Macroeconomics: economic growth and development Flashcards
Why is growth good for development?
Higher incomes lead to employment, improved quality of life (buying more goods and services), improved material standard of living, reduced income inequality, and a reduction in poverty.
Higher profits - jobs - increased confidence, technology - move towards service-based production.
Fiscal dividend (higher fiscal revenue for the government) - the government can spend on health, education, and infrastructure.
Why may growth not be good for development?
Distribution of income - income inequality - standard of living has not increased for all.
Negative externalities (pollution, resource depletion - reduces well-being - drag on development) and sustainability.
Growth in one dominant sector e.g. Nigeria major oil sector
Why is growth not a sufficient condition of development?
If growth is inclusive = development
There needs to be a strong government, there needs to be firms with the incentive to reinvest.
What is economic development?
Improving people’s incomes, capacities, and capabilities so they can live their lives with greater freedom to choose for themselves and their families.
What are the indicators of economic development?
Ability to lead a healthy life, acquire education, have access to economic and political opportunities, and participate in the life of the community.
What is the human development index (HDI) and how can it be calculated?
Measure of improvements in people’s lives.
Calculated through a geometric mean of GDP per capita, life expectancy at birth, average between mean years of schooling and expected years of schooling.
What are the limitations of HDI?
Exclusion of important indicators such as political freedom, gender equality, access to clean water, sanitation, and environmental sustainability.
Inequalities within countries - do not account for regional disparities.
Neglect of environmental sustainability - overemphasising growth without considering its long-term consequences.
What is the difference between economic growth and development?
Economic growth:
A sustained rise in a country’s productive capacity
An increase in real value of GDP/GNI per capita
Increases in the productivity of factors of production
Economic development:
Progress of expanding economic freedoms
Sustained improvement in economic and social opportunities
Growth in personal and national capabilities
What are the barriers to development and poverty reduction?
Infrastructure gaps
Primary export dependency
Conflict and corruption
Human capital weaknesses
Savings and foreign exchange gaps
Natural capital depletion
High inequality of income and wealth
Lack of competition in markets
High external debt
Financial barriers in low income countries
What is human capital?
Knowledge, skills, experiences, and abilities possessed by individuals in a population that can be used to produce economic value. It encompasses the collective talents, competencies, and educational attainment of a workforce.
A critical factor in economic and social development.
What is corruption as a barrier to development?
High levels of corruption deter foreign investment by increasing the cost of doing business - investment into a country carries a higher risk.
Leads to allocative inefficiency diverting public resources for private gain.
Contributes to persistent income and wealth inequality and reduced progress in cutting extreme poverty.
Causes a lack of trust (breakdown of social capital)
Leads to poorer human development outcomes because governments are not collecting sufficient tax revenues.
What are the consequences of poor infrastructure?
It increases supply costs for businesses - this causes higher prices - therefore hitting real incomes for consumers.
Reduces geographical mobility of labour causing higher structural unemployment.
Can make a country less attractive to FDI which might then slow economic growth in the long run.
Makes an economy more vulnerable to the effects of climate change especially risks from natural disasters.
Direct impact on human development - including having access to safe and reliable water and sanitation services.
What is development of human capital?
Positive ripple effect on the country’s economy, reducing poverty, promoting innovation, and fostering social development.
What are the benefits of improved human capital?
Enhanced productivity
Poverty reduction
Innovation and technological advancement
FDI
Economic diversification
What are interventions to improve human capital?
Conditional cash transfer programmes - provide cash incentives to low-income families on the condition that children attend and complete school.
School infrastructure investment e.g. classrooms, providing clean water and sanitation facilities.
School feeding programmes
Financial support e.g. scholarships
