ECONOMIC DEVELOPMENT Flashcards
ECONOMIC DEV- SEN
process of improving wellbeing quality of life --> standards of living --> reduction in poverty --> improved health/education --> increase freedom and economic choice
ECONOMIC DEV- TODARO
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
growth vs development
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
growth vs development: increase in Y
- -> jobs/ quality of life/ material standard of living
- -> decrease income inequality
- -> reduction in poverty
growth vs development: increase in profit
firms make profit and invest it in technology and job creation= sustainable economy
growth vs development: fiscal divident
due to greater economic growth Gov revenue from taxes (corporate/ Y/VAT..) increase thus the Gov (if effective) invests it in infrastructure, health, education
CHARACTERISTICS OF DEVELOPING COUNTRIES x8
4L PI 2H
- 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
MEASURES OF ECONOMIC DEVELOPMENT-
GDP PER CAPITA
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
MEASURES OF ECONOMIC DEVELOPMENT
SINGLE INDICATORS
GDP/ CAPITA (PPP)
HEALTH
EDUCATION
* problem: as development isn’t a single thing
MEASURES OF ECONOMIC DEVELOPMENT- HEALTH
life expectancy: increase= health institutions are of good quality + many doctors–> education + jobs
infant mortality–> education+ infrastructure…
MEASURES OF ECONOMIC DEVELOPMENT- EDUCATION
adult literacy enrollment in primary education = education is strong = jobs for teacher = potential for greater growth/ dev
MEASURES OF ECONOMIC DEVELOPMENT- GNI as opposed to GDP/ capita
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
PURCHASING POWER PARITY
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!
MEASURES OF ECONOMIC DEVELOPMENT-
COMPOSITE INDICATORS: HUMAN DEVELOPMENT INDEX (HDI) FACTORS
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
MEASURES OF ECONOMIC DEVELOPMENT- COMPOSITE INDICATORS: MILLENNIUM GOALS (9)
2 MED work with PH
- 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
MEASURES OF ECONOMIC DEVELOPMENT-
COMPOSITE INDICATORS: HUMAN DEVELOPMENT INDEX (HDI) ADVANTAGES
- 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
MEASURES OF ECONOMIC DEVELOPMENT-
COMPOSITE INDICATORS: HUMAN DEVELOPMENT INDEX (HDI) DISADVANTAGES
- 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
HDI SHOULD BE COMBINE WITH?
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
INSTITUTIONAL FACTORS AND DEVELOPMENT
EDUCATION
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)
INSTITUTIONAL FACTORS AND DEVELOPMENT
HEALTHCARE
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
INSTITUTIONAL FACTORS AND DEVELOPMENT
INFRASTRUCTURE
bridges/ports/telecomunication…
BENEFIT
access to markets
access to schools/ hospitals
FDI= growth/dev
BUT
funding
INSTITUTIONAL FACTORS AND DEVELOPMENT
TAXATION
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 :( )
INSTITUTIONAL FACTORS AND DEVELOPMENT
APPROPRIATE USE OF TECHNOLOGY
BENEFIT
solar cooker
weather based technology
–> promote econ dev: sustainability
INSTITUTIONAL FACTORS AND DEVELOPMENT
THE EMPOWERMENT OF WOMEN
BENEFIT children health education economic impact-productivity smaller families: increase Y
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
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…)
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
POVERTY CYCLE/ TRAP
–> growth poverty cycle
low incomes
low levels of savings
low levels of investment
low economic growth
ABSOLUTE POVERTY
someone living below a certain income threshold determined by the world bank ($1.25/day)
RELATIVE POVERTY
someone’s income is below their country’s average income
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
POVERTY CYCLES
are fundamental to break to promote both economic growth and development
MICRO-FINANCE/CREDIT USE
tackles essential dev problem: lack of savings and investment
MICRO-FINANCE/CREDIT DEF
the distribution of small loans to individual entrepreneurs or groups to stimulate business activity, profits and income
MICRO-FINANCE/CREDIT ADVANTAGES x4
- fill savings gap
- can relieve poverty
- -> break poverty cycle - source of finance w/o huge interest
- can empower women
- -> studies show that they are more trustworthy (India/ South America)
MICRO-FINANCE/CREDIT DISADVANTAGES x3
- 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 - lenders can still apply exorbitant interest rates and bully
- 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
MICRO-FINANCE/CREDIT ORIGIN
Grameen Bank of Bangladesh with the micro-finance pioneer Mohammad Yunus(1970s)
LONG TERM SOURCES OF GROWTH AND DEVELOPMENT
FACTOR ENDOWMENTS
increase quantity and quality of FoPs: sustainable
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
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
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
LONG TERM SOURCES OF GROWTH AND DEVELOPMENT
FACTOR ENDOWMENTS
INSTITUTIONAL FACTORS
banking system
legal system
education
infrastructure
INTERNATIONAL TRADE AND DEVELOPMENT BENEFITS
Comp Ad
1. exploit comparative advantage = natural resources (LEDCs) = increase exports = increase AD = increase growth =increase development
INTERNATIONAL TRADE AND DEVELOPMENT BENEFITS
CONSUMERS
consumer benefit from lower prices, increased choice and improved political relations
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
INTERNATIONAL TRADE AND DEVELOPMENT BENEFITS
TECHNOLOGY
Technological transfer and growth of secondary industries breaking dualistic structures (agriculture: primary sector dependence)
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
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
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
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
PREBISCH- SINGER HYPOTHESIS
there will be a decline in the terms of trade for countries that depend on natural resource exports
TERMS OF TRADE
index of export price
divided
index of import prices
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
PREBISCH- SINGER HYPOTHESIS
YED AND WEALTH EFFECT
SOLUTION
advice: use revenues from exports to promote DIVERSIFICATION
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
–> IMPORT SUBSTITUTION
IST import substitution industrialization
tariffs on imported manufactured goods to allow domestic industries to grow
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
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
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
–> IMPORT SUBSTITUTION BENEFITS
protects domestic jobs
protects economy from foreign influence and potential dominance of MNCs
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
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
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?
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
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
–> markets benefits
- sustainable growth and development in the LR due to allocative efficiency of reduced market failures
- promote macroeconomic stability
- -> promote investment - trickle down effect: benefits to all
- -> reduce income inequality
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
–> markets problems
- more poverty creation
- -> MNCs with too much power
- -> poor working condition
- -> destroyed environments - increase income inequality and exploitation of workers
- fiscal cuts in key ares like healthcare and education
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
–> bilateral trade agreements and regional PTA benefits
better market access
lower transport costs
greater specialization gains
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
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
–> diversification benefits
- protect against resource curse and volatile prices of primary products
- new technology
=new avenues for growth
=high skilled labour
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
–> diversification problems
- tariff escalation on manufactured products compared to low tariffs on primary commodities
- high skilled workforce but how?
- -> need good education system
FDI AND DEVELOPMENT :) 7
- injection into circular flow
= employment
= potential growth - fills savings gap
- positive BoP effect
- MNCs = infrastructure development
- improved productivity domestically as they have to compete with MNCs
- technological transfer: increase R+D
- increase tax rev for gov
- -> job opportunity increase = income tax
- -> MNCs profits= corporate tax
- -> goods sold-= VAT
FDI why?
dev country abundant in natural resources
markets could be emerging= potential profits
lower cost of labour
lower regulations/ restrictions
FDI AND DEVELOPMENT :( 6
- employment may be short term or less than expected
- -> bring in own workers from home - MNCs have too much power
- -> exploitation - MNCs may invest in labour saving technology
- MNCs may ship resources and leave
- environmental costs
- tax revenue collection may be lower than expected
- -> corruption?
FDI is successful if
sustainable
growth can lead to sustainable development but…
profits re-invested :) but…
- resource depletion
- deforestation
- the over-use of burning fossil fuels
sustainability
meeting the needs of the present without reducing the ability of future generations to meet their own needs
FORMS OF AID
official development assistance (ODA)
unofficial aid (NGO)
TYPES OF AIDS
- humanitarian aid
- -> SR suffering
- -> food aid
- -> medical aid
- -> emergency aid - 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
CLASSIFYING AID
- bilateral aid: when aid is from one gov (donor) to another
- multilateral aid: aid is diverted through an international org (IMF/WB) and they judge who needs it most
FOREIGN AID AND DEVELOPMENT CONCERNS x7
- corruption
- dependency: SR
- -> welfare mentality - aid weariness in dev countries (MEDCs have their own issues)
- loan repayments = indebtedness
- focused on industrialization = create greater gaps in income
- 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)
- Donor countries may push developing to adopt policies that are in their interests
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
SOLUTIONS TO INDEBTEDNESS
- debt relief (HIPC) with conditions of increasing dev (education/ healthcare)
- reschedule debts (more time)
- debt swaps (UNICEFF debt for child relief)
- -> debt goes to NGOs who redistribute it
- -> lender country gets tax break in return: win win - cancel the debts SR
- -> underlying weakness not adressed
MARKET BASED POLICIES AND DEVELOPMENT
promoting FD1 privatisation deregulation trade liberalization smaller state/ gov spending
INTERVENTIONIST POLICIES AND DEVELOPMENT
import substitution protectionism exchange rate intervention regulation nationalisation increase gov spending
HIPC
heavily
indebted
poor
countries
debt relief initiative
MARKET BASED POLICIES AND DEVELOPMENT
BENEFITS
- more efficient resource allocation done by free market
- -> no corruption problems - incentives from competition and profit max
- -> X efficiency - encourages FDI
- -> no un-necessary bureaucracy: corruption
MARKET BASED POLICIES AND DEVELOPMENT
PROBLEMS
- infrastructure?
- markets are unlikely to efficiently allocate certain G/S
- -> missing markets: public goods
- -> under-provision of merit goods
- -> education/ healthcare/defence - market failures
- -> environment - income inequality
- protectionism in advanced economies
- lack of well function financial institutions
INTERVENTIONIST POLICIES AND DEVELOPMENT
BENEFITS
- infrastructure development
- -> overcome public good missing market/ merit good under-provision
- -> education/ healthcare - gov= major employer and investor in human capital within public sector
- stable macro-economy
- welfare-state/ pension provision
INTERVENTIONIST POLICIES AND DEVELOPMENT
PROBLEMS
- bureaucracy, inefficiency, corruption
- nationalized industries
- -> loss making
- -> inefficient - increase gov spending–> indebtedness
Evaluation of free markets
And gov
Mixture
Free markets and gov intervention if gov is held accountable
INT TRADE AND DEV
BARRIERS/ PROBLEMS
resource curse
fluctuations
access to international market
terms of trade
INTERNATIONAL TRADE AND DEVELOPMENT BENEFITS
comparative advantage
EOS
consumers
technology
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
LONG TERM SOURCES OF GROWTH AND DEVELOPMENT
FACTOR ENDOWMENTS x4 CHITL
LAND- NATURAL FACTORS
HUMAN CAPITAL
CAPITAL AND TECHNOLOGY
INSTITUTIONAL FACTORS
POLICIES TO PROMOTE TRADE AND DEVELOPMENT
MD BMX
- -> markets
- ->bilateral trade agreements and regional PTA benefits
- -> diversification benefits
- -> export promotion
- -> import substitution
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
TYPES OF AID
grants • concessional long-term loans •project aid •programme aid• debt cancellation• technical assistance •humanitarian aid• multilateral aid•bilateral aid.
