Emerging & Developing Economies I & II Flashcards
Forms of undevelopent
- Lack of ICT
- Low heathcare
- Poor diets
- Sanity challenges
- School
- Water sanitation
Indicators of development
% with access to clean water
% people with mobile phones
% with Internet
% energy consumed per capita
% working in agriculture
How is growth measured
Increase in real GDP
How is growth an inaccurate measure
A increase in average sector
Not increase in welfare
3 measures of development
HDI - Human development index
IHDI - Inequality adjusted human development index
MPI- Multidimisenional poverty index
multidimensional poverty index
10 smaller indicators of development
Heath- child mortality
- life expectancy
Weaknessess of both IHDI and HDI
both look at 3 sectors to determine what is important
What does the MPI show
% in poverty
also the average intensity of those who are in poverty
High MPI
means that there is high poverty and low development
3 main factors of development
HDI
IHDI
MPI
Key 3 things leading to poverty and low productivity
- Low productivity
- High costs
- low investment
10 key constrains on growth and development
Education
Infrastucture
Heath
Population Growth
Savings gap
Dead Capital
Corruption
Landlocked countries
Infant industries
Primary product dependancy
HDI components
GDP/Cpaita
Education (years in)
Life expectancy
What is gross national income
GDP + Income from abroad (such as remittances)
How is HDI calculated
Each of the 3 factors of productional calculated as an index number
HDI eq
Cube root of the three factors times together
HDI levels
0-0.49: low development
0.5-0.69: Medium level of development
0.7-0.79: High development
0.8-1: very high
2 pros and 2 cons of HDI
+
Reliable as it takes 3 factors hence making it a composite indicator
Good for comparison by providing a ranking
-
Emits other factors
Ignores distribution
What does the mini coefficient
measures income inequality
An equal county will have a low mini coefficient
IHDI
HDI adjusted for inequality
with perfect equality IHDI = HDI
HDI doesn’t already account for inequality
This reflects the distribution of development
Israel has HDI of 0.9
Israel’s has a an IHDI = 0.78
Data from 2020
The lost generation
Madagascar
When colonial teachers were replaced by madagascan speaking teachers who provided a really poor quality of education. The generation who recived this are called the lost generation
Impact of poor education
low productivity
contraction in LRAS
low skill jobs
tax rev falls
Why should education be improved
Increased productivity
Exension in LRAS
Low skill jobs change to higher skill job
tax rev increases
Challanges of increasing education
In the short run incomes will be lower as children are at school
people become poorer
consumption decreases
poor infrastructure
difficult mobility of labour
low power impacts productivity
less industrial output
Impact of poor education
low human capital
low productivity increases
limited growth and development
Impact of poor productivity
low productivity from poor infrastructure
lower profit for firms
lower taxes
lower government spending
lower growth
Strategies to improve infrastructure
Promote FDI
FDI def
Investments made from one firm in a country to another firm in another country
Ways to increase FDI
Lower Tax (increases productivity which increases IVMT)
Reducing wage cost
higher efficiency
lower prices
higher profit
31bn in FDI in India in 2015
Impacts of reducing wage cost
lower incomes
lower consumption
ad shifts right
Costs of cutting corporate tax rate
Lower govt tax revenue
lower money to spend
lower development spending
ad contracts
Reasons for poor heath
Poor sex education (HIV in Kenya)
Poor healthcare
HIV in Kenya
1.6m have HIV
This can become aids
this is largest its been in decades
Impact of poor health
Low productivity
Children have to work which also leads to poor education n
How does poor health constrain govt
lower productivity
lower profits
lower tax
AID
money transfers from a wealthy country to a poorer one
USA aid to Kenya worth 650
USA aid to KENYA
AID to Kenya leads to increased healthcare funding this increases productivity
Impact of AID
aid is given
higher health
higher productivity
higher profits
Evaluation of AID
due to corruption and government failure the government fails to spread wealth
Impact of population growth
parents care longer so work less
production decreases
higher pressure on schools
higher demands and cost
poorer education
long term population growth impacts
children having lower education
less production
lower growth and developmetn
Ways to tackle population growth
education-
- productivity and educated workers have less children
Sex education and family planning
Evaluation of education
other barriers such as law, religious values
cultural attitudes constraining development
women staying at homes
reduces productivity and PPF
Promote growth and development factors
-education and skills
- infrastructure
-health
-population growth
- savings gap
- property rights
- corruptio n
- landlocked countries
- infant industries
- primary product dependancy
- WB, IMF, WTO
reasons for savings gaps
low incomes
low access to banks
what is a savings gap
a savings gap is where there is a gap between the amount of money held at a bank in savings limiting the amount of money banks can lend to firms
low savings gap constrains constrains development
low investment
lower AD
Lower multiplier
lower level of output
lras shifts left
income stays low
low tax revenue
low invesesmnt in services
lower quality of life
microfiance
small loans to small businesses and individuals who have no access to financial service
giving money to Bangladesh
increased efficiency
LRAS right
Impact of Microfinance loans on the supply side of the economy
increase in LRAS
more likely to lower incomes
less barriers to savings
savings gap reduces
impact of Microfinance loans on AD
increased investment
increased AD
more employment opportunities
from an increase in producitivy
negatives of microfiance loans
high interests
could then make no exit of loan
could bankrupt rural businesses
could lead to up through bankruptcy
property rights
legal rights to the property which you own
Dead capital
property without property rights
impact of dead capital
cannot be used as collateral
dead capital constraining growth and developmnt
strategies to reduce dead capital
set up property rights
evaluation of property rights
low property rights in Columbia leads to lower rights overall and less mobility as people struggle to trade goods
financial targets for corruption
income tax
corporttion tax
foreign aid
venswela corruption
300bn has gone missing from government
impacts of corruption
poor education
impacts infrastructure and health
this constrains growth
fair trade schemes
more given to those who need it most
fair wage which increases income
higher tax- could betray competition
higher consumption
fair trade premium
part of fair trade which is a communal fund which farmers can spend on development themselves
evaluation of fair trade
fairtrade foundation doesn’t monitor individual prices so doesn’t know how much impact it has on firms
Landlocked
expensive to impact medicine and ER and export resources
hence a higher shipping cost and needs infrastructure in other countries
high costs help his SRAS
impact of being landlocked
estimated 2X shipping cost
dept relief
when government writes of dept which a country owes
who conducts dept relief
world bank- 833, for Burundi
challenges with dept relief
corruption in ‘Burundi’
less development
economies of scale
increased production
lower LRAC
infant industry
an industry which doesn’t benefit from economies of scale
support for infant industries
protectionism
competitive deregualtion
4 types of protectionism
quotas
tariffs
subsideis
non tariff barriers
evaluation of protectionism
- dependance on govt
- reduction in output
competitive devaluation
selling your own currency to increase supply
this lowers fixed exhcnae rates
increase in competitive devaluation on exports
exports become more internationally competitive
currency war
competitive decrease in ER
what did the WB do after WWII
reconstruction loans
what does does WB do today
gives development loans
Burundi
dept relief
how much did the WB loan in 2016
61bn
how much did the IMF bail Greece out for
147bn
Primary product dependancy
when developing and emerging economies depend on exporting primary products or commodities
constant primary products
demand for primary products
supply is inelastic
demand is income inelastic
income elastic of demand
measure change in demand from change in income
problems with inelasticity
unstable prices as small change in price can have singnficant imports
slight increase in supply causes a decrease in price
impact of unstable price
low investment as future economies potential is challenging to predict
buffer stock scheme
reduce price instability for primary producers
buffer stock
government reserves
evaluation of buffer stock schemes
farmers may intetinoally overproduce knowing the government will purchase surplus
less money to spend on development
further constrain AD
terms of trade
index of exports /// index of imports
prebisch singer
when world incomes rise
primary product demand rises less than non primary product
if it is non primary products increase imports increase more than exports
what is the process called when a country transitions from primary product to manufactured goods
industrial action
incomes increase
increase in tax
steps for calulating PPP
compile based of common goods
work out costs in national currency of that basket
that comparison is the PPP
PPP
purchasing power parity
why PPP is important
1- different currency
this means that exchange rates could change
2- different price levels
5 limitations of GDP
1 population changes
2 income distribution
3 types of goods and services
4 underground economies
5 subsistance economies
population change in GDP
if GDP grows lower than population, less goods and services to be shared between countries
GDP/capita decreases
income distribution
GDP overlooks overall wealth
as Saudi Aurabia had high increase in wealth though oil which wasn’t shared this increase in GDP capital wasn’t that by pipe or shown in their consumption
type of goods
increase in military spending has led to increase in AD
Spend on demerit goods- lower health
living standards got worse because less money on wealth
not higher living standards `
subsistance economy
people producing goods for their own consumption
IE growing things yourself
Causes of economic growth
increase in AD
increase in SRAS
potential growth
this is the poductive potential for growth which has not yet occurred
How can productive potential also be shown
PPF
Working age population
16-64
inactive population
unable or not willing to work population
what is the workforce
economically active population
UP rate
% of UP out of working pop
up rate eq
%up // active population X 100%
Unemployment level
number u/p
employment rate
number of employed people // total working age
activity / participation rate
% of working age actively seeking work or working
reasons why employment might fall
a decrease in number of employed people an increase in the working age population
why might the UP rate fall
a decrease in the number of the population
increase in economically active population
ILO
international labour organisation
LFS
How is the LFS conducted
every fiscal quarter:
speaks to 80,000 households are surveyed and asked if they have been out of work in the last 4 weeks
claimant count
unemployment benefit claimant
how many households are there in the UK
27m
why dont people claim benefits
- stigma
- forms
- marital status
what is the uk official UP measure
LFS
5 types of UP
real wage UP
Structural
Cylical
frictional
seasonal
another term for UP
excess supply of labour
clylical UP
demand deficiency UP
Demand contracts
labour is derived demand
structural UP
mismatch of skills
workers are UP because of the structure of the economy
2 reasons for structural UP
occupational immpobilty
geographical immobility
Govt intervention for structural UP
training
education
aprentaships
geographical immobility
when workers struggle to more between areas
interventionist policy to deal with structural UP
improving transport
reallocation subsidies
frictional UP
people who are temporarily unemployed as they have moved from one job to another
seasonal UP
when areas are employed during one period of time
Hysterisis
impact of a prolonged period of IUP which continues to affect skills of labour population
forms of hysteresis
- demotivation to work
- mental and physical health problems
- loss of skills
progressive tax
income tax
proportional tax
regressive income tax
as income increase % share of tax decreases
Proportional tax
the proportion of tax paid stays the same
indirect tax
tax paid but not directly
VAT
2 types of indirect tax
- specific tax
- Ad Valorem Tax
Specific tax
a set tax which has to be paid
Ad Valorem Tax
tax which exists one % of a price of good
budget deficit
when spending is greater than tax revenue
balanced budget
when tax revenue is equal to tax spending
How does the government borrow money
issues government bonds
who buys bonds
investors
households
banks
