Globalisation and economic development

Question 1

* difference between economic growth and development

What is economic growth?

Answer 1

**Sustained increase in an economy’s productive capacity over time
**
➣ Can be measured by GDP OR GNI
➣ Achieved by ↑ efficiency, productivity and factors of production

China = 9% average growth rate a year over last 20 years
Aus = 3.3%

Question 2

* difference between economic growth and development

What is economic development?

Answer 2

Broad measure of a nation’s welfare that includes indicators of health, education, environmental quality as well as material living standards

➣ measured by HDI

Question 3

GNI (gross national income)

Answer 3

GNI = sum of value added by all resident producers in an economy plus PY from foreign sources
➣ key indicator of an economy’s overall financial wealth

Question 4

* distribution of income and wealth

Distribution of income

Answer 4

Income = $$ that individual or business receives

➣ most popular method of comparing living standards is income

*High income economies receive 2/3 of the world’s income ➡ high level of income inequality *

STATS OF GINI:
Aus = 2020 - 0.34 ➡ 2020 - 0.32 (3% worse)
China = 2010 - 0.43 ➡ 2021 - 0.31% (30% better)

Question 5

* distribution of income and wealth

GINI coefficient and distribution of global wealth

Answer 5

Wealth is distributed more unevenly than income in the global economy

GINI = measure of income or wealth inequality within a population
➣ number between 0 and 1. 0 represents perfect equality and 1 represents perfect inequality

*STATS OF GINI:
Aus = 2010 - 0.59 ➡ 2020 - 0.61(3% worse)
China = 2010 - 0.4 ➡ 2021 - 0.5 (25% worse) **

Question 6

* quality of life indicators

What is HDI and stats ?

Answer 6

HDI = broad measure of economic development devised by UN, taking into account:
1. life expectancy at birth
2. levels of educational attainment
3. GNI per capita

➣ number between 0 for nations with no human development (Yemen & Niger) and 1 for maximum human development (Switzerland, Norway, Aus)

*HDI stats:
Aus = 1990 - 0.865 ➡ 2022 - 0.951
China = 1990 - 0.484 ➡ 2022 - 0.768 *

*Number of ppl living in extreme poverty has declined significantly from 40% to 10% although 682 million ppl live in poverty *

Question 7

* developing, emerging and advanced economies

Developing economy characteristics

Answer 7

1. Low income levels (half population in absolute poverty)
2. High levels of income inequality, wealth in hands of a few, exacerbating disparities in access to education and healthcare
3. Volatile economic growth & high population growth
4. Heavy reliant on agriculture production for income, trade opportunities and employment ➡ vulnerable to fluctuations in market prices
5. Education levels low limiting development of skills
6. Government corruption

Madagascar, Yemen and Myanmar

Question 8

* developing, emerging and advanced economies

Emerging economy characteristics

Answer 8

1. Experience sustained high levels of economic growth (5-10%)
2. In the process of industrialisation usually with substantial manufacturing sectors
3. Fast growth in income levels (10% over 90s and 2000s) ➡ however rapid growth leads to rising income inequality

*China, India, Brazil = industrialisation, economic growth & challenges of inequality on path to prosperity *

Question 9

* developing, emerging and advanced economies

Advanced economy characteristics

Answer 9

1. High levels of economic development
2. High income levels with GNI per capita above US$12,000
3. Slow, relatively steady economic growth (slower in recent decades)
4. Industrialised and have well established service industries

Singapore, Portugal, Czech Republic

Question 10

Kuznets curve

Answer 10

Kuznets curve suggests that industrialising nations experience a rise and subsequent decline in income inequality. The rise in equality occurs after rural migrates to urban areas.

Question 11

* reasons for difference between nations

What are causes for inequality - global factors

Answer 11

Global trade system:= access to trade huge determinant of wealth
➣ Protectionism in agriculture sector by advanced economies ➡ developing economies specialising in exporting commodities disadvantaged

➣ Regional trade blocs ➡ developing countries suffer exclusion from trade opportunties (can only mainly participate in bilateral agreements - less effective)

Global financial architecture:
➣ FDI favours wealthy countries *46 least developed countries hold just 2.6% of FDI *

➣ IMF - structural adjustment policies innapropriate for developing countries, prioritising interest of wealthy countries

➣ high rates of foreign borrowing - large foreign debt burdens developing countries ➡ reduce income available for government to spend on infrastructure & education

Global aid:
➣ Low development aid by developed country (0.3% of GNI 2020 – less than half of UN target)
- Proportion ‘phantom aid’ paid to administration and consultants of donor countries, and debt relief (not necessarily towards improving lives of poor)

➣ Distribution of aid by high income countries reflect strategic or military
considerations (rather than the needs of developing countries)

Question 12

* reasons for difference between nations

What are causes for inequality - domestic factors

Answer 12

Natural resources:
Developing country export base more dependent on natural resource exposed to downturns in price ➡ sudden falls of national income

Labour supply and quality:
Developed = high educated & skilled labour resources
Developing = high population growth rate and lower education ➡ quality of labour diminishes and lower productivty levels

Access to capital and technology:
Less access ➡ lower rates of economic growth and living standards

Question 13

* effects of globalisation

Effects of globalisation on economic growth

Answer 13

Positive:
1. Economic growth rates have been higher in developing and emerging countries that have opened markets to global trade and foreign investment

Negative:
1. Advanced economies are most globally integrated yet have experienced weak growth in past 2 decades.
2. Globalisation era has seen highly destabilising events such as Asian financial crisis

Question 14

* effects of globalisation

Effects of globalisation on economic development

Answer 14

Positive:
1. Emerging and developing economies benefited from rising quiality of life & for some countries a convergence in liVing standards

Negative:
1. Globalisation has contributed to increased income inequality resulting in lower levels of economic development & accelerated climate change & environmental damage

Question 15

* effects of globalisation

Effects of globalisation on income inequality

Answer 15

Positive:
1. ↑ in pay & expanded international employment opportunties for highly skilled workers
2. Populations of emerging economies have generally experienced rising income levels with significant falls in level of absolute poverty

Negative:
1. In advanced economies inequality has widened between highly skilled workers vs those in importing competing sectors
2. In emerging economies between those in rural areas who have not benefited as much from globalisation

Question 16

* effects of globalisation

Effects of globalisation on trade, investment and TNCs

Answer 16

Positive:
1. Trade has increased at higher rate than GWP, indicating the world becoming more interconnected
2. Global supply chain “vertical specialisation” accounting for substantial component of world trade ➡ TNCs dominating business activity Since 1990s trade through global supply chain increased to over 60% of total trade
3. Stronger reliance on foreign sources of finance for investment, playing large role in
generation of economic activity

Negatives:
1. Concerns about tactics TNCs use to avoid taxes - operate subsidiaries in countries with
lower labour standard and environmental protection laws
- Exploitation of workers and environmental harms OECD estimated that 240b taxes avoided by TNCs in developing economies

Question 17

* effects of globalisation

Effects of globalisation on environmental stability

Answer 17

Positive:
1. Countries able to create and enforce environmental agreements more efficiently, cost of preservation shared

2. Globalisation facilitated the spread of technology to improve energy efficiency, reduce environmental pollution

Negatives:
1. Production shift to countries with lower environmental standards → outcompete those with sustainable but more expensive practices
- Low-income countries resort to irresponsible production methods to cut costs, earn higher revenue and enter international market
e.g deforestation for woodchip industries, unsustainable fishing practises

2. Increase in global trade →carbon emission and consumption of non- renewable resources for transport contributes to climate changee.g fuel for planes and air travel

Question 18

* effects of globalisation

Effects of globalisation on the international business cycle

Answer 18

Negative:
1. Closer links exposes economies to downturns in international business cycle and developments in their regions
2. Financial contagion = the spread of market disturbances → mostly on the downside – from one country to the other. Co-movements in exchange rates, stock prices, sovereign spreads, and capital flows
3. COVID struck when global growth weak → intensifying trade conflict between US
and Chinese economies → weak economic outlook 2020