Emerging And Developing Countries Flashcards
What does HDI measure
Health (life expectancy)
Education (average years of schooling)
Living standards (GNI per capita)
How is HDI ranked
0-1 closer to 1 high development
Pros cons of HDI
Holistic, however omits other indicators e.g living standards ignores access to electricity etc
Easy to compare, recognise who needs aid, however ignores distribution of development in the country
10 Barriers to Growth and Development
Poor education Poor infrastructure Poor health Population growth Savings gaps Property rights Corruption Landlocked countries Infant industries Primary product dependency Foreign currency gaps
Poor education as a barrier
Workers have low human capital, less productive, LRAS falls, costs increase, income/profit fall, less tax revenue, limited development
Improving education evaluation
Short run SRAS falls as not in work
Also depends on quality of education
Poor infrastructure as a barrier to G&D
Worse geographical mobility of labour, less productive, LRAS left. Profit/Income falls, less tax revenue, limited development
Promoting FDI as a strategy to improve G&D
Lowering corp tax/min wage. Incentivises FDI, more profits, tax revenue, for development
Eval:less tax revenue, and consumption falls as min wage lowers incomes. LRAS may fall with migration, and SRAS may fall as people switch to benefits (supply of labour)
Poor health as a constraint
More sick days, less productive. LRAS and development limited
Kids may be forced to work and leave education, LRAS falls
Aid as a strategy to improve G&D (health) + eval
Use to spend on healthcare, and keep kids in school
Eval:corruption. Health remains poor
Population growth as a barrier to G&D
Parents forced to look after children, unable to develop careers, LRAS fall.
Schools/hospitals cater to more, so quality may worsen, decreasing productivity/LRAS.
Improving education as a strategy to improve G&D (population growth) and eval:
Higher human capital, more productive, demand higher incomes, reducing birth rate
Better sex education reduces birth rate, more time to focus on careers, LRAS right
Eval:religion:condoms are a sin in some religions, others say women shouldn’t work
Savings gap as a barrier
The difference between the money held at banks, and the money firms want to borrow.
Harrod Domar-low savings, low investment, low growth/development
How to reduce savings gap and eval
Microfinance-offering small loans to small businesses. Increases investment, LRAS increases. Profits increase, more money to put into banks which can lend out for more investment. Cycle repeats
Eval:high interest rates. unless business makes a lot of money quickly, they’ll have no income, no money saved, savings gap worsen.
Further, if people cant pay back, bankrupt and unemployed, savings gap worsen
Property rights as a barrier
Dead capital-property with no legal property rights.
People can’t use it as collateral for loans, so limits investment. LRAS falls, productivity falls, profits worsen as less competitive, as does tax revenue, limiting development
Reducing dead capital and eval
Enforcing property rights, allowing property to be used for collateral, increasing investment.
LRAS/AD increases, increasing growth. Profits increase, tax rev increases, development increase
Eval:may not directly lead to increased investment, some may still see risk, fear losing the little assets they have. Just costly for government to enforce.
Corruption as a barrier e.g
Reduces spending on infrastructure, education and health:all restraints to G&D. E.g Venezuela, 300bn has gone missing in last 10 years
Fair trade schemes as a strategy and eval
Money payed goes directly to farmers who need it. Incomes increase, consumption/AD/growth increases.
Income tax revenue increases, however could go to corruption. Therefore to promote development…
Fair trade premiums-a communal fund that farmers can spend on development themselves rather than relying on corrupt government
Eval:Fair trade foundation doesn’t monitor how much actually goes to farmers. It was found less than 1% actually goes to producers. Incomes remain low, growth low too.
Landlocked as a barrier
Landlocked-when there are no borders, surrounded by other countries
Higher costs due to shipping, SRAS falls, tax revenue falls, growth and development limited.
Forced to borrow money they cant afford to pay back, creating debt, limiting development spending further.
Debt relief as a strategy and eval e.g
Countries dont have to pay back debt, allowing them to develop
Eval:may just go to corruption and no improvements in development
Burundi were relieved of $833m but development has not changed
Infant industries as a barrier
Industries to small to benefit from E.O.S.
High LRAC, SRAS left, limiting growth.
High costs, less competitive, less profit, less tax revenue, less development
Protectionism as a strategy and eval (2)
Increase price of imports/decreasing costs/price of domestic producers. Increases SRAS, profits increase, development increases
Eval:discourages efficiency, may get lazy, less productive, not much profit may be made as become dependent on subsidy. In long run struggle to compete with MNC’s as prices don’t fall low enough as a result.
Competitive devaluation (lowering interest rates, or selling domestic currency)-more profit
Eval:retaliation-currency wars-imports become more expensive, increasing costs, SRAS falls, profit falls, development falls
Primary product
A product made from raw materials
3 characteristics of primary products
Inelastic PES,PED,YED. Can lead to price instability, as a small change in QD/QS will have a big change in price
Primary products as a barrier to G&D
Prices unstable. Hard to predict future prices, deterring investment in these industries. AD falls, LRAS falls. Less corp tax, less development
How to overcome primary product dependency/price instability and eval
Buffer stock schemes, gov buy and hold stock to supply to avoid price fluctuations. E.g in bad harvest where price is high, gov will increase supply to reduce value.
Eval:unintended consequences, incentivises overproduction, gov has to buy more, costing more, less money to spend elsewhere.
Also consecutive poor harvests may mean nothing left in buffer stocks (may be perishable). High storage costs too.
Prebisch singer hypothesis
Inelastic YED. Unresponsive to changes in income. So when world incomes rise, demand doesn’t change for primary products too much. For manufactured goods, demand increases more, increasing prices, meaning imports for primary product dependent countries are more expensive, so afford less. E.g cannot afford capital to invest. TOT deterioration for developing countries.
How to overcome Prebisch Singer hypotheses/Inelastic YED for primary products and eval
Industrialisation-Lewis model. Switching from agricultural sector to manufactured sector. Firms set up in these developing countries, where they are the only manufacturing firm, a monopsony, can charge low wages. More investment to expand moving more workers over, increasing wages, profit, more tax revenue, growth and development. As more move to manufacturing, pushes up wages, incentivising more workers into manufacturing, reduces dependency on PP
Eval:transfer pricing-firms may sell products to same firm at a very low price, declaring profits in that country to save tax.
Foreign currency gaps as a barrier
Amount of foreign currency held decreases. Usually by trade deficit (imports>exports)
Leads to a depreciation, they have to swap currency as do not have foreign currency.
Weak currency-imports dear, cost push inflation, downturn
How to solve foreign currency gaps and eval
Diversify exports-can be done by tax breaks, encouraging FDI. Increases demand for currency, reducing foreign currency gap.
Eval:lack of tax revenue, diversification may only be seen in long run
