Macro 19: Economic growth and development Flashcards
Explain the difference between growth and development
Economic growth is measured by real GDP per capita, economic welfare/standard of life
Economic development is measured by both our standard and quality of life
Explain different methods of measuring development
-Human development index (GDP per capita and life expectancy and average years of schooling)
-Poverty index (measures % of households in a country deprived along monetary poverty, education and basic infrastructure services)
-Human capital index (measures the amount of human capital that a child born today can expect to attain by 18, given poor eduation)
Outline the main characteristics of less developed countries
-A low HDI
-Poor human capital (low levels of health and education)
-Economy dominated by the primary sector (agriculture, fishing and mining because a lot of arable land and rich in natural resources with a large but uneducated labour force that can do these jobs, their factor endowment)
-Savings gap (low levels of domestic savings due to low levels of income per capita) because small weak financial services and low income, bad because private firms need loans from banks but they don;t have available funds as low saving so investment and entre[eneurship is low
-High birth rate- caused by a lack of access to birth control, low levels of education regarding family planning and cultural norms like high infant mortality
-Large number of young dependents (under 16) so high dependency ratio
-Large population but low education and healthcare so inactive labour force and high unemployment
How does corruption present a barrier to development?
Government corruption, high levels of crime, civil war and civil unrest all act to destroy crucial infrastructure, disrupt harvesting and displace labour which deters domestic investment and foreign direct investment
How does poor human capital present a barrier to development?
Quantity and productivity of an economy’s working population. LEDCs have a large pool of uneducated labour, come as little as 2.1 years of average schooling so there’s a largely illiterate labour force. Low levels of productivity lead to low MPR hence low wages and low average income which causes more poverty and factor immobility
How does poor infrastructure present a barrier to development?
LEDCs will lack the ability to attract FDI (one route to development) as firms are deterred by a lack of reliable power, transport and communication. Barriers to economic growth and development as it deters domestic and foreign business investment causing low levels of business productivity
How does a lack of property rights present a barrier to development?
Businesses depend on ownership of assets and contracts being upheld by law; if this isn;t happening, enterprise is less likely to flourish and the country will find it difficult to attract FDI
Evaluate a range of policies that can be adopted to promote economic growth and development
Evaluate the use of aid to promote development
Common forms of aid include money or soft loans and goods and services.
In monetary form aid can be used to fund capital investment in infrastructure or social programmes. However, its costs are that money can get chanelled into only benefitting a small group of people depending on corruption. Conditional aid may largely benefit the developed economy granting the aid, if it must be spent on goods for the economy. They might also not be suitable for the population.
Evaluate the use of trade to promote development
Allowing free trade helps development as countries benefit from specialisation in industries where they have comparitive advantage. As long as trade takes place between other countries with minimal barriers, the gains from specialisation can be shared between all.
Explain what is meant by purchasing power parity
Purchasing power parity (PPP) is an economic theory that suggests the prices of goods and services between two countries should be equal, once their currencies have been exchanged. PPP was introduced to be a more accurate and effective measure of a currency’s power.
