Factors influencing growth and development Flashcards
What are primary products?
Agriculture or mining
What are the issues with primary product dependency?
Natural disasters can destroy them
Dutch disease
Low income elasticity of demand
What is the Prebisch singer hypothesis?
The price of primary products declined compared to manufactured goods over time. As a result high dependency on primary products causes an economy to decline over time.
What is Dutch disease?
A country becomes a commodity producer
Increases demand for currency
Currency appreciates
The value of the commodity increases
It becomes less competitive
This causes a fall in the output
Why are commodity prices volatile?
They have an in elastic demand and supply, thus a small change affects the price proportionately higher.
What causes a savings gap?
Developing countries have lower incomes.
This means that they save less money in banks.
This means there is less money to lend and so less money available to borrow.
What is a savings gap?
The difference between actual savings and the amount of savings that are necessary for growth
What is Harrord Domars saving model?
Savings
Investment
Capital accumulation
Output
What is the foreign currency gap?
Export value in developing countries is too low to finance investment which can facilitate economic growth
Which countries have experienced a foreign currency gap?
Ethiopia has experienced this as in 2018 their public debt was at 60% and they only had reserves that would cover one month of imports
What is capital flight?
This is when large amounts of money are taken out of the country which prevent people from using the money to invest
Why may a country experience capital flight?
There may be uncertainty in terms of the countries stability and development. Thus they may withdraw their hot money so that it can be invested in a more secure source.
How can demographic factors inhibit growth?
High population growth means that the economy needs to grow to keep up with increasing living standards
How can trade liberalization encourage development?
Export led growth
Countries can exploit their comparative advantages
This will improve efficiency and lower priced
How can debt inhibit growth?
Countries such as Nigeria (52% of GDP) borrowed too much money.
They now have to spend a long time paying back these debts as a result less money is spent on services.
