Emerging and Developing Economies Flashcards
Human Development Index
Based off health, education and income - given number between 0-1, higher number shows greater development
Advantages of HDI
Easy to calculate, uses 3 key factors
Disadvantages of HDI
Figures don’t account for quality, fails to measure other inequality and other factors (environment, corruption)
IHDI
Inequality measured HDI, but still ignores other issues
MPI
Multidimensional Poverty Index - measures percentage of population so highlights poverty
Disadvantages of using MPI
Difficult to calculate
Genuine Progress Indicator (GPI)
Uses 26 indicators in 3 categories - economic, environmental and social - shows economic sustainability
Issues with using GPI
Shows developed countries as negative, so suggests growth is unsustainable
Primary Product Dependency
Overdependence on goods from the agricultural sector
Issues with Primary Product Dependency
Natural disasters can ruin production, products may be non-renewable, goods likely to have a low-income elasticity of demand, so demand doesn’t increase with income rises (not true for all i.e diamonds)
Prebisch Singer Hypothesis (Issue of Primary Product Dependency)
The long-run price of primary goods declines in proportion to manufactures goods, so those reliant on primary goods see a fall in terms of trade
Dutch Disease (Issue of Primary Product Dependency)
County becomes a significant producer for a good, increased demand for the good leads to an increase in value of the currency. This increases the price of exports and reduces competitiveness, which causes a fall in output in other areas
How could primary product dependency be beneficial?
Can be used to develop the manufacturing sector (i.e Saudi Arabia and oil)
How can volatility of commodity prices impact growth in developing economies?
Primary products generally have inelastic demand/supply, so small changes of demand/supply lead to huge price changes - creates unstable economy
What are the issues with volatile commodity prices in developing countries?
Harder to plan and carry out long-term investment, constantly changing income could lead to a rapid increase in poverty levels
Potential issues of long-term price rises of goods in developing countries
Can lead to over-investment which may backfire if price falls
Savings Gap definition
The difference between actual savings and savings needed to activate growth
Why is the savings gap an issue for developing countries?
Less savings, so there is less money available for banks to lend for entrepreneurship + less investment
What does the Harod Domar Model suggest?
Growth rate is dependent on the levels of saving and the productivity of investment - developing countries have vast labour supply so issues must be caused by capital
What does the Harod Domar Model suggest is necessary to improve capital?
Investment, which requires savings
Issues with the Harod Domar model
Investment could be wasted so not increase growth + foreign investment causes debt issues
Foreign Currency Gap
When exports are too low compared to imports to finance the purchase/invesment of goods overseas to pursue economic growth (I.e Ethiopia , 60% debt)
Capital flight meaning
When lots of money made in the country is taken out (usually by TNCs) - leads to a lack of money in banks
What causes capital flight
Lack of confidence of banks within the country
Economic factors influencing growth and development
Primary product dependency, volatility of commodity prices, savings gap, foreign currency gap, capital flight, demographic factors, debt, access to credit and banking, infrastructure, education/skills, absence of property rights
How do demographic factors influence growth and development?
High population growth creates issues as the economy must grow at a faster rate to maintain living standards
What are the issues of a high birth rate on growth and development?
Increase in number of dependants but no change to the size of the working population - strains education system, leading to youth unemployment
How do levels of debt influence growth and development?
High interest levels when giving loans due to debt means increased inequality as more money going to developed countries, also reduced government finance so taxes may increase
How does debt usually occur in developing countries?
When borrowing is invested poorly
How does the access to credit and banking impact growth and development?
Developing countries have lower access to credit and banking, so can’t access funds for investment and save
Who are loan sharks, and what are their impacts?
Firms/people who offer high interest loans to those in need - worsens level of debt and poverty as those can’t pay it back
Infrastructure impact on growth and development
Developing countries tend to have low levels, which makes it difficult for businesses to trade and set up - also hurts tourism industry
What are the issues with improving infrastructure to increase growth?
Can be expensive and take a long time, also conflicts with environmental goals
What are the educational issues in developing countries?
Lowers levels of education in developing countries, leads to lower skills, which lowers productivity - also creates occupational immobility
What are the positive and negative impacts of investment in education to growth and development?
Can benefit in the long-term as more occupational mobility, however over-education can cause issues as higher skilled workers can’t get higher skilled jobs
Why does the absence of property rights in developing countries create issues for development?
The people can’t use the law to protect their assets, so investment usually drops as people are unwilling due to the risk, leading to less building of factories/machinery investment
Non-economic factors influencing growth and development
Corruption (leaders prioritise themselves over economy), disease, poor climate/geography(natural disasters), civil wars
Market-orientated strategies influencing growth and development
Trade liberalisation, promotion of FDI, removal of government subsidies, floating exchange rate systems, micro finance schemes, privatisation
How can trade liberalisation benefit growth and development?
Countries aim for export led growth, or removal of barriers improves efficiency as now competing with international market - leads to comparative advantage production
What negative impacts can trade liberalisation have on growth and development?
Some domestic producers may be forced to close as can’t compete internationally
What is Foreign Direct Investment (FDI)?
Private sector to private sector investment
What are the positive impacts of FDI on growth and development?
Can improve efficiency, doesn’t effect the debt as company must repay, transfers knowledge which benefits production, creates jobs (also labour productivity increases so wages may be higher which fills the savings gap)
What are the issues with using increased FDI to influence growth and development?
Company May exploit developing countries by offering lowers wages to increase profits, loss of culture, exploitation of natural resources
How can the government subsidies be used to improve economic growth?
Subsidies can be placed on essential items - minimises absolute poverty and ensures a minimum standard of living
What can be the issues of using subsidies to influence growth and development?
Poorly targeted (benefit everyone ), high opportunity cost, corruption issues, makes producers inefficient, removal of the subsidy can be difficult - especially if prices are high
How can floating exchange rate systems influence growth and development?
Means the country doesn’t worry about their gold/foreign currency reserves so increases investment
What are the issues with using a floating exchange rate systems to influence growth and development?
Can worsen volatility of exchange rate - makes it difficult for businesses to make long-term decisions + can cause a large shift in growth
What are micro finance schemes?
Small-scale loans that give poorer households access to financial services which can increase entrepreneurship (used mostly for women)
What are some of the issues of micro finance schemes?
Some people are unable to repay loans leading to the selling of assets (I,e housing), lack of knowledge of people for how to spend the loan, has little macroeconomic impact
How can privatisation be used to influence growth and development?
Can reduce corruption with state owned firms, loss of EoS increases competition so efficiency improves - also if firm is loss-making it can be sold off to improve government finances
Issues with using privatisation to influence growth and development
If firm is privatised as a monopoly there will be no competition + there may be corruption if company sold off for cheaper to family/friend
Interventionist strategies to influence growth and development
Development of skills, protectionism, managed exchange rates, infrastructure development, buffer-stock schemes, promoting joint ventures with global companies
How can development of skills be used to influence growth and development?
Improve productivity, shift from primary to manufacturing sector causes a reduction in primary product dependency
How can skills be developed?
Apprenticeships/training schemes/education - education also improves quality of life
How can protectionism be used to influence growth and development?
Allows domestic industries to grow - in the short-run creates jobs, in the long-run barriers may be able to be removed as firms grow to compete
Issues with using protectionism to influence growth and development
Rises costs (countries lose out on specialisation), can also lead to retaliation from other countries
How can managed exchange rates be used to influence growth and development?
Can increase exchange rates for essential imports, making them more affordable which reduces poverty , and then decrease exchange rates for non essential goods which encourages domestic purchase as imports for these become more expensive
Issues with using managed exchange rates to influence growth and development
Can create a black market/corruption as government officials buy at one exchange rate and sell for profit at another
Why would government manage a single-exchange rate?
Reduces volatility of goods, however difficult to maintain value due to speculation
How can infrastructure development influence growth and development?
Easier transport links for trade, essential for development
Why do interventionists believe the government should provide infrastructure development?
Has very high costs, free rider problem and social benefit it provides doesn’t help business objectives
What are the issues with using infrastructure development to influence growth and development?
Government May lack funds/knowledge so production may be inefficient + lower quality, large environmental damage - argument that local development better than large scale
How can the government promote joint ventures with global companies to influence growth and development?
Reduces FDI exploitation, keeps profit within the country which can increase investment
What are buffer-stock schemes?
Government impose a maximum and minimum price for goods, buying stocks when excess supply and selling when excess demand - self-financing for government
How can buffer-stock schemes positively influence growth and development?
Allows stability of price
Issues with the use of buffer-stock schemes
Huge start up costs, requires value to go up and down, if minimum price is too high producer become inefficient
What does the Lewis Model show?
Growth in the manufacturing sector by attracting worker with higher wages leads to a growth in urban areas as higher incomes, which leads to greater savings for investment that can be reinvested to increase growth
Issues with the use of industrialisation to improve growth and development?
Geographical immobility, labour shortages in agriculture, higher wages not always saved/invested, overpopulation in urban areas (leads to urban poverty), technological advances reduces labour demand in the long run, argument industrialisation is a result of development not a cause
How can the government encourage industrialisation to improve growth and development?
Building factories and plants to encourage transition, but if unsuccessful is a waste of finance and resources
How can the development of tourism influence growth and development?
Income elasticity nature - benefits from global economy growth, provides a source of foreign currency to fill currency gap, attracts investment from TNCs, higher tax revenue
How can development of tourism help locals?
Improved infrastructure through investment, creates jobs
Issues with developing tourism to influence growth and development
Seasonal unemployment, TNCs may exploit local workers, capital flight, negative environmental externalities
How does development of a primary industry influence growth and development?
Provides funds to allow a country to diversify
How can the government address the Dutch disease?
Using revenue made from the product to invest overseas, weakening the exchange rate make;f exports more competitive
Issues with developing primary industry to influence growth and development?
Primary product dependency, volatile prices
Fair trade Principles
Fair price, development, fair working conditions and environmental protection
What do fairtrade schemes lead to agreements of?
Bound pricing, which improves local economic stability, also reduces poverty as income rises
What else do fair trade schemes monitor?
Child labour ( try to send children to school, which increases entrepreneurship), environmental sustainability
How do fairtrade schemes benefit growth and development?
Improves social welfare, allows savings for the future
What are the issues with the use of fairtrade schemes?
Has little impact as income still not sufficient, hurts non fairtrade producers, provides little incentive for diversification
Which country is the biggest recipient of aid?
Afghanistan - due to war
How is aid able to benefit people?
Able to reduce absolute poverty, especially emergency relief after natural disasters
How is aid able to influence growth and development?
Can fill the savings and foreign currency gaps, which allows funds for investment + increases globalisation and trade, so reduces global inequality
What are the issues with the use of aid for a country?
Over dependence on aid, moral hazard, corruption reduces effectiveness of aid, difficult knowing where to spend aid
What are the World Bank’s aims?
Bring long-term development and reduction in poverty
How many projects had the World Bank funded since 1947?
12,000
How does the World Bank go about trying to achieve its aims?
Provides interest-free loans and grants
What does the IMF do?
Ensures exchange rate systems work well, provides loans when countries suffer exchange rate crisis and can’t repay debt, provides advice + training
What does the IMF force countries to do for aid?
Forces countries to reduce the deficit I.e reduce imports, increase inflation, lower government spending- this can create more issues
What are IMF loans used as an alternative to?
Countries defaulting on loans
What are NGOs?
Non-profit organisations, they run separately from the government
What can NGOs provide?
Assistance through education, healthcare (can be emergency or long term), also provide pressure to corrupt governments
What are the problems of NGOs?
Little impact on their own as smaller-scale and less funds, also don’t work with other development products as are anti-capitalist
