Factros Affecting Growth And Development Flashcards
What probelms does primary product dependency cusse
- falling terms of trade
- volatility and uncertainty
- subsidies from medcs
- savings gap
- foreign currency gal
What is terms of trade
Terms of trade measures the relative price of exports prices compared to import prices
What does primary product dependency do to terms of trade
- prebisch singer hypothesis
- the income elasticity of demand for primary products is lower compared to manufactured goods, this means as incomes rise over time, the demand for manufactured goods rises more which means the prices fo primary products rise slower than the manufactured goods
What effect does a falling terms of trade have
- lower living standards
- lower net trade ( if imports and exports are inelastic)
- less able to import capital goods necessary for industrialisation and productivity
What effect does volatile primary product prices have
- volatile export prices -> volatile revenues for firms -> investment is less attractive -> restrained investment which means less economic growth and devloepmtn
What effect does medc subsides have on medcs
More economic developed countries tend to deploy protectionist measures to the agricultural sector such as subsidies
- these subsides help improve lower costs of production which allows lower price to be charged
- encourages supply further cussing price to fall
- makes it harder to pursue export led growth
What does the Harold domar model suggest
- model which suggests that a barrier to economic growth is a low saving ration
- low investment
What is a savings gap
Savings gap is the difference between actual savings and savings needed to achieve a higher growth rate
How is savings ratio calculated
Rate of growth in gdp / capital output ratio = savings ratio
How can a savings ratio be increased
- increased savings
- improving the productivity of capital
What are some probelms with closing a savings ratio
- any income earnt is usually spent on consumption than saving due to ledc having a higher mpc
- lack of sound financial systems
- capital flight
How can a savings ratio be solved
- overseas aid
- financial sector reforms
- micro finance
What is a foreign currency gap
- ledcs have a lack of foreign currency which is needed to import capital goods which are necessary for industrialisation and productivity
What causes a foreign currency gap
- high oil prices -> if ledc is a net oil importer
- low export earnings
- large foreign debt
- underperforming agricultural sector
What are some solutions
- debt relief
- improving primary sector
- foreign aid
