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A global perspective > Emerging and developing economies > Flashcards

Emerging and developing economies Flashcards

1
Q

What are the three dimensions of the Human Development Index (HDI)?

A

1) GDP per capita.
2) Health - measured in terms of life expectancy at birth.
3) Education - measured in terms of mean years of schooling at age 25 and expected years of schooling at age 4.

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2
Q

What are the advantages of using the HDI? (2)

A

1) It is a broader measure than purely national income statistics.
2) It accounts for what the UN regards as the three most important contributors to development.

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3
Q

What are the limitations of the HDI? (3)

A

1) It is too narrow as it only comprises three measures of development.
2) It is only concerned with long-term development outcomes.
3) It is an average measure and so disguises disparities and inequalities within countries.

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4
Q

Give examples of other indicators of development other than the HDI. (8)

A

1) The proportion of the population with access to clean water.
2) The proportion of the male population employed in agriculture.
3) Energy consumption per person.
4) the proportion of the population with access to the internet.
5) Mobile phones per thousand of the population.
6) The degree to which people are entitled to civil rights.
7) The degree of democracy.
8) The degree of inequality.

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5
Q

What are the factors affecting growth and development? (11)

A
  1. Primary Product dependancy
  2. Volatility of commodity prices
  3. Savings gap
  4. Foreign currency gap
  5. Demographic factors
  6. Debt
  7. Access to credit & banking
  8. Infrastructure
  9. Education/skills
  10. Absence of property rights
  11. Non-economic factors e.g. poor governance, civil wars, corruption
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6
Q

What are the 2 broad types of primary products? Give examples

A
  1. Hard commodities - Usually those that are mined or extracted e.g. copper
  2. Soft commodities - Usually agricultural goods e.g. Rice
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7
Q

What are the issues for developing countries who depend on primary products? (8)

A
  1. Extreme price fluctuations - Since both supply and demand for primary products tend to be inelastic, any changes in the conditions of supply or demand will cause large price fluctuations.
  2. Fluctuations in producers’ revenues resulting from price fluctuations - make it more difficult to plan investment & output
  3. Fluctuations in foreign exchange earnings - Revenues from exports of primary products will also fluctuate, making it more difficult for the government to plan economic development.
  4. Protectionism by developed countries
  5. Shortages of supplies for domestic consumption - Cash crops are usually exported, meaning the their is little left for domestic consumption.
  6. Finite supplies of hard commodities
  7. Appreciation of the currency - Demand for a particular commodity will cause a rise in demand for the country’s currency
  8. Falling terms of trade
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8
Q

State the main features of the Prebisch-Singer hypothesis (4)

A

According to this hypothesis:

  1. The demand for primary products tends to be income inelastic whereas the demand for manufactured goods is income elastic.
  2. Therefore, as real incomes rise, the demand for manufactured goods will increase at a faster rate than the demand for primary products.
  3. As a result, the prices of manufactured goods will rise more quickly than the prices of primary products.
  4. Consequently, the terms of trade of developing countries will fall relative to those of developed countries.
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9
Q

What are the criticisms of the Prebisch-Singer hypothesis? (3)

A
  1. The developing country may have a comparative advantage in the primary product.
  2. The real price of primary products might increase over time with rising world incomes and population
  3. FDI has increased significantly in recent years in countries dependant on primary products.
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10
Q

Briefly explain the Harrod-Domar model. (3)

A
  1. Illustrates the problem of how countries with a low GDP per head will experience low savings ratios.
  2. Low savings mean that it will be difficult to finance investment, and therefore capital and accumulation will be limited.
  3. This will translate into low output and ow GDP.
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11
Q

What are the criticisms of the Harrod-Domar model? (3)

A
  1. It focuses on physical capital and ignores the significance of human capital.
  2. It assumes a constant relationship between capital and output.
  3. The savings gap may be filled by the means other than domestic savings e.g. FDI
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12
Q

What might cause a country to face shortages in foreign currency? (4)

A
  1. Dependancy on export of primary products
  2. Dependancy on imports of oil and manufactured goods.
  3. Interest payments on debt to foreign countries
  4. Capital flight, which occurs when individuals and countries decide to transfer cash deposits to foreign banks or to buy shares or assets in foreign countries.
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13
Q

List the causes of debt for a country (6)

A
  1. Dependancy on primary product and falling terms of trade
  2. Developing countries borrowing money at times of low interest rates, but struggling to service the debt (i.e. pay interest on it) when interest rates increase
  3. These countries having to borrow to pay for imports when oil prices increase
  4. Loans taken to finance prestigious investment projects
  5. Depreciation in the value of the currencies of developing countries, which increases the burden of debt
  6. Loans taken to finance expenditure on military equipment
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14
Q

Why is access to credit and banking important for growth and development?

A

Important for entrepreneurs who need to borrow money to finance their start-up expenses and for existing businesses which may need money to finance expansion and for cash-flow reasons.

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15
Q

What is meant by a country’s infrastructure?

A

A country’s infrastructure refers to the physical and organisational structures and facilities which are required for the efficient operation of a society and its enterprises.

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16
Q

What are the likely effects of a country having poor infrastructure? (2)

A

Likely to deter both

  1. Domestic investment
  2. FDI
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17
Q

What are the effects if school enrolment is low?

A
  1. Levels of literacy and numeracy are likely to be low

In turn:

  1. The productivity of the workforce is likely to be low
  2. This acts as a deterrent to FDI
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18
Q

What are property rights?

A

The exclusive authority to determine how a resource is used, whether that resource is owned by government, collective bodies, or by individuals. In other words, property rights are ownership rights.

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19
Q

What could be the possible impacts of poor governance, political instability and civil wars in a developing country? (3)

A
  1. A weak or inefficient government means that resources will be allocated inefficiently
  2. As a result, government failure may occur, meaning there will be a net welfare loss.
  3. Civil wars have a negative impact on infrastructure, deter investment and so hinder growth and development.
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20
Q

Why is corruption undesirable? (4)

A

Undesirable if it causes:

  1. An inefficient allocation of resources
  2. An increase in the costs of doing business in the country
  3. A decrease in FDI
  4. Capital flight
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21
Q

Give possible market-orientated strategies to growth and development. (6)

A

1) Trade liberalisation
2) Deregulation of capital markets
3) Promotion of FDI
4) Devaluation of exchange rates
5) Microfinance schemes
6) Privatisation

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22
Q

What is trade liberalisation?

A

Trade liberalisation is the removal of trade barriers. This leads to and an increase in trade and the associated welfare benefits of, for example, lower prices and increased consumer surplus.

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23
Q

What are the benefits of trade liberalisation? (4)

A
  1. Trade liberalisation means that developing countries can become less dependent on aid.
  2. Incentive for TNCs to establish production plants in the country, contributing to industrialisation.
  3. More efficient use of resources – based on law of comparative advantage leading to increased growth.
  4. Consumers benefit from lower prices and greater choice.
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24
Q

What are the drawbacks of trade liberalisation? (4)

A
  1. Domestic firms in developing countries may be unable to compete with TNCs from developed countries.
  2. Infant industries may not survive.
  3. Monopsony power of TNCs may result in exploitation of the resources of developing countries.
  4. Dumping of cheap products from the developed world into the developing countries.
25
Q

What is the benefit of deregulating capital markets?

A

The deregulation of capital markets allows flows of money between countries, so facilitating trade.

26
Q

What are the benefits of promoting FDI?

A

Both trade liberalisation and deregulation of capital markets will contribute to an increase in FDI as TNCs will find it easier to trade.
Measures to make it easier and cheaper for global companies to build factories in developing countries as well as tax incentives will encourage FDI.

27
Q

What would be the outcome of the devaluation of exchange rates?

A

This would make exports more competitive, which would also give a boost to export-led growth. However, this is only true if demand for the product is price inelastic.

28
Q

What are microfinance schemes?

Why have these schemes been criticised?

A

These schemes are a means of providing extremely poor people with small loans (microcredit) to help them engage in productive activities to grow their tiny business.
The main client of microfinance are women (97% of clients), the self-employed, small farmers in rural areas and small shopkeepers.
However, microfinance schemes have been criticised because of the high interest rates charged on loans and because they have not been very successful at creating prosperous businesses in the long run.

29
Q

What is the benefit of privatisation?

A

Since the profit motive and competition are characteristics of firms operating in the private sector, it is argued that privatised firms will be more efficient than those run by the state.

30
Q

Give examples of interventionist strategies that influence growth and development. (6)

A

1) Development of human capital
2) Protectionism
3) Managed exchange rates
4) Infrastructure development
5) Promoting joint ventures
6) Buffer stock schemes

31
Q

What is meant by the development of human capital?

A

Human capital refers to the skills, knowledge and talents of the workforce and it includes the idea that there are investments in people, such as education and training, which increase an individual’s productivity.

32
Q

How can managed exchange rates influence growth and development?

A

Under a system of managed exchange rates, the central bank could engineer a depreciation of the country’s currency, so increasing the competitiveness of it’s goods and services.

33
Q

How can infrastructure development influence growth and development?

A

Investment in infrastructure tends to be very expensive but is vital to a country’s economic development and prosperity. Such projects may be funded publicly, privately or through public-private partnerships.

34
Q

What are joint ventures?

What are the advantages? (2)

What are the problems? (2)

A

In a joint venture, the foreign investor and a local partner business establish a jointly owned firm to conduct operation in the host country.
The advantages of a joint venture include:
1. Reduction in the costs and risks
2. Less vulnerability to hostile actions if there is political instability.

Problems:

  1. Possible loss of control of technology and expertise to the local partner.
  2. Possibility of the partners having different strategic interests.
35
Q

What is a buffer stock scheme?

What are the key features of these schemes? (3)

A

A buffer stock scheme is a scheme designed to reduce price fluctuations and which involves the buying and selling of stocks to maintain price within agreed limits.

The key features of the schemes include:

  1. A ceiling price – the maximum price which would be allowed.
  2. A floor price – the minimum price which would be allowed.
  3. A buffer stock, which involves the storage or release of stocks in order to reduce price fluctuations to the agreed limits.
36
Q

What are the issues associated with buffer stock schemes? (4)

A
  1. If the floor price is set too high, then there will be surpluses each year.
  2. If the ceiling price is set too low, then there will be insufficient stocks available in years of shortage.
  3. Costs of storage.
  4. Cheating by one of the members.
37
Q

What is the Lewis Model?

What are the two sectors?

A

Lewis’ structural change (dual sector) model considers many developing countries at an early stage of development to have two sectors:
1. A primarily subsistence agricultural economy, characterised by low productivity with a large proportion of the population living in rural areas.
2. A small modern industrial sector, characterised by high productivity, monetary exchange and people living in urban areas.
Lewis’ view is that economic development can only occur if there is industrialisation.

38
Q

What are the key features of the Lewis Model (5)

A
  1. The transfer of surplus labour from the low-productivity agricultural sector to a higher productivity industrial sector.
  2. The marginal productivity of agricultural workers would be zero or close to zero because of the excess supply of workers. This analysis is based on the law of diminishing returns.
  3. Therefore, the opportunity cost of the transfer of workers from the agricultural to the industrial sector would be zero or close to zero.
  4. Industrialisation requires investment, which will increase productivity and profitability and result in higher wages, so attracting workers from the rural areas.
  5. Increases in the savings ratio and in profits as a proportion of GDP will lead to more investment, so further increasing economic growth.
39
Q

What are the criticisms of the Lewis Model? (3)

A
  1. Profits made by TNCs may be repatriated to the foreign workers.
  2. The assumption of surplus labour in the agricultural sector and full employment in the industrial sector is contradicted by evidence, e.g. the favelas in South America.
  3. Agriculture and primary products have formed the basis of growth and development in some countries.
40
Q

What are the benefits of the development of tourism? (7)

A
  1. Source of foreign exchange.
  2. Investment by global companies – investment in hotels and associated services will have multiplier effects on GDP.
  3. Improvement in infrastructure – global companies may help to finance new houses and roads as part of agreements to allow them to build hotels.
  4. Employment opportunities.
  5. Increased tax revenues – which may be used to reduce absolute poverty, improve public services and to redistribute incomes.
  6. Demand for tourism is income elastic – when incomes rise, demand for tourism will increase by a greater proportion.
  7. Preservation of natural heritage.
41
Q

What are the drawbacks of tourism? (6)

A
  1. Adverse effect on the the current account of the balance of payments:
    Imported capital goods are required for the building of hotels and equipment
    Imported food and gifts are demanded by tourists.
    Profits may be repatriated to foreign shareholders of global companies.
  2. Fluctuations in demand associated with the trade cycle.
  3. External costs – Tourists may cause an increase in waste, pollution, destruction of ancient monuments and water shortages for local people.
  4. Changes in fashion – Tourism is subject to changes in tastes, preferences and fashions as well as climate change.
  5. Terrorism – the tourist industries in countries such as Kenya, Tunisia and Egypt have been adversely affected by terrorist incidents.
  6. Employment may be low paid and seasonal.
42
Q

In what way can the development of primary industries affect growth and development?

When would the development of primary industries be appropriate? (3)

A

Some countries have achieved rapid rates of growth and development as a result of development in their primary sectors.

This approach to economic development may be appropriate if:
• The demand for the primary products being produced is income elastic.
• The country has a comparative advantage in the production of primary products.
• FDI is attracted by the existence of primary products

43
Q

What is aid?

What is official development assistance?

A

Aid is a voluntary transfer of resources from one country to another OR loans given to another country at less than the market rate of interest.

Official development assistance (ODA) relates specifically to aid given by governments to developing countries and excludes aid given by voluntary agencies.

44
Q

What is the objective of aid?

A

The objective of aid is to reduce absolute poverty in the long run and provide short-term emergency relief after natural disasters/extreme weather events or for refugees after a civil war.

45
Q

What is tied aid?

What is bilateral aid?

What is multilateral aid?

A

Tied aid – This is aid with conditions attached. For example, there may be a requirement to buy goods from the donor country or the aid may be given in return for economic or political reforms.

Bilateral aid – This is aid given directly from one country another.

Multilateral aid – This is aid provided by individual countries but channelled through organisations such as the World Bank to developing countries.

46
Q

What is the case for aid? (5)

A
  1. To reduce absolute poverty and inequality
  2. As a means of filling the saving gap and foreign exchange gap
  3. To provide funds for investment.
  4. To improve human capital
  5. Benefits to developed countries if aid results in increased incomes in developing countries.
47
Q

What is the case against aid? (7)

A
  1. Aid reinforces the dominance of developed economies over the developing world.
  2. Danger that dependency culture may develop.
  3. Aid may not be received by its intended recipients.
  4. Aid is going to relatively rich countries such as Turkey and Brazil.
  5. Aid may distort market forces.
  6. Donor countries may exert political influence over recipient countries.
  7. Interest must be paid on loans.
48
Q

What is the Heavily Indebted Poor Countries (HIPC) Initiative? (4)

A
  • Devised by the IMF and World Bank in 1996 and enhanced in 2005 by the multilateral Debt Relief Initiative (MDRI).
  • Aimed at reducing the external debt of the poorest countries of the world to sustainable levels.
  • Helped to achieve the 2015 goal of halving absolute poverty by 2010.
  • By 2012, 36 countries had approval for debt-reduction packages under the HIPC initiative.
49
Q

What are the arguments for debt cancellation? (3)

A
  1. Same as the ‘case for aid’.
  2. Increased business confidence, leading to an increase in investment.
  3. Environmental gains: conditions might be attached.
50
Q

What are the arguments against debt cancellation? (5)

A
  1. Length of time to agree a debt cancellation programme.
  2. Moral hazard problem – this is when a country taking a risk might not be the one that faces the consequences of that risk.
  3. Corruption
  4. Adverse impact on financial institutions and their shareholders in developed countries.
    5) Same as for the ‘case against aid’.
51
Q

What is the aim of fair trade?

How many fair trade product lines are there?

Give examples.

A

The main aim of fair trade is ‘to address the injustice of low prices’ by guaranteeing that producers get a fair price.
This means paying producers a price above the free market level for their produce, provided that they meet specific labour and production standards.
The market for fair trade products has grown rapidly and there are now over 3,000 product lines including coffee, tea, chocolate, bananas, wines, clothes and flowers.

52
Q

What are the advantages of fair trade schemes? (4)

A
  1. Fair trade schemes are very popular in the UK, evidenced in the increased sales of fair trade products.
  2. One reason for their appeal is that producers get a fair price for their products, higher than the market price.
  3. A further cause is that producers are protected from greatly fluctuating prices, enabling planning for investment and output.
  4. Additionally, the quality of products may improve due to higher revenues from higher prices.
53
Q

What are the criticisms of fair trade schemes?

A
  1. Consumers in developed countries pay higher prices for fair trade products. However, a large proportion of the profit goes to supermarket.
  2. Minimum prices do not incentivise producers to improve the quality of their product.
54
Q

How has the role of the World Bank changed?

A

The original role of the World Bank or IBRD was to provide long-term loans for reconstruction and development to member nations which had suffered in the Second World War.
In the 1970s, its role changed to setting up agricultural reforms in developing countries, giving loans and providing expertise.

55
Q

What are SAPs?

What was their aim?

Why have they been criticised?

A

The World Bank imposes Structural Adjustment Programmes (SAPs), which set out conditions on which loans are given. The aim is to ensure that debtor countries do not default on the repayment of debts.
SAPs were based on free-market reforms. However, they have been criticised because they have done little to help the world’s poor; they increased inequality; and they resulted in social and political chaos in many countries.

56
Q

What is the World Bank’s focus following the criticisms of SAPs?

A

Following theses criticisms, the World Bank now focuses on poverty reduction strategies, with aid being directed towards countries adopting sound macroeconomic policies; healthcare and broadening education, local communities rather than central governments.

57
Q

When was the IMF founded and for what reason?

A

The IMF was founded in 1944 with the objective of increasing international liquidity and providing stability in capital markets through a system of convertible currencies pegged to the dollar. It also lends to countries with temporary deficits on current account balance of payments.

58
Q

How many members does the IMF have?

What are the terms of membership?

What was the impact of the financial crisis on the IMF?

A

There are now 189 members in the IMF.
When a country joins, it is required to pay a quota which is relative to its size in the world economy (calculated in terms of GDP). Up to 25% of this quota or joining fee must be paid in the Special Drawing Rights or currencies which are generally acceptable, such as the US dollar, the pound sterling, the yen, or the euro.

Following the financial crisis, the IMF:

  1. Increased lending
  2. Provides forecasts, analysis and advice to individual countries
59
Q

What has been the impact of NGOs?

A

The work of NGOs has brought community-based development to the forefront of strategies to promote growth and development (i.e. the focus has moved away from state-managed schemes).

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