Emerging and Developing Countries Flashcards
What are different measurements of development?
HDI (human development index), Life expectancy, Number of years expected in school, GNI (Gross national income) per capita.
Pros of using HDI
Wide use: HDI indicators are used worldwide. Countries use HDI to compare their level of economic development and global economic patterns.
Increased infrastructure: Increase in the education level and health of individuals leads to an improvement in the country’s infrastructure.
Cons of using HDI
Unknown about the quality of the education,
Gives an average and not an individual representation that could reflect poverty.
What is primary product dependency?
Primary product dependency refers to an economy that relies heavily on the export of commodities, such as oil or minerals.
What is the dutch disease
Dutch disease is a shorthand way of describing the paradox which occurs when good news, such as the discovery of large oil reserves, harms a country’s broader economy.
It may begin with a large influx of foreign cash to exploit a newfound resource.
Symptoms include a rising currency value leading to a drop in exports and a loss of jobs to other countries.
As a result of this:
any industry non-oil reserved would suffer resulting in neglection in the other markets causing unemployment to rise.
Evidently effecting growth and development rates poorly.
What are ways to reduce primary product dependency?
Better government – including more transparency & accountability to tax payers so
that it is clear where natural resource revenues are going
💰 Stabilisation Fund / Sovereign Wealth Fund – e.g. to fund human capital and
infrastructure or to inject money into an economy when aggregate demand dips
💸 Higher taxes of natural resource profits (i.e. extracting resource rents and then
reinvesting in the domestic economy to increase supply-side capacity)
✈️ Diversification – including processing, light manufacturing & tourism – giving higher
value added and making the economy less susceptible to shocks
Why do volatile commodity prices impact on development?
Specifically, we examine how economic growth and inflation are affected by volatility in commodity terms of trade—that is, the movement in the prices that a country pays for commodity imports and the prices it receives for commodity exports. Such swings in commodity prices can weigh on long-term economic growth, especially for commodity exporters.
What is the savings gap?
Savings are needed to finance capital investment
In many smaller low-income countries, high levels of poverty make it almost
impossible to generate sufficient savings to provide the funds needed to
fund investment projects
This increases reliance on aid or borrowing from overseas
This problem is known as the savings gap.
What is the Harrod-Domar model?
The Harrod-Domar model emphasizes the role of savings to help
fund capital investment
The theory states that investment, saving and technological
changes are the key variables in determining economic growth.
The introduction of new physical capital where new technology
can produce more output than a unit of the old capital using less
advanced technology.
Increasing the rate of economic growth can either be done
through increasing the savings ratio in the economy to help with
investment or improve technology to increase output.
A country that is poor is unable to do this, and will therefore
rely on foreign aid.
In simplified terms: higher investment = higher capital stock = Higher economic growth = Increased savings.
What is the foreign currency gap?
It is the difference between the amount of foreign currency a country needs to spend and the amount it can earn.
More detailed explanation: A foreign currency gap refers to a situation where a country’s expenditures in foreign currency, such as payments for imports or servicing foreign debt, exceed its foreign currency earnings from exports or other sources, such as foreign investment or remittances
What is capital flight and how may it be caused?
Capital flight is a large sum of money exiting the economy
1.Political turmoil / unrest / risk of civil conflict
2.Fears that a government plans to take assets under state control
3.Exchange rate uncertainty e.g. ahead of a possible devaluation
4.Fears over the stability of a country’s banking system
How does infrastructure impact growth and development?
