LS12 + LS14 - Measures Of Development, Factors Influencing Growth And Development Flashcards
What is economic development and how can you measure it
Economic development is the sustainable increase in living standards for a country, typically characterised by increases in life span, education levels, & income
There are many measures of economic development
Single indicators e.g. number of doctors/1000 people; infant mortality rate; % of the population with access to clean drinking water
Composite indicators such as the Human Development Index (HDI
HDI
Developed by the United Nations, it is a combination of 3 indicators
Health, as measured by the life expectancy at birth e.g.in 2019 it was 81.2 years in the UK
Education, as measured by a combination of the mean years of schooling that 25 year old’s have received, together with the expected years of schooling for a pre-school child
Income, as measured by the real gross national income per capita at purchasing power parity (ppp)
Each indicator is given equal weighting in the index
The index ranks countries on a score between 0 & 1
The closer to 1, the higher the level of economic development & the better the standard of living
A value of < 0.550 is considered low development e.g. Chad 0.394
A value of 0.550-0.699 is considered medium development e.g. El Salvador 0.673
A value of 0.700-0.799 is considered high development e.g Thailand 0.777
A value ≥ 0.800 is considered very high development e.g. Norway 0.957
Advantages of HDI
It is a composite indicator which provides a more useful comparison metric than single indicators do
It incorporates three of the most important metrics for households i.e. health, education & income
It is widely used all over the world which provides an opportunity for meaningful comparisons
It provides a goal for governments to use when developing their policies e.g. it may help identify that the education levels are holding back improvements to the HDI & government policy can target that
It provides citizens with an understanding of how their quality of life compares to other countries
Disadvantages of HDI
It does not measure the inequality that exists as it uses the mean GNI/capita
It does not measure or compare the levels of absolute & relative poverty that exist
For many countries it does not provide useful short-term information as gathering the data required for the calculation is difficult. This means the data often lags reality by several years
Does not differentiate between rates of development progress within a country, difference in development between urban &rural areas. The HDI does not account for income inequality within a country and the impact of inequality in development. BUT HDI can be adjusted for income inequality = income inequality adjusted HDI.
Incomes, schooling, and healthcare’s scores= weighted equally in HDI – argued to be arbitrary esp if it’s clear that a certain area such as healthcare is lacing more than another. Makes It harder to efficiently allocate funds – aid money directed to areas that aren’t at need
HDI only comprising 3 areas= quite narrow in outlook, development consists of multitude of factors such as freedom, equality, poverty alleviation. HDI used alongside Global competitiveness index, Gini coefficient, global poverty index, to fully analyse a country’s development of progress
IHDI
This is an adjustment of HDI which includes a fourth indicator of development: inequality. The Atkinson Index adjusts measures for education, health and income according to the level of inequality. It is broader than HDI but can still be criticised for not considering more measures and quality.
Created in 2010 to deal with the lack of information that the HDI provides on inequality
The IHDI will be equal to the HDI value when there is no inequality, but falls below the HDI value as inequality rises
This means that the IHDI measures the level of human development when inequality is accounted for
The difference between the HDI & IHDI can be expressed as a percentage & represents the loss in potential human development due to inequality
It provides greater insight into the differences in human development that exist in a country as opposed to the average human development
Primary products
Products that dont undergo manufacturing processes, used/sold as found in nature
Agriculture, fish, commodities such as oil, coal
Primary product dependency
Price of primary products tend to fall over time, as incomes rise, demand for manufactured products rise
PPDs are income elastic, and with price volatility, income is not insured, meaning dependents cannot invest in capital goods
This means they cannot move towards manufacturing industry
Long term income doesnt rise, hindering economic growth
Savings gap
The Harrod-Domar model identified the following benefits of increased savings
Increased savings → increased investment → higher capital stock → higher economic growth → increased savings
Based on this, any intervention (foreign or governmental) to increase the capital stock in an economy will lead to growth
There are many criticisms of the model including
It does not account for many other factors such as labour productivity, corruption, technological innovation
It was created based on data from wealthier industrialising nations as opposed to very poor undeveloped countries
It focused only on physical investment & ignored other types such as investment in human capital (labour)
Developing countries- lower incomes= save less. Savings gap= difference between actual savings and the level of savings needed to achieve a higher growth rate.
Poor have a higher MPC income. Lack of funds for financial insertions to lend for business investment
Harrod-Domar model suggests savings provide funds which are borrowed for investment purposes and that growth rates depend on level of saving/ productivity of investment. Economic growth depends on amount of labour and capital and that developing countries have a vast labour supply, problems are caused by capital. To improve capital, investment is necessary, and investment requires savings.
EV:
Economic growth is not the same as economic development- difficult for individuals to save when they have little income and borrowing from overseas causes problems with debt- investment could be wasted
Foreign currency gsp
Where a countrys foreign currency expenditure for imports or servicing debt exceed its foreign currency earnings from exports or FDI.
A high foreign currency gap (so low reserves of FC) can hinder economic growth as country is unable to import capital goods or raw materials to boost manufacturing and increase output
Value of current account deficit larger than value of capital inflows
a foreign currency gap refers to a situation where a country’s expenditures in foreign currency, such as payments for imports or servicing foreign debt, exceed its foreign currency earnings from exports or other sources, such as foreign investment or remittances.
Foreign currency gaps develop for a number of reasons
Oil importing countries have to pay more (reserves decrease) when world oil prices rise whereas oil exporting countries receive less (less flowing in) when world oil prices fall
Large international debt payments may require continual outflows of currency
Capital flight due to uncertainty or sanctions
This means that central banks are forced to use their reserves to buy vital imports
Developing a diversified, healthy export market prevents foreign currency gaps from developing
Capital flight
Large amount of financial assets leaving country due to events such as political or economic instability - causes investors to lose confidence
Econ development constrained as extra income that could be saved, and invested is lost.
Dependency ration and working age population
Number of dependents in population divided by number of working age people - larger working age pop. smaller dependency ratio
The larger the size of working age pop., the greater the productive capacity will be
The larger the size of non working age pop., the greater the burden on working population and state - as they have to support them with health, social care, education
Debt
Servicing a debt means paying the principal as well as the interest
High debt servicing hinders econ growth
High debt burden –> large amount of govt spending on servicing debt –> less funding for public goods, education –> infrastrcture, labour force weaker –> lower econ growth
Access to credit and banking
For firms, borrowing from banks is used to finance business operations and investments
For individuals, access to banks improves financial security and encourages saving, also being able to borrow to consume
Access to credit/banks limited in LEDCs, as:
* Lack of financial institutions limited or poor quality
* Low income population might not quality for credit, seen as risk and not creditworthy
* Low savings ratio
Infrastructure
Quality of infrastructure can determine efficiency and quantity firms produce at –> limits economic growth if infrastructure is of poor quality - common in LEDCs
Examples:
* Transport network - transporting goods/services will be inefficient; geographical immobility
* Power network - blackouts that can stop/delay production; people cannot access internet/technology
* Education - poor qualifications, low employability of population so poor quality of workforce - low productive capacity
* Healthcare - workers spend more time receiving treatment - less income, low productivity; longer wait times and poor treatment; less beds, doctors, equipment
Education and skills
Access to education is limited in LEDCs - quality of education is also low: large classes, teacher shortages/underqualified, poor teaching materials
Less years spent in education
Quality of workforce is low
Productivity is limited
Econ growth is hindered - labourforce is not productive enough, leading to less output and so lower income, and low investments
