Economic growth and development Flashcards
What are the problems of using GDP per capita as a measure of development
Takes no account of income distribution of the economy
Doesn’t address the broader concept of development in relation to education and freedom from oppression
What does HDI measure
GDP per capita
Average years of schooling
Life expectancy at birth
Purchasing power parity (PPP)
Compares the relative value of currencies.
How is PPP measured
Measuring the purchasing power of different countries currencies to buy the same basket of goods and services
Characteristics of LEDCs
Low HDI
Poor human capital
Primary sector dominant
Savings gap
Human capital
Quality and productivity of labour
Barriers to development
Poor human capital, poor infrastructure, crime and corruption, primary dependency, savings gap
Harrod-Domar model
Explains how growth has occurred and how it may again in the future
What does the Harrod-Domar Model suggest are the two main factors that the rate of growth depend on
The level of national savings
Productivity of capital investment (capital-output ratio)
What are the two types of policies to promote development
Market based policies
Interventionist policies
Examples of market based policies to promote development
Trade liberalisation
Cutting corporation tax
What is trade liberalisation
Opening up markets to foreign imports and exports as well as FDI
What are the benefits of trade liberalisation
SR and LR growth
MNC’s setting up in LEDC’s
Increased government tax revenue
Downsides of trade liberalisation
Deteriorating terms of trade as the value of primary commodities falls.
This reduction in earnings limits the ability of LEDC’s to develop a more profitable manufacturing sector
How can cutting corporation tax lead to development
Encourages business investment and FDI leading to LR growth.
Examples of interventionist policies to increase development
Import substitution Industrialisation
Increased government spending e.g. education, health, infrastructure
What is import substitution industrialisation (ISI)
Governments increasing tariffs on imports into an LEDC to stem this leakage from the circular flow. Allowing for them to be substituted for domestically produced goods in order to boost AD.
Drawbacks of ISI
Unpopular policy as it has been largely unsuccessful
Businesses become inefficient as they are protected against foreign competition
Consumers lack choice, hence reducing utility
`What is offical development assistance (ODA) also known as
Aid
What is ODA
Resource flows to developing countries, provided by official organisations e.g. UK government
Tied Aid
Aid that is required to be used for a specific purpose
Untied Aid
Aid that can be used in any way
Benefits of Aid
Can help plug the savings gap
Provide the necessary funds to pursue growth and development
