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