influences and measures of development Flashcards
difference between economic development and economic growth
econ growth = is the increase in the value of goods and services produces by an economy over a period of time. increased GDP/GNI
econ development = is the process of improving economic wellbeing and raising standard of living .
Purchasing power parity PPP
theoretical exchange rate which accounts for the relative cost of living in a country. look at the price of a big mac in different countries to compare cost of living.
what are the 3 mainstream classifications of countries (not LIC HIC NEE)
Developing country
Transitional country
Developed country
what are the limitiations of using per capita national income measures like GNI AND GDP to determine standard of living?
- tells us little about the individuals and their QOL.
- tells us little about sustainability e.g. China’s rapid growth does not take into account the environmental damage
- nothing on inequality
whats HDI?
Human development index is an index used to measure the development of countries including wellbeing (economic development)
* education (mean years of schooling
* health (life expectancy at birth)
* Income (real GNI per head)
value of 1 is the best and 0 is the worst
pros and cons/ev of HDI
pros :
* HDI is more accurate because it contains education and health
* easier to measure than MPI as there are only 3 components
CONS/EV :
* data could be very inaccurate as it is hard to measure.
* HDI does not include a wide range of measures like human rights and inequality.
* HDI does not measure quality of education
what are the 2 other measures of development ?
IHDI (inequality adjusted HDI) - HOWEVER its hard to measure inequality
and
MPI measures multiple deprivations same as HDI but collects a broader range of data in each dimention. e.g. living standard - water and electricity prices, education - years and school attendance …
GDP vs GNI
GDP measures the sum of all goods and services produced IN a country in a year. GNI measures the sum of GDP and net income from overseas
11 factors influencing economic growth and development
- volitility of commodity prices
- PPD
- education and skills
- infrastructure
- demographic factors
- access to credit and banking
- savings gap : Harrord - Domar model
- capital flight
- absence of property rights, poor governance and corruption
- foreign currency gap
- Debt
- land locked countries
what are the two types of commodities?
HARD commodity -natural resources that are mined or extracted
SOFT- agricultural products or livestock
- volatile commodity prices
are liable to rapid and unpredictable change.
-less investment due to uncertainty = less productivity and LR econ growth
- the long run solution could be to diversify their economies so they are not so vulnerable to price fluctuations
2 Primary Product Productivity
heavy reliance on commodities, so if their commodity prices fluctuate their whole economy will too.
-DUTCH DISEASE is the negatibe impact of a sudden discovery of natural resourses (PPD) via the appreciation of the exchange rate (imports cheaper exports dearer) and worsening export competitiveness.
-less investment in the countries other industries and less FDI as PPD is volitile
- prebisch-singer hypothesis suggests PPD countires suffer worsening terms of trade compared to manufacturers who export. BECAUSE as GNI increases the demand for manufactured products increase but the demand for commodities stay the same.
3 Education and skills
can improve productivity, social mobility and competiveness leading to PPF (production possibility frontier) and AS shift.
- time lag for economic boost to take place (depends on quality)
- brain drain = loss of productive workers due to migration out of the counrty e.g. brazil
4 infrastructure
can limit growth due to poor transport links, electricity and poorer education e.g. india
5 demographic factors
- increased pressure on government to produce housing, benefits and schools
- more pressure on land ( environment damage )
- increased long run economic growth as there are more workers available
-dependancy ratio could fall when the birth rate falls and children reach working age
6 access to credit and banking
limiting expenditure and consumption so AD falls.
7 savings gap : HARROD-DOMAR MODEL
suggests that economic growth is dependent on the savings ratio.
Developed countries save more and so banks have more money to invest leading to economic growth
- some countries dont trust banks with their money e.g. mozambique
- businesses cant borrow to fund investment
-countries have to rely on FDI
8 Capital Flight
the movement of assets or money out of a country
- corruption, money laundering, tax evasion means government have less to invest in the economy.
- needs national cooperation to resolve the issue ]
-MASSIVE problem in some problems (10% of gdp)
- need tougher / stricker laws
- close tax havens
9 absense of property rights, poor government and corruption
- rights to own land are crutial to wealth creation
- poor gov embezzle money rather than reinvest
-poor resourse allocation - money spent on weapons (opportunity cost)
10 foreign currency gap
difference between the actual level of exports and the level of exports needed to create higher economic growth. caused by : X revenue falling , price of commodities rising, large debt
- can create a national budget deficit
ev :
problems could be short run if caused by temporal fall in commodity prices
11 debt
debt is considered nessesary for economic growth and faster development, but high levels of debt with high interest rates can accumulate to a large debt
DEFAULT : when debt cant be paid
There is debt relief when debt is written off and debt rescheduling where countries are given more time to repay
* large debt with interests then countries have less revenue to spend on essensial infrastructure
* if countries end up defaulting it will be very difficult for them to borrow in the future
* * debt is only a problem if its high relative to the gdp
non economic factor : landlocked countries
land locked countries
- harder to export goods e.g. poor road and rail links / boader checks
- harder to import goods
- exports and imports are more expensive
- -less investment from MNCs as its harder for them to export their goods
- being landlocked is not always a constraint. e.g. switzerland has one of the highest GNI per capita
- not a problem if a country exports high value goods that can be transported by plane, or services which can be sold online
non economic factor : war / political instability
- workforce sick or injured
- damaged infrastructure
- lack of FDI
- debt spiral
- inflation
- foreign aid could help remove financial instability
- short term only
