
CONSEQUENCES
low investment= low savings= low investment
rich dominating politics
capital flight
--> repatriated profits/ remittances sent abroad
26
INSTITUTIONAL FACTORS AND DEVELOPMENT
| POLITICAL STABILITY
stability: efficient in allocating resources
increase in FDI
increase AID when needed due to trust
democracy - faith in gov
but: instability (wars/conflict)
loss infrastructure
loss of investment
loss of FoPs (labour...)
27
INSTITUTIONAL FACTORS AND DEVELOPMENT
| CORRUPTION
major threat to development
inefficient regulation
decrease in FDI
bribes:
- ->increase cost of production for firms
- -> gov investment lacking in healthcare/ infrastructure and education as it is not profit maximizing
- -> highest bider
legal:
legalities that need pursuing may not be enforced
we cannot make the assumption that gov are for the good of the people
28
POVERTY CYCLE/ TRAP
| --> growth poverty cycle
low incomes
low levels of savings
low levels of investment
low economic growth
29
ABSOLUTE POVERTY
someone living below a certain income threshold determined by the world bank ($1.25/day)
30
RELATIVE POVERTY
someone's income is below their country's average income
31
POVERTY CYCLE/TRAP
| --> development poverty cycle
low incomes
low levels of education and health
low levels of human capital (lack of skill): structural unE
low productivity
32
POVERTY CYCLES
are fundamental to break to promote both economic growth and development
33
MICRO-FINANCE/CREDIT USE
tackles essential dev problem: lack of savings and investment
34
MICRO-FINANCE/CREDIT DEF
the distribution of small loans to individual entrepreneurs or groups to stimulate business activity, profits and income
35
MICRO-FINANCE/CREDIT ADVANTAGES x4
1. fill savings gap
2. can relieve poverty
- -> break poverty cycle
3. source of finance w/o huge interest
4. can empower women
- -> studies show that they are more trustworthy (India/ South America)
36
MICRO-FINANCE/CREDIT DISADVANTAGES x3
1. entrepreneurial ventures are not always successful
- -> where does the money come from in the first place
- -> what happens when it can't be paid back
2. lenders can still apply exorbitant interest rates and bully
3. loans are not big enough to alleviate poverty
- -> health?
- -> education?
- -> most money is used for direct consumption and not investment
promotes debt/ misery/ coercion
--> against dev outcomes
37
MICRO-FINANCE/CREDIT ORIGIN
Grameen Bank of Bangladesh with the micro-finance pioneer Mohammad Yunus(1970s)
38
LONG TERM SOURCES OF GROWTH AND DEVELOPMENT
| FACTOR ENDOWMENTS
increase quantity and quality of FoPs: sustainable
39
LONG TERM SOURCES OF GROWTH AND DEVELOPMENT
FACTOR ENDOWMENTS
LAND- NATURAL FACTORS
increase quantity is very difficult but singapore and Japan have done it (MEDCS)
quality
- -> fertilisation
- -> better agricultural methods
- -> building upwards
40
LONG TERM SOURCES OF GROWTH AND DEVELOPMENT
FACTOR ENDOWMENTS
HUMAN CAPITAL
quantity
increase population?
--> emigration
--> but do you really want to increase birth rates...
quality
improve health/ education
vocational training and re-training
41
LONG TERM SOURCES OF GROWTH AND DEVELOPMENT
FACTOR ENDOWMENTS
CAPITAL AND TECHNOLOGY
quantity
agricultural vehicles / factory buildings
--> but: funding + savings/ investments from individual
improving technology = improved productivity
42
LONG TERM SOURCES OF GROWTH AND DEVELOPMENT
FACTOR ENDOWMENTS
INSTITUTIONAL FACTORS
banking system
legal system
education
infrastructure
43
INTERNATIONAL TRADE AND DEVELOPMENT BENEFITS
| Comp Ad
```
1. exploit comparative advantage
= natural resources (LEDCs)
= increase exports
= increase AD
= increase growth
=increase development
```
44
INTERNATIONAL TRADE AND DEVELOPMENT BENEFITS
| CONSUMERS
consumer benefit from lower prices, increased choice and improved political relations
45
INTERNATIONAL TRADE AND DEVELOPMENT BENEFITS
| EOS
economies of scale and efficiency benefits
= increase profits
= increase corporation tax revenues
= increase fiscal dividend
= increase gov investment in infrastructure
46
INTERNATIONAL TRADE AND DEVELOPMENT BENEFITS
| TECHNOLOGY
Technological transfer and growth of secondary industries breaking dualistic structures (agriculture: primary sector dependence)
47
INT TRADE AND DEV
BARRIERS/ PROBLEMS
'RESOURCE CURSE'
depending on primary commodities: unsustainable
=falling prices (oil- russia/nigeria/ venezuela)
= falling AD
= falling Y
depletion of resources
= falling....
slowing demand
48
INT TRADE AND DEV
BARRIERS/ PROBLEMS
fluctuations
primary commodities are very prone to fluctuations
as D/S are very inelastic
demand
- -> necessity
- -> few substitutes
supply
- -> long time to produce corn 'production time lag'
- -> hard to store
- -> go off quickly
better weather
= increase supply
= decrease R
```
worse weather
= decrease supply
= increase price
= a lot less consumed
= consumers :(
```
fluctuations = no guarantee in economic growth/ dev
49
INT TRADE AND DEV
BARRIERS/ PROBLEMS
ACCESS TO INT MARKETS LIMITED
protectionist measures
USA heavily subs corn producers: unfair competitive X
EU: regulations = C.O.P
tariff escalation
non- convertible currencies
50
INT TRADE AND DEV
BARRIERS/ PROBLEMS
TERMS OF TRADE
long term decline in the terms of trade
X prices relative to M prices fall thus
purchasing capital M becomes more difficult
51
PREBISCH- SINGER HYPOTHESIS
there will be a decline in the terms of trade for countries that depend on natural resource exports
52
TERMS OF TRADE
index of export price
divided
index of import prices
53
PREBISCH- SINGER HYPOTHESIS
| YED AND WEALTH EFFECT
the natural resource exports are relatively income inelastic (necessity)
yet what people import are very elastic (capital/ manufactured goods)
increase in economic growth
= increase demand for manufactured goods
= increase prices for imports
X must increase to fund same quantity of M due to higher prices
54
PREBISCH- SINGER HYPOTHESIS
YED AND WEALTH EFFECT
SOLUTION
advice: use revenues from exports to promote DIVERSIFICATION
55
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| --> IMPORT SUBSTITUTION
IST import substitution industrialization
tariffs on imported manufactured goods to allow domestic industries to grow
56
LONG TERM GOAL OF TRADE DEVELOPMENT POLICIES
increase growth
increase Y
increase job
but..!!
break away from over dependence on primary products
and try to move in to more advance technological ways of producing: manufacturing
57
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| -->EXPORT PROMOTION
```
remove protectionism
encourage trade
increase GDP
increase Y
increase development
```
revenues/ gains of trade can be used to invest
58
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| --> IMPORT SUBSTITUTION BENEFITS
protects domestic jobs
protects economy from foreign influence and potential dominance of MNCs
59
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
--> IMPORT SUBSTITUTION
PROBLEMS
short run job creation vs long run unemployment as these industries in the future cannot compete with rivals oversees as they have not flourished enough (lack of incentive?)
loss of comparative advantage gains
- -> consumers pay >P
- -> specialization gains lost
retaliatory protectionism
60
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
-->EXPORT PROMOTION
BENEFITS
SR: dev economies can exploit their comparative advantage of primary commodity and gain > R
LR: those revenues can be used to fund advancement of capital/technology
= allows them to break away from primary sector (agricultural) sector
= lucrative long term growth/ dev
61
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
-->EXPORT PROMOTION
PROBLEMS
protectionism abroad
wider income inequality
- -> will benefits be evenly shared
- -> only a SR problem? as in the LR the benefits to the rich will trickle down to the poor
over dominance of MNCs
--> harm to environment?
62
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| --> markets
trade liberalization/ the role of markets: washington consensus set by world bank and IMF to promote...
fiscal discipline/ market liberalization/ trade liberalization
63
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| --> markets benefits
1. sustainable growth and development in the LR due to allocative efficiency of reduced market failures
2. promote macroeconomic stability
- -> promote investment
3. trickle down effect: benefits to all
- -> reduce income inequality
64
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| --> markets problems
1. more poverty creation
- -> MNCs with too much power
- -> poor working condition
- -> destroyed environments
2. increase income inequality and exploitation of workers
3. fiscal cuts in key ares like healthcare and education
65
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| --> bilateral trade agreements and regional PTA benefits
better market access
lower transport costs
greater specialization gains
66
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| --> bilateral trade agreements and regional PTA problems
coincidence of wants
increase costs of production due to trade diversion
trade barriers outside your PTA in other countries
67
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| --> diversification benefits
1. protect against resource curse and volatile prices of primary products
2. new technology
=new avenues for growth
=high skilled labour
68
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| --> diversification problems
1. tariff escalation on manufactured products compared to low tariffs on primary commodities
2. high skilled workforce but how?
- -> need good education system
69
FDI AND DEVELOPMENT :) 7
1. injection into circular flow
= employment
= potential growth
2. fills savings gap
3. positive BoP effect
4. MNCs = infrastructure development
5. improved productivity domestically as they have to compete with MNCs
6. technological transfer: increase R+D
7. increase tax rev for gov
- -> job opportunity increase = income tax
- -> MNCs profits= corporate tax
- -> goods sold-= VAT
70
FDI why?
dev country abundant in natural resources
markets could be emerging= potential profits
lower cost of labour
lower regulations/ restrictions
71
FDI AND DEVELOPMENT :( 6
1. employment may be short term or less than expected
- -> bring in own workers from home
2. MNCs have too much power
- -> exploitation
3. MNCs may invest in labour saving technology
4. MNCs may ship resources and leave
5. environmental costs
6. tax revenue collection may be lower than expected
- -> corruption?
72
FDI is successful if
sustainable
73
growth can lead to sustainable development but...
profits re-invested :) but...
1. resource depletion
2. deforestation
3. the over-use of burning fossil fuels
74
sustainability
meeting the needs of the present without reducing the ability of future generations to meet their own needs
75
FORMS OF AID
official development assistance (ODA)
unofficial aid (NGO)
76
TYPES OF AIDS
1. humanitarian aid
- -> SR suffering
- -> food aid
- -> medical aid
- -> emergency aid
2. development aid
--> LR loans (low rates of interest paid back in long periods of time)
--> tied aid: M can only be purchased from donor country
--> project aid (world bank: funding of key infrastructure projects)
--> technical assistance (advancement R+D)
--> commodity aid: money is used to purchase commodities = lower costs= increase productivity
77
CLASSIFYING AID
1. bilateral aid: when aid is from one gov (donor) to another
2. multilateral aid: aid is diverted through an international org (IMF/WB) and they judge who needs it most
78
FOREIGN AID AND DEVELOPMENT CONCERNS x7
1. corruption
2. dependency: SR
- -> welfare mentality
3. aid weariness in dev countries (MEDCs have their own issues)
4. loan repayments = indebtedness
5. focused on industrialization = create greater gaps in income
6. donor countries get aid to countries of economic/ political interest to them. Poorer countries can lose out as a result. (middle Y countries get aid instead of low Y countries)
7. Donor countries may push developing to adopt policies that are in their interests
79
INDEBTEDNESS AND DEVELOPMENT
persistent current account deficit financed by debt (F.A surplus)
+
3rd world debt crisis (oil exporting countries benefited from booms then invested profits into western banks who gave that money into loans to developing countries 1970s)
recession=
developing countries were greatly affected due to increase I.R= bankruptcy
80
SOLUTIONS TO INDEBTEDNESS
1. debt relief (HIPC) with conditions of increasing dev (education/ healthcare)
2. reschedule debts (more time)
3. debt swaps (UNICEFF debt for child relief)
- -> debt goes to NGOs who redistribute it
- -> lender country gets tax break in return: win win
4. cancel the debts SR
- -> underlying weakness not adressed
81
MARKET BASED POLICIES AND DEVELOPMENT
```
promoting FD1
privatisation
deregulation
trade liberalization
smaller state/ gov spending
```
82
INTERVENTIONIST POLICIES AND DEVELOPMENT
```
import substitution
protectionism
exchange rate intervention
regulation
nationalisation
increase gov spending
```
83
HIPC
heavily
indebted
poor
countries
debt relief initiative
84
MARKET BASED POLICIES AND DEVELOPMENT
| BENEFITS
1. more efficient resource allocation done by free market
- -> no corruption problems
2. incentives from competition and profit max
- -> X efficiency
3. encourages FDI
- -> no un-necessary bureaucracy: corruption
85
MARKET BASED POLICIES AND DEVELOPMENT
| PROBLEMS
1. infrastructure?
2. markets are unlikely to efficiently allocate certain G/S
- -> missing markets: public goods
- -> under-provision of merit goods
- -> education/ healthcare/defence
3. market failures
- -> environment
4. income inequality
5. protectionism in advanced economies
6. lack of well function financial institutions
86
INTERVENTIONIST POLICIES AND DEVELOPMENT
| BENEFITS
1. infrastructure development
- -> overcome public good missing market/ merit good under-provision
- -> education/ healthcare
2. gov= major employer and investor in human capital within public sector
3. stable macro-economy
4. welfare-state/ pension provision
87
INTERVENTIONIST POLICIES AND DEVELOPMENT
| PROBLEMS
1. bureaucracy, inefficiency, corruption
2. nationalized industries
- -> loss making
- -> inefficient
3. increase gov spending--> indebtedness
88
Evaluation of free markets
| And gov
Mixture
| Free markets and gov intervention if gov is held accountable
89
INT TRADE AND DEV
| BARRIERS/ PROBLEMS
resource curse
fluctuations
access to international market
terms of trade
90
INTERNATIONAL TRADE AND DEVELOPMENT BENEFITS
comparative advantage
EOS
consumers
technology
91
INSTITUTIONAL FACTORS AND DEVELOPMENT x8
| THE WIPE TY
```
EDUCATION
HEALTHCARE
INFRASTRUCTURE
TAXATION APPROPRIATE
USE OF TECHNOLOGY
THE EMPOWERMENT OF WOMEN
INCOME DISTRIBUTION
POLITICAL STABILITY CORRUPTION
```
92
LONG TERM SOURCES OF GROWTH AND DEVELOPMENT
| FACTOR ENDOWMENTS x4 CHITL
LAND- NATURAL FACTORS
HUMAN CAPITAL
CAPITAL AND TECHNOLOGY
INSTITUTIONAL FACTORS
93
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
| MD BMX
- -> markets
- ->bilateral trade agreements and regional PTA benefits
- -> diversification benefits
- -> export promotion
- -> import substitution
94
INFRASTRUCTURE
large scale public systems (services and facilities) of a country
necessary for economic activity
an addition to the capital stock of a nation
usually supplied by the government
95
TYPES OF AID
```
grants •
concessional long-term loans
•project aid •programme aid•
debt cancellation•
technical assistance
•humanitarian aid•
multilateral aid•bilateral aid.
```
