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EC207 - Economic Development > Final Exam Review > Flashcards

Final Exam Review Flashcards

1
Q

What characterizes a “developing country”?

A
  • Low standard of living
  • Low per capita income
  • Low level of health and nutrition
  • Low level of education
  • Poverty
  • Income inequality
  • Loss of freedom and social justice
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2
Q

What is development economics?

A

The study of how economies are transformed from stagnation to growth, from low-income to high-income status, and how they overcame problems of absolute poverty.

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3
Q

What are social systems?

A

Social systems represent the interdependent relationships between economic and non-economic factors.

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4
Q

Non-economic factors include…

A
  • Attitudes
  • Structures
  • Religion and culture
  • Land tenure
  • Authority and integrity of government
  • Flexibility/rigidity of economic and social classes.
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5
Q

What is income per capita?

A

Total gross national income of a country divided by its total population.

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6
Q

What is gross national income (GNI)?

A

The total domestic and foreign output claimed by residents of a country.

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7
Q

What is the pseudo-formula for GNI?

A

GNI = gross domestic product (GDP) + factor incomes accruing to residents from abroad - the income earned in the domestic economy accruing to persons abroad.

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8
Q

How was economic development redefined in the 1970s?

A

In terms of the reduction or elimination of poverty, inequality, and unemployment within the context of a growing economy.

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9
Q

Define Amartya Sen’s “Capability” approach.

A

The “capability to function” is what really matters for status as a poor or non-poor person.

Concentrates on the actual capability of persons to achieve their well-being rather than on their mere right or freedom to do so.

Sen’s approach shows us we cannot simply look at the real income levels or the levels of consumption to measure well-being.

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10
Q

What are “functionings” in Sen’s approach?

A

Consist of “beings and doings”.

Examples include being healthy, having a good job, being safe, being happy, having self-respect, etc.

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11
Q

What are “capabilities” in Sen’s approach?

A

The alternative combinations of functionings that are feasible for a person to achieve.

Capabilities denote a person’s opportunity and ability to generate valuable outcomes, taking into account relevant personal characteristics and external factors.

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12
Q

True or False?

Average level of happiness increases as a country’s average income increases, however this relationship only holds up to an average income of roughly $10-20k per capita.

A

True

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13
Q

What are the seven factors that affect happiness?

A
  1. Family
  2. Financial situation
  3. Work
  4. Community and friends
  5. Health
  6. Personal freedom
  7. Personal values
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14
Q

What are the three core values of development?

A

Sustenance: the ability to meets the needs for basic goods and services, such as food, clothing, and shelter.

Self-Esteem: a sense of worth and self-respect.

Freedom from servitude: the ability to choose.

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15
Q

What are the three objectives of development?

A
  1. To increase the availability and widen the distribution of basic life-sustaining goods such as food, shelter, health, and protection.
  2. To raise levels of living, including higher incomes, more jobs, better education, greater attention to cultural and human values, and individual and national self-esteem.
  3. To expand the range of economic and social choices by freeing them from servitude and dependence.
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16
Q

What is the most used method in defining the developing world?

A

Per capita income

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17
Q

What are the four World Bank classifications for countries?

A

Low-income countries (LICs)
Lower-middle-income countries (LMCs)
Upper-middle-income countries (UMCs)
High income countries (HICs)

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18
Q

What are newly industrializing countries (NICs)?

A

UMCs that have achieved relatively advanced manufacturing sectors.

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19
Q

What is gross domestic product (GDP)?

A

Measures the total value for final use of output produced by an economy, by both residents and non-residents.

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20
Q

What is Purchasing Power Parity (PPP)?

A

The number of units of a foreign country’s currency required to purchase the identical quantity of goods and services in the local developing country market as $1 would buy in the United States.

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21
Q

What are the most commonly used indicators of health?

A

The under-5 mortality rate plus the rate of malnutrition and life expectancy.

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22
Q

What is the Human Development Index (HDI)?

A

An index measuring national socioeconomic development based on combining measures of education, health, and wealth.

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23
Q

How do you calculate New Human Development Index (NHDI)?

A
  1. Creating the three “dimension indices” includes health, education, and income indices.
  2. Aggregating the resulting indices to calculate NHDI.
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24
Q

What are the 10 major areas of the developing world?

A
  1. Lower levels of living and productivity
  2. Lower levels of Human Capital
  3. Higher levels of Inequality and Absolute Poverty
  4. Higher population growth rates
  5. Greater social fractionalization
  6. Larger rural populations but rapid rural-to-urban migration.
  7. Lower levels of industrialization and manufactured exports
  8. Adverse geography
  9. Underdeveloped markets
  10. Lingering colonial impacts and unequal international relations.
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25
Q

True or False?

Low- and middle-income developing nations received only 46% of the world’s income in 2011, even though they hold more than 84% of the world’s population.

A

True

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26
Q

True or False

Under-5 mortality rates increase as mothers’ education levels rise.

A

False; decrease.

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27
Q

True or False

1.2 billion people live in extreme poverty, which is less than $1.25 per day at PPP.

A

True

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28
Q

What is absolute poverty?

A

The situation of being unable or only barely able to meet the subsistence essentials of food, clothing, shelter, and basic health care.

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29
Q

Define “dependency burden”.

A

The proportion of the total population aged 0 to 15 and 65+, which is considered economically unproductive and therefore not counter in the labour force.

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30
Q

What is fractionalization?

A

Significant ethnic, linguistic, and other social divisions within a country; often leads to civil strife and violent conflict.

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31
Q

True or False

Over half of the world’s developing countries host an ethnic conflict.

A

True

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32
Q

What are primary products?

A

Products derived from all extractive occupations; farming, lumbering, fishing, mining, and quarrying, foodstuffs and raw materials.

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33
Q

True or False

Landlocked countries typically have less economic opportunity than coastal economies.

A

True

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34
Q

What is resource endowment?

A

A nation’s supply of usable factors of production, including mineral deposits, raw materials, and labour.

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35
Q

Define “infrastructure”.

A

Facilities that enable economic activity and markets, such as transportation, communication and distribution networks, utilities, water, sewer, and energy supply systems.

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36
Q

What are the eight main differences between conditions faced by countries that developed in the past and countries that are developing today?

A
  1. Physical and human resource endowments
  2. Per capita incomes and levels of GDP in relation to the rest of the world.
  3. Climate
  4. Population size, distribution, and growth
  5. Historical role of international migration.
  6. International trade benefits
  7. Basic scientific and technological research and development capabilities.
  8. Efficacy of domestic institutions.
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37
Q

What is divergence?

A

A phenomenon in which the growth rate of per capita income (or output) in rich countries increases faster than that of low income countries so that the gap between developed and developing nations widens.

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38
Q

What is convergence?

A

The situation in which per capita income (or output) grows faster in lower income countries than higher income countries so that lower income countries are catching up over time

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39
Q

True or False

There is convergence among developed countries, divergence among developing countries, and no evidence one way or the other for the world as a whole.

A

True

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40
Q

What is the most important difference between world-as-one-country convergence and population weight country convergence?

A

A world-as-one-country convergence study can take into account changes in inequality within countries as well as between them.

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41
Q

What are the four approaches in classic theories of economic development?

A
  1. The linear-stages-of-growth model
  2. Theories and patterns of structural change
  3. The international-dependence revolution
  4. The neoclassical, free-market counterrevolution
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42
Q

What is Rostow’s Stages of Growth model?

A

Shows the transition from underdevelopment to development as a series of steps or stages through which all countries must proceed.

Argues for the idea of more investment leading to more growth.

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43
Q

What is the capital-output ratio?

A

A ratio that shows the units of capital required to produce a unit of output over a given period of time.

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44
Q

What is the net savings ratio?

A

Savings expressed as a proportion of disposable income over some period of time.

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45
Q

Necessary condition vs. Sufficient condition

A

Necessary condition: a condition that must be present for an event to occur.

Sufficient condition: a condition that guarantees that an event will or can occur.

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46
Q

True or False?

GDP savings and investment is a sufficient condition but not a necessary condition.

A

False; GDP savings and investment is a necessary condition but not a sufficient condition.

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47
Q

What are structural-change models?

A

Models that emphasize how developing countries can transform their economies from focusing on traditional agriculture to a modern and diverse manufacturing and service economy.

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48
Q

What is structural transformation?

A

The process of altering the industrial composition of an economy.

Agriculture ==> Manufacturing

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49
Q

According to the Lewin model, what two sectors are in the underdeveloped economy?

A
  1. A traditional, overpopulated, rural subsistence sector.

2. A high-productivity modern, urban industrial sector.

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50
Q

What is self-sustaining growth?

A

Economic growth that continues over the long run based on savings, investment, and complementary private and public activities.

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51
Q

What is the patterns-of-development analysis?

A

Examines the process of how the rural sector is being transformed over time to allow for industrialization and growth.

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52
Q

What is the main difference between patterns of development and the Lewis model?

A

Patterns of Development accepts increased savings and investment as necessary but not sufficient conditions.

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53
Q

What are some characteristics of the process of development?

A
  • Shift from agricultural to industrial production
  • Steady accumulation of physical and human capital
  • Change in consumer demands from emphasis on food and basic necessities to desires for manufactured goods.
  • Growth of cities
  • Decline in family size
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54
Q

What is “center” in dependence theory?

A

Refers to the economically developed world.

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55
Q

What is “periphery” in dependency theory?

A

The developing world.

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56
Q

What is dualism?

A

The existence of two situations, each of which is mutually exclusive to different groups of society.

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57
Q

What are the four arguments of dualism?

A
  1. Different sets of conditions can exist at the same time.
  2. The coexistence is chronic.
  3. Degrees of superiority/inferiority tend to increase over time.
  4. Superior elements do not pull up the inferiors elements.
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58
Q

What are free markets?

A

Refers to the system where prices are set by the interaction between suppliers and demanders.

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59
Q

What is the market-friendly approach?

A

Accepts the need for government intervention due to widespread market failures in developing countries.

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60
Q

What is the public-choice theory?

A

Argues that government can do (virtually) nothing right.

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61
Q

The Solow neoclassical growth model argues that there are three factors that lead to growth:

A
  1. increases in labour quantity and quality (through population growth and education)
  2. Increases in capital (through saving and investment)
  3. Improvements in technology
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62
Q

What are the two principal measures of income distributions?

A
  1. Size (or personal) distributions

2. Functions (or distributive) distributions

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63
Q

What are size distributions?

A

Deals with how much income individual persons or households receive without giving any attention to the sources of the income they receive.

64
Q

What is a quintile? A decile?

A

Quintile: a 20% proportion of any numerical quantity.

Decile: a 10% proportion of any numerical quantity.

65
Q

What is the Lorenz Curve?

A

A graph depicting the variance of the size distribution of income relative to perfect equality.

66
Q

True or False?

The greater the Lorenz line curves away from the diagonal, the lesser the income inequality?

A

False; more curve means more inequality.

67
Q

What is the Gini coefficient?

A

A value between 0 and 1, where 0 represents perfect income equality, representing the area between the line of perfect equality and the Lorenz line (shaded part).

68
Q

What is functional distribution theory?

A

Attempts to explain the share of total national income that each of the factors of production receives.

69
Q

What are the factors of production?

A

Land, labour, and capital

70
Q

What does the total poverty gap (TPG) measure?

A

The total amount of income necessary to raise everyone who is below the poverty line up to that line.

71
Q

What are the criteria for a desirable poverty measure?

A
  1. Anonymity
  2. Population independence
  3. Monotonicity
  4. Distribution sensitivity principles
72
Q

What is the monotonicity principle?

A

States that if you add income to someone below the poverty line, all other incomes held constant, poverty can be no greater than it was.

73
Q

What is the distributional sensitivity principle?

A

States that, other things being equal, if you transfer income from a poor person to a richer person, the resulting economy should be strictly poorer.

74
Q

What are the three limiting cases of dualistic development?

A
  1. The modern-sector enlargement growth typology
  2. The modern-sector enrichment growth typology
  3. The traditional sector enrichment growth typology
75
Q

True or False?

The number of people in poverty has been falling since 1990, largely due to progress in China.

A

True

75
Q

True or False?

The number of people in poverty has been falling since 1990, largely due to progress in China.

A

True

76
Q

What are the three dimensions of the Multidimensional Poverty Index (MPI)?

A

Health, education, and wealth

77
Q

What are the two indicators of health?

A
  1. Whether any child has died in the family.
  2. Whether any adult or child in the family is malnourished.

Both weighted equally (1/6 of the MPI)

78
Q

What are the two indicators of education?

A
  1. Whether not even one household member has completed five years of schooling.
  2. Whether any school-age child is out of school for grades one through eight.

Both weighted equally (1/6 of the MPI)

79
Q

What are the six indicators of wealth?

A
  1. Lack of electricity
  2. Insufficiently safe drinking water
  3. Inadequate sanitation
  4. Inadequate flooring
  5. Unimproved cooking fuel
  6. Lack of more than one of five assets - telephone, radio, television, bicycle, and motorbike or similar vehicle.

All given equal weight (1/18th of the MPI)

80
Q

Which two factors influence the amount of schooling desired?

A
  1. Level of income expected post-grad

2. Educational costs

81
Q

What is a “health system”?

A

All the activities whose primary purpose is to promote, restore, or maintain health.

e.g., public health departments, hospitals and clinics, doctor’s offices

82
Q

What are the 4 important reasons for effective government role in health systems?

A
  1. Health is central to poverty alleviation.
  2. Households tend to spend too little on health.
  3. The market would invest too little in health infrastructure and R&D.
  4. Public health programs in developing countries have many proven successes.
83
Q

What are the 3 requirements of an agriculture- and employment-based economic development strategy?

A
  1. Accelerate output growth and raise the productivity of small farmers.
  2. Increase domestic demand for agricultural output.
  3. Non-agricultural development activities to support, and are supported by, the farming community.
84
Q

What is “integrated rural development”?

A

Includes the development activities of both small-farmer agriculture and rural nonfarm industries simultaneously.

85
Q

What is an “Agrarian system”?

A

The dynamic set of economic and technological factors that affect agricultural practices.

86
Q

True or False?

The developing world experienced faster growth in the value of agricultural output that the developed world between 1980 and 2004.

A

True

87
Q

What are the three typologies of agricultural systems found among developing countries?

A
  1. Agriculture-based countries
  2. Transforming countries
  3. Urbanized countries
88
Q

Latifundio vs. Minifundio

A

Latifundio: A very large landholding especially seen in Latin America. Usually employs more than 12 people.

Minifundio: A small landholding especially found in Latin America that is considered too small to provide adequate employment for a single family. Usually capable of providing work for fewer than two people.

89
Q

What are transaction costs?

A

Costs of doing business such as gathering information, monitoring, establishing reliable suppliers, formulating contracts, obtaining credit, and so on.

90
Q

What is the primary issue with the Latifundio-Minifundio system?

A

Minifundio are not large enough to support a family, while Latifundio are often purchased for the associated power and prestige, and so they are often operating well below their maximum output potential.

91
Q

What is the main difference between the agricultural patterns observed in Latin America vs. Asia?

A

The pattern observed in Latin America can be defined as too much land under the control of too few people.

The main issue in Asia can be identified as too many people crowded onto too little land.

92
Q

What are the three forces that decrease the productivity of subsistence farming?

A
  1. Only small areas of land can be cultivated due to the use of traditional tools.
  2. Over use of land over time.
  3. Labour is scarce during planting and weeding time; underemployment the rest of the time.
93
Q

What are the three broad stages in the evolution of agricultural production?

A
  1. The pure, low-productivity, mostly subsistence-level traditional (peasant) farm.
  2. Diversified or mixed family agriculture.
  3. The modern farm.
94
Q

Why are subsistent farmers generally resistant to technological innovation?

A

Lack of information and insurance.

95
Q

What are the two major sources of technological innovation that is helpful to increase farm yields?

A
  1. The introduction of mechanized agriculture that would replace human labour.
  2. Biological (hybrid seeds and biotechnology), water control (irrigation), and chemical (fertilizer, pesticides, insecticides, etc.) innovations.
96
Q

What is the “Green Revolution”?

A

The boost in grain production associated with the scientific discovery of a new hybrid seed varieties of wheat, rice, and corn that have resulted in high farm yields in many developing countries.

97
Q

What is “land grabbing”?

A

Foreign investment in developing country farmlands.

98
Q

What is “land reform”?

A

Reorganizing and transforming agrarian systems with the goal of achieving a more equal distribution of agricultural incomes and facilitating rural development.

99
Q

What is the GATT?

A

General Agreement on Tariffs and Trade

Established in 1947 to help trade negotiations. It searched for ways of reducing tariffs on internationally traded goods and services. Unfair to developing countries. Replaced in 1995 by the World Trade Organization.

100
Q

What is export dependence?

A

A country’s reliance on exports as the major source of financing for development activities.

Typically observed on primary products, which is risky and carries a great degree of uncertainty due to the fluctuations of prices in world markets.

101
Q

Current account vs. Capital account

A

Current account is the portion of a country’s balance of payments that reflects the market value of the country’s exports and imports.

Capital account is the portion of a country’s balance of payments that shows the volume of private foreign investment and public grants and loans that flow into and out of the country.

102
Q

True or False?

Developed countries are more dependent on foreign trade than developing countries.

A

False; less developed countries are more dependent on foreign trade.

103
Q

What is income elasticity of demand?

A

Measures the responsiveness of the quantity of a commodity demanded to changes in the consumer’s income.

104
Q

True or False?

The income elasticity of demand for primary products is lower compared to those for fuels and manufactured goods.

A

True

105
Q

How does income elasticity of demand relate to import volumes?

A

As income rises 1%, imports of primary products rise by 0.6%, whereas imports of manufactured goods increases 1.9%. Since primary products have a lower income elasticity of demand than manufactured products, as income levels rise, the relative price of primary products will tend to decline.

106
Q

What is “export earnings instability”?

A

Fluctuations in developing country earnings on commodity exports due to low price and income elasticities of demand leading to erratic movements in export prices.

107
Q

What is the “commodity terms of trade”?

A

The ratio between the price of a typical unit of exports and the price of a typical unit of imports. Expressed as Px / Pm, where Px represents the export price index while Pm represents the import price index calculated on the same base period.

108
Q

What does the Prebisch-Singer hypothesis state?

A

That the commodity terms of trade (Px/Pm) for primary-product exports of developing countries tends to decline over time.

109
Q

Why is main issue highlighted by the Prebisch-Singer hypothesis?

A

Ongoing transfer of income from poor to rich countries.

110
Q

When does a country have a comparative advantage at the production of a commodity?

A

If they can produce the commodity at a lower opportunity cost than any of the alternative commodities that could be produced. Surplus can be traded.

111
Q

What is an “absolute advantage”?

A

The production of a commodity with the same amount of real resources as another producer but at a lower absolute unit cost.

112
Q

What are the two critical propositions of the factor endowment theory?

A
  1. Different products require productive factors in different relative proportions.
  2. Countries have different endowments of factors of production.
113
Q

What is the main conclusion drawn from the neoclassical model of free trade?

A

All countries gain from trade and world output is increased as a result of trade.

114
Q

What is factor price equalization?

A

The proposition that because countries trade at a common international price ratio, factor prices (wage rates and capital costs) will tend toward equalization.

115
Q

True or False?

Self-reliance with partial or complete isolation is asserted to be economically superior to participation in a world of unlimited free trade.

A

False; self-reliance is inferior.

116
Q

What is the North-South trade model?

A

Focuses specifically on trade relations between rich and poor countries and examines the unequal exchange between the North developed countries and the South developing countries and tries to explain why the South gains less from trade than the North.

117
Q

What is the vent-for-supply theory of international trade?

A

Argues that opening world markets to developing countries through international trade helps those countries to make better use of formerly underutilized land and labour resources.

118
Q

What are the six major assumptions of traditional trade theory?

A
  1. Productive resources are fixed in quantity and constant across nations, and are fully employed.
  2. Technology of production is fixed or similar and freely available.
  3. Factors of production are perfectly mobile between different production activities.
  4. No national government interference. International prices are set by forces of supply and demand.
  5. Trade is balanced for each country and all economies are readily able to adjust to changes in international prices.
  6. Gains from trade that accrue to any country benefit the nationals of that country.
119
Q

What are enclave economies?

A

Small, economically developed regions in developing countries in which the remaining areas have experienced much less progress.

120
Q

Outward- vs. Inward-looking development policies

A

Outward: encourage exports, often through the free movement of capital, workers, and enterprises welcoming multinational corporations and open communications.

Inward: stress economic self-reliance including domestic development of technology, the imposition of barriers to imports and the discouragement of private foreign investment.

121
Q

What is import substitution (IS)?

A

An effort to replace consumer imports by promoting the emergence and expansion of domestic industries.

First-Stage: substitute domestic production of imported simple consumer goods such as furniture and simple household appliances.

Second-Stage: substitute through domestic production for more sophisticated manufactured items.

122
Q

What is export promotion (EP)?

A

Efforts to expand the volume of a country’s exports through increasing export incentives in order to generate more foreign exchange.

123
Q

What are international commodity agreements?

A

Formal agreements by sellers of a common internationally traded commodity such as coffee or sugar to coordinate supply to maintain price stability. Generally unsuccessful outside of oil and a few small commodities.

124
Q

What are the five demand factors working against the rapid expansion of primary-product and especially agriculture exports?

A
  1. Low income elasticity of demand
  2. Low developed-country population growth rates
  3. Low price elasticity of demand for most primary commodities
  4. The development of synthetic substitutes
  5. Increased agricultural protection in developed countries
125
Q

What is the most important supply factor working against the rapid expansion of primary-product exports?

A

Structural rigidity of many rural production systems in developing countries. This includes limited resources, poor climate, bad soils, and nonproductive patterns of land ownership.

126
Q

What are four undesirable outcomes of the IS strategy?

A
  1. Most IS industries remain inefficient and costly to operate due to immunity from competitive pressures.
  2. The main beneficiaries of the IS process have been foreign firms because they stay behind tariff walls and take advantage of liberal tax and investment incentives.
  3. Infant industries are propped up by imported capital goods and intermediate products.
  4. Negative impact on traditional primary-product exports and official exchange rates have often been artificially overvalues in order to encourage local manufacturing through the importation of cheap capital and intermediate goods.
127
Q

What is the nominal rate of protection?

A

A percentage that shows when the domestic price of imported goods exceeds what their price would be in the absence of protection.

t = (p’ - p) / p

128
Q

What is the effective rate of protection?

A

A percentage that shows when the value added at a particular stage of processing in a domestic industry can exceed what it would be without protection.

p = (v’ - v) / v

129
Q

What are four benefits of tariff protection for developing countries?

A
  1. Tariffs are a major source of government revenue.
  2. Help to reduce chronic problems with balance of payments and debt.
  3. Important for fostering economies of scale and industrial self-reliance.
  4. Allow for greater control over economic destinies while encouraging foreign business interests to invest in local import-substituting industries.
130
Q

What is trade liberalization?

A

The removal of obstacles to free trade - i.e., quotas, nominal and effective rates of protection, and exchange controls.

131
Q

What are the eight elements of a trade optimists’ list of benefits from free trade?

A
  1. Promotes competition and reduces costs of production.
  2. Increases product and technical improvement.
  3. Helps accelerate overall economic growth.
  4. Helps accumulate foreign capital and expertise for many developing countries.
  5. Generates foreign exchange.
  6. Eliminates costly economic distortions caused by government interventions.
  7. Promotes more equal access to scarce resources.
  8. Enables developing countries to take advantages of reforms under the WTO.
132
Q

What is the industrialization strategy approach?

A

An outward-oriented development strategy that focuses on overcoming market failures through government policy and encouraging technology transfer and exports of progressively more advanced products.

133
Q

True or False?

Import substitution often precedes export promotion.

A

True

134
Q

What are Dani Rodrik’s five general principles for governments?

A
  1. Target new activities, not existing ones;
  2. Use clear benchmarking to determine eligibility for continued support;
  3. Build in time limits for support;
  4. Give industrial policy authority to agencies with previous demonstrated competence;
  5. Employ active and transparent channels of communication with the private sector.
135
Q

What is economic integration?

A

When a group of nations joins together to form an economic union or regional trading bloc by raising a common tariff wall against the products of nonmember countries while freeing internal trade among members.

136
Q

What is a customs union?

A

A form of economic integration in which two or more nations agree to free all internal trade while levying a common external tariff on all nonmember countries.

137
Q

What is a common market?

A

A customs unions the also include the free movement of labour and capital among the partner states.

138
Q

What is trade creation?

A

When common external barriers and internal free trade lead to a shift in production from high- to low-cost member states.

139
Q

What is trade diversion?

A

When the erection of external tariff barriers causes production and consumption of one or more member states to shift from lower-cost nonmember sources of supply to higher-cost member producers.

140
Q

What are the three main forms for the international flow of financial resources?

A
  1. Private foreign direct and portfolio investment
  2. Remittances of earnings by international migrants
  3. Public and private development assistance (foreign aid)
141
Q

What is foreign direct investment (FDI)?

A

Overseas equity investments by private multinational corporations.

142
Q

What is transfer pricing?

A

An accounting procedure often used to lower total taxes paid by MNCs. They artificially invoice sales and purchases of goods so that profits accrue to their branches located in low-tax countries.

143
Q

What is the major issue with private portfolio investment?

A

Investors use middle-income countries as a speculative capital and will not hesitate to withdraw funds in the event of economic decline. Developing countries need true long-run economic investment.

144
Q

True or False?

Remittances (money sent back to relatives of migrants) are helpful in reducing poverty.

A

True

145
Q

What are the two criteria for foreign aid?

A
  1. Its objective should be non-commercial from the point of view of the donor.
  2. It should be characterized by concessional terms.
146
Q

What are concessional terms?

A

Terms that the interest rate and repayment period for borrowed capital should be softer (less stringent) than commercial terms.

147
Q

What is official development assistance (ODA)?

A

Net disbursements of loans or grants made on concessional terms by official agencies, historically by high-income member countries of the Organization for Economic Cooperation and Development (OECD).

148
Q

What is the Two-gap model?

A

A model of foreign aid comparing savings and foreign-exchange gaps to determine which one is the binding constraint on economic growth.

149
Q

What is the savings gap?

A

Represents the excess of domestic investment opportunities over domestic savings which causes investments to be limited by the available foreign exchange.

150
Q

What is the foreign exchange gap?

A

When the planned trade deficit exceeds the value of capital inflows. Causes output growth to be limited by the available foreign exchange for capital goods imports.

151
Q

What is the fiscal gap?

A

Deficiencies of government investments including infrastructure and human capital that are complementary to private investment.

152
Q

What are four arguments in support of foreign aid?

A
  1. Growth and savings
  2. Technical assistance
  3. Absorptive capacity
  4. Economic motivations and self-interest
153
Q

What is absorptive capacity?

A

A country’s ability to use aid funds wisely and productively.

154
Q

What are the two important advantages held by NGOs?

A
  1. Less constrained by political imperatives.
  2. Able to avoid the suspicion and cynicism on the part of the mostly poor people whom they serve because they work directly with the local people’s organizations.
155
Q

What are the 4 main ways violent conflict hurts people?

A
  1. Health
  2. Destruction of wealth
  3. Worsening hunger and poverty
  4. Loss of education
156
Q

What are the two main causes of violent conflict?

A
  1. Horizontal inequalities

2. Natural resources for basic needs

EC207 - Economic Development (1 decks)

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