Factors influencing development 4.3.2

Question 1

Terms of trade =

Answer 1

the ratio between the index of export prices and the index of import prices. If the export prices increase more than the import prices, a country has a positive terms of trade, as for the same amount of exports, it can purchase more imports.

Question 2

factors influencing development part 1

Answer 2

• Primary product dependency
• Volatility of commodity prices and MEDC
• Foreign currency gap + capital flight
• Demographic factors – old/ young population? protectionism

Question 3

factors influencing development part 2

Answer 3

• Debt – paying It back comes with an opportunity cost
• Access to credit and banking
• Infrastucture

Question 4

factors influencing development part 3

Answer 4

• Education and skills
• Absence of property rights
• Political factors - war
• savings gap - harrod domar model

Question 5

The economic growth of a country is determined by the level of

Answer 5

savings and the capital output ratio, I.e. the efficiency of capital

Question 6

Higher savings ratio =

Answer 6

more able to fund investment projects

Question 7

Harrod Domar model:

Answer 7

low national savings ratio -> low investment - > low capital stock -> low output -> low income = low national savings ratio

Question 8

Evaluate Harrod Domar

Answer 8

• High savings ratio is difficult
• Financial system is often inefficient
• Research and development often underfunded = inefficient use of capital
• External borrowing leads to repayment in the long term

Question 9

issues with primary product dependency

Answer 9

• natural disasters can wipe out product
• low YED
• Prebisch Singer hypothesis suggests long run price of primary goods decline relative to manufactured goods
• Dutch Disease - Nigeria

Question 10

issues with volatility of commodity prices:

Answer 10

• tend to have inelastic demand and supply, so small changes in demand lead to huge changes in price
• means income fluctuating = difficult to plan LT investment = poverty
• tends to lead to over investment into this commodity

Question 11

issues with Foreign currency gap:

Answer 11

This is when exports from a developing country are too low compared to imports to finance the purchase of investment or other goods from overseas required for faster economic growth.

Question 12

issues with capital flight

Answer 12

• lack of confidence in country’s stability = large amounts of money taken out of country