Emerging And Devoloping Economies Flashcards
HDI
A composite measure which is sued in the United Nations development report and which consists of three elements:
GDP per head, health (life expectancy) and education (years in school average)
Advantages of using HDI
Broader measure than GDP per capita
According to the UN programme, the three so essential contributors to development for people to lead a long health life, have access needed for decent living
Limitations of HDI
Too narrow, only takes into account three things
Only concerned with long term development outcomes
An average, so disguised disparities a inequalities within countries
Other indicators of development
Proportion of population with access to clean water,energy consumption per person, degree of inequality,mobile phones per thousand people etc.
Factors influencing growth and development (examples)
Education, infrastructure, debt, demographics, foreign currency gap, primary product dependency, absence of property rights etc.
Factors influencing growth and development: primary product dependency
Occurs in countries where the value of production in primary products accounts for a large proportion of GDP. Hard commodities (minerals) and soft commodities (agriculture)
Factors influencing growth and development: primary product dependency issues
Extreme price fluctuation, protectionism,finite supply (of hard commodities),fluctuation in producers revenue
Factors influencing growth and development: savings gap (Harrod Domar model)
Low income and output-> low savings -> low investment -> low capital accumulation -> low income and output
Suggest development limited
Factors influencing growth and development: savings gap (Harrod Domar model) limitations
Focus only physical capital and ignore human capital, assumes constant relationship between capital and income, savings gap can be filled (eg by FDI)
Factors influencing growth and development: foreign currency gap
Countries may have a shortage of foreign currency, which could be caused by- dependency on the export of primary products, dependency on imports of oil and manufactured goods, interest payments on debt to foreign countries
Factors influencing growth and development: demographic factors
In countries with greater population growth, GDP per head would decline, ageing population means smaller working population
Factors influencing growth and development: debt
Causes- dependency on primary product and falling terms of trade, borrowing money at times of low interest rates, loans taken to finance expenditure on military equipment, investment project etc.
Factors influencing growth and development: access to credit and banking
Important both for new 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
Factors influencing growth and development: infrastructure
PhysicL and organisational structures and facilities which are required for the efficient operation of a society and its enterprises. If bad, it may deter domestic investment and FDI
Factors influencing growth and development: education and skills
If school enrolment ratio is low then the levels of literacy and numeracy are likely to be low, so productivity may be low and will act as a deterrent to FDI
Factors influencing growth and development: absence of property rights
The authority to determine how a resource is used, whether it’s owned by the gov, or individuals. Ownership rights
Impact of non-economic factors in different countries: poor governance, instability and civil wars
If weak gov., unlikely resources will be allocated efficiently, gov. Failure may occur. If gov. Intervention, there may be welfare loss, civil war devastating effects on infrastructure etc,
Impact of non-economic factors in different countries: corruption
Undesirable if it causes: inefficient allocation of resources,decrease FDI, capital flight, increase in cost of running a business there
Market oriented strategies: trade liberalisation
Removal of trade barriers. Results in a increase in trade, maybe lower prices and consumer surplus, encourage FDI
Market oriented strategies: promotion of FDI
Encourages by: trade liberalisation, deregulation of capital markets, tax incentives,measures to make cheaper to operate there
Market oriented strategies: removal of government subsidies
Reduced so less incentive for firms to minimise costs
Market oriented strategies: floating exchange rate system
Result in depreciation of exchange rate, goods and services more competitive abroad.
Market oriented strategies: privatisation
More efficient than gov. Run
Market oriented strategies: micro finance schemes
Provide poor with small loans to help them engage in productivity. However have high interest rates
interventionist strategies: development of human capital
skills knowledge and talents of the workforce includes the idea there are investments of people
interventionist strategies: protectionism
include tariffs, quotas and subsidies to domestic producers
interventionist strategies: managed exchange rates
bank could engineer a depreciation of the country’s currency, so increasing competitiveness of its goods and services
interventionist strategies: infrastructure development
tends to be expensive but is vital to a country’s economic development and prosperity. may be funded publicly, privately
interventionist strategies: promoting joint ventures
enterprise undertaken by two or more firms which retain their distinct identity.
advantages include: reduction in costs and risks, less vulnerability to hostile actions id there is political instability
disadvantages: possible loss of control of tech and enterprise to the local partner, possibility of the partners having different strategic interests
interventionist strategies: buffer stock schemes
designed to reduce price fluctuations.
key features of these schemes: a ceiling price (max price), floor price (min price), a buffer stock (storage and release of stock)
interventionist strategies: industrialisation (Lewis model)
transfer of surplus labour from low productivity to higher productivity sectors,
interventionist strategies: development of tourism
source of foreign exchange, investment by global companies, increased tax revenue. but, external costs, employment my be low paid and seasonal
interventionist strategies: development of primary industry
some countries have achieved rapid rates of growth and development as a result development of their primary sectors.
this approach is appropriate if: demand for primary products is income elastic, country has comparative advantage in primary products, FDI is attracted
interventionist strategies: fair trade schemes
the primary aim of fair trade schemes is to guarantee that producers receive a fair price for their products
advantages: producers receive a higher price, increased revenue allows quality to improve, producers protected from fluctuating prices
disadvantages: extra money may only be very mall, poorer or remote farmer unable to join, main proportion of the higher prices goes to retailers rather than producers
interventionist strategies: aid
transfers of resources from one country to another to reduce absolute poverty and provide emergency relief.
types of aid: tied aid (one with conditions attached), bilateral aid (given directly by one country to another), multilateral aid (provided by countries through organisations).
but, can distort figures, corruption, interest may be needed to be paid, dependency culture may occur
interventionist strategies: debt relief
IMF, world bank etc.
increases confidence, environmental gains.
but, corruption, moral hazard (country taking the risk wont be the one who bears the consequences),impact on financial institutions and their shareholders in developed countries
international institutions: the World Bank
role changed in 1970 its role change to setting up agricultural reforms in developing countries, giving loans and providing expertise.
imposes structural agricultural programmes (SAP), which set conditions on which loans are given. aim to ensure that debtor countries don’t default on the repayments of debts.
SAPs are based on free market reforms. however, criticised as did little for worlds poor
following this, world bank now focus on poverty reduction strategies
international institutions: IMF
189 members. when countries join its required to pay a quota which is broadly based on the relative size of the country in the world economy. in 2008, the IMF increased lending, and gave advice to countries.
international institutions: NGOs
bought community based development to the forefront to promote growth and development
