Economic growth and development Flashcards
1
Q
define economic development
A
aims to improve people’s well-being and quality of life involving an improvement in SOL, decreasing poverty and increasing health and education with an increase in freedom and economic choice
2
Q
define economic growth
A
a sustained increase in an economy’s long run productive capacity to produce goods and services, measured by GDP (output)
it comes from an expansion of both quantity and quality of factor inputs reflected in higher productivity and growth enhancing effects of innovation
= use PPF or AD diagram
3
Q
why is growth good for development
A
- higher GDP increases incomes due to job creations etc
= increase quality of living= able to buy more goods= improve material SOL - higher incomes reduce income inequality
= decrease poverty and increase GDP per capita - firms are able to make higher profits
= higher business confidence means they’re more willing to hire workers
= increase revenue and profits
= re-invest profits into economy e.g. advance tech
= steer away from primary sector e.g. agriculture based jobs
= more sustainable growth and development - higher profits= higher investment
= higher AD= increase labour force as its a derived demand - higher growth and profits increase tax return for gov
= creates fiscal dividend (rev for gov)
= more efficient gov spending on healthcare and education
= promote development in an economy
4
Q
limitations of growth
A
- no guarantee growth will be equally distributed
= risks income inequality= SOL won’t improve for everyone - negative externalities of growth
= higher pollution and less scarce resources due to resource degradation
= decreases long term growth - growth only in one sector
= won’t benefit all of society or economy
e.g. Nigeria’s oil sector fuels economy= only oil workers get benefits of high incomes etc
= wont increase development for rest of society
5
Q
characteristics of developing countries
A
- low investment
- low SOL and high poverty
- low savings= ppl trapped in low income jobs
= cyclical unemployment - low education and healthcare
- primary sector dominance
6
Q
factors affecting development
A
- high levels of education leads to high productivity
= for potential for higher income jobs= increase SOL and choice
= leads to more skills= advance tech - education on negative externalities or demerit goods
e.g. risks of malaria or smoking= restrict disease, deaths and take vaccines - healthcare funding= healthy people are more productive= higher job creation and SOL
- levels of infrastructure= more roads and ports make access to more markets= able to transport goods @ lower cost
= more access to schools, hospitals etc
= easier operations for foreign firms= more FDI - stable gov= more reliable borrower= more likely to receive aid and FDI
7
Q
barriers to development
A
- unstable gov leads to wars, protests etc
= destroy infrastructure= decrease transport and investment
= less reliable= lower growth - inefficient regulation e.g. of worker’s rights
= exploit long hours and low pay etc= lower SOL - corrupted leaders and gov= may take aid for themselves
= decrease foreign aid
= questions efficiency of gov decisions= lead to misallocation of resources
= gov failure= less help for the poor - infrastructure gaps increase costs for supply of firms
= increases firms= harder to afford
= create geographical immobility of labour
= structural unemployment - poor human capital due to low skills and education
= less tertiary schooling quality
= constrains labour’s productivity and ability to advance tech
= higher inequality e.g. Zambia only has mean of 6.5 years of schooling and 5-% primary school drop out rate - primary product dependency
= high dependence on extracting and exporting primary commodities
= economies are vulnerable to volatile global prices - relative and absolute poverty trap due to low skills, jobs etc
- high debt caused by persistent CA deficit
8
Q
adv import substitution industrialisation
A
- tariffs on imported manufactured goods to allow domestic industries to grow
- protects domestic jobs by allowing domestic industry to grow
= increases job creation - won’t rely on MNCs= have own industries to rely on for growth
= protects economy from foreign influence and potential dominance of MNCs
9
Q
disadv import substitution industrialisation
A
- only protects jobs in SR= trade off
- high LR unemployment= restricts size of markets to trade with and movement of capital gods
= low LR growth in future
= cant compete with overseas rivals - less comparative adv gains
= less efficiency in producing goods
= consumers pay higher prices and decrease specialisation
= less benefits of large market size - other countries may retaliate in response to higher tariffs
= may put tariffs on domestic economy= decrease LR growth
10
Q
adv export promotion
A
- remove protections, encourages trade, increases GDP, increases income and development
- in SR, developing economies can exploit comp adv in primary product
= increase revenue in SR - higher revenue can be invested to fund capital advancement
= allow countries to break away from primary product dependency
= promote long term growth
11
Q
disadv export promotion
A
- other countries can still impose protectionism
= no guarantee of free trade - wider income inequality
= cant guarantee that benefits of growth will be spread equally
= may promote income inequality
BUT trickle down effect could occur - may promote MNC dominance
= too much influence over domestic economy
= harm LR economy
12
Q
adv of trade liberalisation
A
- refers to decrease in barriers to international trade like tariffs, quotas etc
- by letting market naturally run, better allocation of resources
= less chance for market failure
= allocative efficiency= LR, stable growth - promote macroeconomic stability
= markets can run freely wo gov interventions
= higher investment= more confident in macro-economic stability
= more FDI= higher incomes and SOL - trickle down effect
13
Q
disadv of trade liberalisation
A
- causes more MNCs due to less laws and regulations= exploit workers with low wages= unfair working conditions
= poverty, ruin environment and cause income inequality - fiscal cuts in key areas like health and education
= LR issues
14
Q
adv bilateral trade agreements
A
- agreements between countries that promote trade and commerce by eliminating barriers
- encourage integration and free trade
= more market access and transport costs
= more specialisation= competition increases
= more profit= higher incomes - specialisation gains
15
Q
disadv bilateral trade agreements
A
- risk of coincidence of wants
= may not be beneficial to trade w others due to conflicting interests - high COP of imports @ higher cost from overseas outside PTA
= still external trade barriers of other countries= trade diversion
16
Q
market based policies
A
- privatisation
- deregulation
- trade liberalisation
- less gov spending
17
Q
adv of market based policies
A
- more efficient resource allocation
= sustainable growth= high GDP and SOL= lower price - decrease gov int in corrupt Govs e.g. africa
= focus of growth= incentivise competition and lower prices - high FDI= more investment= more GDP and growth
18
Q
disadv of market based policies
A
- less G on infrastructure etc
= private firms won’t consider external and social benefits of producing goods like public roads etc= less benefit to entire of society - public and merit goods go missing= need gov to help
- risk market failure of over-extracting fossil fuels, trees etc
= degradation of scarce resources and environment
= welfare losses in society
= need gov to tax and regulate where self interests causes market failure - promote income inequality
= less job security, pensions and minimum wages etc due to profit max incentive
19
Q
interventionist policies
A
- import substitution
- protectionism
- exchange rate intervention
- regulations
- nationalisation
- higher gov spending to increase size of state
20
Q
adv of interventionist policies
A
- more infrastructure investment and development to level needed by society
= gov is more likely to consider full social optimum
= produce social optimum of public and merit goods
= resources like roads will be efficiently allocated - gov is major employer= high job creation
- adopting fiscal and monetary policies
= ensure stable macro economy= promote FDI and growth - gov protects all people in society
= strong welfare state e.g. pension provision and benefits system
= increases social security
21
Q
disadv of interventionist policies
A
- issues of bureaucracy, corruption and inefficiency
= lead to misallocation of resources
= hold back development and decrease progress - nationalised industries lack profit motive
= no incentive to decrease costs and prices
= consumers suffer high prices= x inefficiency - high gov spending increases budget deficit
= more national debt
22
Q
EVAL of policies to improve growth and development
A
-
23
Q
forms of aid
A
- humanitarian= food, medics etc= decrease short term suffering
- development aid
= long term loans form one gov to another w low IRs that are easy to pay back over long period of time
= could be technical assistance aid of tech subsidies, R+D, project aid of world bank= money given to LICs to fund key infrastructure projects
24
Q
describe multilateral aid
A
- aid is diverted through an international organisation like world bank or IMF
= decide who needs aid most, then distributes it to who needs it most
25
limitations of foreign aid
- not all Govs are altruistic and have society's interest @ heart
= politicians rules by greed and self interest= corruption
= take aid wo distributing it to rest of economy and society
- lead to dependency on aid
= domestic firms may rely on aid to fund firms
= less incentive for innovation
- loan repayment leads to national debt issues
- aid can be focussed on specific sectors like industrialisation
= gaps in income between primary and industrial sectors
- developed donor countries only give aid to countries of economic or political interest to them
= middle income countries get most benefit
- donor countries may push developing countries to adopt policies that aren't in their best interest= only benefits donor country
26
how to reduce barriers to development
- strict conditions on low fiscal spending and high tax
= easier to re-pay debt
- debt relief= HIPC
= advanced economies agree debt doesn't have to be payed back as long as £ spent effectively on development like education
- reschedule debt to decrease pressure to pay back loans quickly
27
problems with trade (international barriers to development)
- resource curse
= rely on export of primary commodities= if prices of commodities decrease, export revenue decreases
= harder to buy capital imports= low profits and incomes
= finite resources will eventually deplete
= unsustainable way of pursuing development
- demand and supply for primary commodities are very inelastic
= less substitutes available and takes ages to harvest etc for suppliers
= changes to market conditions like drought will cause huge price swings
= less incentive to invest due to price fluctuations= uncertain export revenue
= unstable economy
- protectionist measures imposed by developed countries on export of primary commodities
e.g. US subsidised corn producers
= low COP= more competitive to export
= less access to international market for LICs wo protectionist policies
- high tariffs on LICs de-incentivise LICs to move away from primary sector
= manufactured goods have more tariffs than primary commodities
= suffer high costs on exporting= more incentive to stay in primary sector
= less potential for trade and development
28
measures of development
- HDI
= measures life expectancy, literacy rate and SOL (GDP/CAPITA)
- GDP/ per capita
= average income per person in economy
29
adv of HDI
- broad measurement of 3 areas of development
- focus on development outcomes
30
disadv of HDI
- no mention of income distribution
- doesn't measure freedom, choice or crime etc
= not broad enough
BUT focuses on most important pillars of development
31
adv of GDP measurement
- widely used across the world
- give a rough guide to the level of economic activity
= a fall in GDP indicates recession and rising GDP indicates growth
- useful indicator for monetary policy and fiscal policy
- GDP is also measurable – it is objective
- useful as long as people are aware of its limitations
32
disadv of GDP measurement
- economic growth doesn’t necessarily increase SOL
= 2010-2017, UK had positive growth but average real disposable incomes were stagnant
= was due to wages falling as a share of GDP
- population growth meant real GDP per capita grew @ a slower rate
- difficult to measure
= GDP statistics often revised
= when UK went into recession 2008, GDP statistics took several months to actually indicate the economy was in recession
- ignores living costs
= UK has had economic growth for past couple of decades but rising cost of living has meant many people (especially young) are finding it more difficult to live than previous generations
