Growth and Development Flashcards
What is primary product dependency?
Heavy dependence (measured as a share of GDP, total exports or employment) from the extraction/cultivation of primary products.
What is a primary product?
A commodity, extracted from the earth, e.g. wheat, fruit, gold, etc.
What is the PED of most commodities?
Price inelastic.
What are 3 disincentives to invest in primary industries?
1) Value added on primary products is low, therefore farmers/miners make little profit when exporting commodities.
2) Agricultural products can be easily damaged by natural disasters, such as drought.
3) The volatility of commodity prices can make incomes fluctuate in the industries, with earnings uncertain.
What is the foreign currency gap?
When capital outflows from a country are greater than capital inflows.
(Low income countries receive less for their imports, and have to pay a premium for goods that they import).
What are 2 factors that can cause a foreign currency gap?
1) Dependency on exports of primary products (low value added) and imports of manufactured goods (high value added).
2) High proportion of income servicing debt (borrowing instead of saving for investment).
What is the savings gap?
In many low income countries, it is almost impossible to generate sufficient savings to fund investment projects, due to high levels of poverty. This increases the reliance on high interest borrowing to finance capital investment.
What does the Harrod-Domar model state about the growth rate of an economy (2)?
The growth rate of an economy is directly linked to:
1) The level of savings in an economy.
2) The efficiency with which capital in an economy can be employed.
(Increasing either of these will lead to a faster rate of economic growth).
What is capital flight?
When people move their savings abroad instead of holding them domestically.
What are 3 reasons for capital flight?
1) Lower tax rates/higher interest rates abroad.
2) Political instability.
3) Absence of property rights.
What are 3 impacts of capital flight?
1) Less tax revenue for the government.
2) Less confidence in investment.
3) Lower levels of development.
What are 4 economic factors that can influence growth and development?
1) Demographic factors.
2) International debt.
3) Access to credit and banking.
4) Infrastructure.
What are 4 ways demographic factors can influence the rate of development within an economy?
1) For countries with a rapidly growing population: a fall in GDP per capita and a fall in standards of living.
2) For countries with a rapidly growing population: an increase in the number of children, putting pressure on the education system, potentially reducing the quality of the education.
3) Poverty may prevent children from having an education, as some children may not have access or may be forced to make an income to support their family instead of going to school.
4) An ageing population puts greater pressure on social benefits and healthcare systems.
How can access to credit/banking influence the rate of development within an economy (2)?
1) In developed countries: There tends to be more sophisticated systems for banking/stock markets, allowing for people to buy equity in companies, and have access to saving and borrowing mechanisms. People can save now, spend in the future, grow their investments, and borrow money reasonably.
2) In less developed countries: These opportunities may be unavailable/hard to access, limiting opportunities for saving, investment, and growth.
How can infrastructure influence the rate of development within an economy?
Countries with high levels of development tend to have extensive and well developed infrastructure, as it allows for an increase in the rate of development.
