Emerging And Developing Countries

Question 1

What does HDI measure

Answer 1

Health (life expectancy)
Education (average years of schooling)
Living standards (GNI per capita)

Question 2

How is HDI ranked

Answer 2

0-1 closer to 1 high development

Question 3

Pros cons of HDI

Answer 3

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

Question 4

10 Barriers to Growth and Development

Answer 4

Poor education
Poor infrastructure
Poor health
Population growth
Savings gaps
Property rights
Corruption
Landlocked countries
Infant industries
Primary product dependency
Foreign currency gaps

Question 5

Poor education as a barrier

Answer 5

Workers have low human capital, less productive, LRAS falls, costs increase, income/profit fall, less tax revenue, limited development

Question 6

Improving education evaluation

Answer 6

Short run SRAS falls as not in work

Also depends on quality of education

Question 7

Poor infrastructure as a barrier to G&D

Answer 7

Worse geographical mobility of labour, less productive, LRAS left. Profit/Income falls, less tax revenue, limited development

Question 8

Promoting FDI as a strategy to improve G&D

Answer 8

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)

Question 9

Poor health as a constraint

Answer 9

More sick days, less productive. LRAS and development limited
Kids may be forced to work and leave education, LRAS falls

Question 10

Aid as a strategy to improve G&D (health) + eval

Answer 10

Use to spend on healthcare, and keep kids in school

Eval:corruption. Health remains poor

Question 11

Population growth as a barrier to G&D

Answer 11

Parents forced to look after children, unable to develop careers, LRAS fall.
Schools/hospitals cater to more, so quality may worsen, decreasing productivity/LRAS.

Question 12

Improving education as a strategy to improve G&D (population growth) and eval:

Answer 12

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

Question 13

Savings gap as a barrier

Answer 13

The difference between the money held at banks, and the money firms want to borrow.

Harrod Domar-low savings, low investment, low growth/development

Question 14

How to reduce savings gap and eval

Answer 14

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

Question 15

Property rights as a barrier

Answer 15

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

Question 16

Reducing dead capital and eval

Answer 16

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.

Question 17

Corruption as a barrier e.g

Answer 17

Reduces spending on infrastructure, education and health:all restraints to G&D. E.g Venezuela, 300bn has gone missing in last 10 years

Question 18

Fair trade schemes as a strategy and eval

Answer 18

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.

Question 19

Landlocked as a barrier

Answer 19

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.

Question 20

Debt relief as a strategy and eval e.g

Answer 20

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

Question 21

Infant industries as a barrier

Answer 21

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

Question 22

Protectionism as a strategy and eval (2)

Answer 22

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

Question 23

Primary product

Answer 23

A product made from raw materials

Question 24

3 characteristics of primary products

Answer 24

Inelastic PES,PED,YED. Can lead to price instability, as a small change in QD/QS will have a big change in price

Question 25

Primary products as a barrier to G&D

Answer 25

Prices unstable. Hard to predict future prices, deterring investment in these industries. AD falls, LRAS falls. Less corp tax, less development

Question 26

How to overcome primary product dependency/price instability and eval

Answer 26

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.

Question 27

Prebisch singer hypothesis

Answer 27

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.

Question 28

How to overcome Prebisch Singer hypotheses/Inelastic YED for primary products and eval

Answer 28

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.

Question 29

Foreign currency gaps as a barrier

Answer 29

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

Question 30

How to solve foreign currency gaps and eval

Answer 30

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