Section 5- Economic Development Flashcards
Indicators of living standards
The number of patients per doctor Enrolment in tertiary education
Adult literacy rate
Average food intake per person
MAIN- GDP per head Composite- HDI (Human Development Index) GPI (Genuine Progress Indicator)
Define Human Development Index (HDI)
a measure of living standards which takes into account income, education and life expectancy.
Define Genuine Progress Indicator (GPI)
a measure of living standards which takes into account a variety of indicators including income, leisure time, distribution of income and environmental standards.
Reasons why GDP is not the most accurate indicator?
- Real GDP is an average- Not everyone may benefit from a rise in the average income level.
- Higher output will obviously mean that more goods and services are being produced, but not all of these may add to people’s living standards- an increase in the output and consumption of tobacco
- Increases in real GDP per head figures may understate the products available to people due to undeclared economic activity and non-marketed output.
- May overstate it if the quality of output is falling.
- Living standards are also influenced by other factors besides the material goods and services produced. If output rises but working conditions deteriorate, the number of working hours increases, or pollution increases, people may not feel better off.
- Does not take into account differences in the distribution of income, the size of the informal economy, working hours and conditions, the composition and quality of output and environmental conditions between countries.
- Countries measure their output in terms of their own currency initially. The comparison, on the other hand, requires to be done in a common unit. There is a risk
that if an unadjusted currency is used, the comparison may be distorted. This is because the value of a currency can change on an hour to hour basis.
Advantage of real GDP
Takes into account differences in population size
Incorporates adjustments for inflation
Define Purchasing power parity
an exchange rate based on the ratio of the price of a basket of products in different countries.
Advantages of HDI
- Wider measure than real GDP per head- Includes GDP per head, life expectancy at birth, mean years of schooling and expected years of schooling.
- Countries are categorised into very high human development, high human development, medium human development and low human development.
- Shows that economic growth and human progress may not always match.
Disadvantages of HDI
Leaves out political freedom, the environment, differences in life expectancy and education, differences in income between males and females and between those living in rural and urban areas
Explain GPI
It starts with GDP.
It then adjusts for income distribution- the GPI rises when the poor receive a higher proportion of income and it falls when income becomes more unevenly distributed.
Makes a number of deductions (items which reduce living standards now or in the future) and additions (items which are thought to make a positive contribution to current or future living standards)
Causes of differences in living standards
Differences in income Differences in wealth Differences in education Differences in healthcare systems Differences in levels of pollution Differences in working hours
Causes of differences in income
Uneven holdings of wealth- Some wealthy households can live off the income their wealth generates
Differences in the composition of households Differences in the opportunity and ability to earn an income
Causes of differences in wealth
Differences in the assets inherited by people
Their savings- Wealth creates wealth
Entrepreneurial skills
Causes of differences in wages
Their skills
Qualifications
Number of hours for which they work
Define absolute poverty
a condition where people’s income is too low to enable them to meet their basic needs.
Define Relative poverty
a condition where people are poor in comparison to others in the country. Their income is too low to enable them to enjoy the average standard of living in their country.
Define Vicious circle of poverty
a situation where people become trapped in poverty.
Causes of poverty
Unemployment
Being in low-paid work
Falling ill
Growing old
Possible government policy measures to reduce poverty
- Improving the quantity and quality of education
- Promoting economic growth- increasing government expenditure or reducing the rate of interest
; demand –>jobs–>employment–>output–>higher living standards - Introducing or raising a national minimum wage.
- Encouraging more multinational companies to set up in the country - employment opportunities
- Providing benefits or more generous state benefits- for elderly, sick, and unemployed people
- Land reform- Those who rent or lease land may be reluctant to improve the fertility of the land. In such circumstances, making ownership of land more equal may increase output and living standards.
Controversy over unemployment benefits
Yes, it’ll enable them to avoid absolute poverty if there is a lack of jobs as it will not only raise the living standards of the unemployed but may also reduce unemployment by increasing aggregate demand.
But, if jobs are available, and the unemployed are not filling them because they receive a higher income on benefits, raising benefits will reduce the incentive to work
Measures to raise living standards
- Improving education and training will enhance the knowledge and earning potential of the people, and their ability to participate in the political system of the country.
- Reducing unemployment, as already mentioned, also raises living standards by increasing the quantity of available goods and services.
- Improving healthcare
- Increasing and improving the housing stock
- Improving the working conditions
- Reducing pollution
Government policies on the distribution of income and wealth
- Taxation (Progressive taxes)
- The provision of cash benefits
- The provision of free state education and healthcare
- Using labor and macroeconomic policies
Size of a country’s population can grow as a result of
- Birth rate exceeds the death rate
2. Net immigration
Define Emigration
the act of leaving the country to live in another country
Define Birth rate
the number of births in a year per 1000 population in a year
Define Death rate
the number of deaths in a year per 1000 population in a year.
Define Net immigration
more people coming to live in the country than people leaving the country to live elsewhere.
Define Infant mortality rate
the number of deaths per 1000 live births in a year.
Define Net migration
the difference between immigration and emigration.
The birth rate is influenced by
the average age of the population
the number of women in the population
women’s fertility rate (that is, the average number of children per woman)
The death rate is influenced by
nutrition housing conditions medical care lifestyles working conditions involvement or non-involvement in military action
Reasons for high birth rate
- Young average aged population in which women marry young
- Infant mortality rate is high
- Women are not well-educated
- Most women do not work
- Cheap to bring up children
- Lack or disapproval of family planning
- Government cash incentives to have children
- Lack of government help to care for the sick
and elderly
Reasons for low death rate
- Healthy diets
- Good housing facilities
- Access to high quality medical care
- Do not smoke or consume excess alcohol
- Exercise regularly
- Enjoy good working conditions
- Country is at peace with other countries
Influences of net migration
- Relative living standards at home and abroad
- Persecution of particular groups
- Extent of control on the movement of people
Define Population pyramid
a diagram showing the age and gender structure of a country’s population
The population pyramid of a country with relatively low development would show
A high birth rate
A high death rate
Large proportion of young people
Small percentage of people reaching older age groups
Dependency ratio definiton+ formula
The proportion of the population that has to be supported by the labour force.
(Number in dependent age groups/ Number in the labour force) × 100
Define optimum population
the size of population which maximises the country’s output per head.
Advantages of increase in population
- If the population is below the optimum size, the country will be able to make better use of its resources.
- The size of markets will increase
- Expanding industries can recruit new workers to the labour force.
- Extra demand will be generated. This is likely to stimulate investment and this may lead to the introduction of new technology.
- A rise in the labour force now due to net immigration and in the future, caused by a rise in the birth rate
Disadvantages of increase in population
- Famine, if agricultural productivity is low
- Restrictions on improvements in living standards
- Overcrowding- put pressure on housing and social capital and cause traffic congestion
- Environmental pressure
- Pressure on employment opportunities
- Balance of payment pressures. More dependants in the population may result in a rise in imports and some products may need to be diverted from the export to the home market.
Ways of reducing the birth rate
- Reduce immigration
- Improvement of the educational and employment opportunities for women
- Better information and increased availability of family planning services
- Improvement of healthcare and nutrition
- Pension and sickness insurance schemes
- Raise the cost of having children by raising the school leaving age
- Provide incentives for families who restrict the number of children
The consequences of an ageing population
- A rise in the dependency ratio
- A change in the labor force- less mobile
- Higher demand for healthcare.
- Greater need for welfare services- opportunity cost
- Rise in cost of state and private pensions.
- Change in the pattern of demand
Ways of coping with an ageing population
- Raise the retirement age
- Encouraging or making it compulsory for workers to save for their retirement
- Issue more work permits to encourage immigration of younger skilled workers
- Raise the productivity of workers by means of education and training
Internal immigration advantages + disadvantages
Supply growing industries
Better allocation of resources
Increase living standards in rural areas by sending back money to their relatives
If the most productive leave, ‘brain drain’
No guarantee that enough jobs will be available in urban areas and a number of external costs, including overcrowding, increased pressure on social capital and congestion may occur as a result of the rapid expansion of cities.
The effects of net emigration
- The size of the working population is likely to be reduced.
- The remaining labour force will have a greater burden of dependency.
- The average age of the labour force will increase. This may make it less mobile.
- The gender distribution of the population may be affected
- There may be a shortage of skilled workers
- There may be under-utilisation of resources
- Those who emigrate may send money home to help their relatives. This money is called workers’ remittances.
Define Economic development:
an improvement in economic welfare
A country with high economic development would have
High living standards
High proportion of workers employed in the tertiary sector
High levels of productivity
High levels of investment.
Causes of differences in economic development between countries
- Differences in incomes per head
- Differences in saving due to differences in income per head
- Differences in investment
- Differences in population growth
- Differences in education and healthcare
- Differences in the size of the primary, secondary and tertiary sectors.
Causes of differences in economic development between countries
- Differences in incomes per head
- Differences in saving due to differences in income per head
- Differences in investment
- Differences in population growth
- Differences in education and healthcare
- Differences in the size of the primary, secondary and tertiary sectors.
- Differences in the concentration on a narrow range of exports (most of which are primary products)
- Differences in productivity
Why do governments seek to achieve economic development
They want higher real GDP, higher living standards for their citizens and expansion of the range of economic and social choices.
How does a reduction in poverty bring benefits to both, the poor and to the wider society?
Gives them access to basic necessities, improves their mental and physical health, and raises their expectations.
People who enjoy better living standards are likely to be more productive, which in turn should lower the country’s average costs and make the country more internationally competitive.
A reduction in poverty may also reduce pollution. As people become better off, they are more likely to have access to sanitation and environmentally friendly forms of heating.
How can a country economically develop?
More investment, improved education, training and healthcare can raise not only real GDP but also the quality of people’s lives, their life expectancy and their choices.
The problems facing economies with relatively low economic development
- High growth of population
- High levels of international debt
- Reliance on the export of primary products
- Lack of investment in human capital and capital goods
- Emigration of key workers
- Trade restrictions on their products
- Unbalanced economies
Advantages/ Disadvantages of Import substitution-
When domestic products replace imports
If successful, the strategy can increase domestic output, raise employment and improve the country’s trade in goods and services balance.
In the short term, however, it may raise prices and reduce choice and hence lower economic welfare. Other countries may also retaliate and the domestic industries may become reliant on protection without seeking to increase their efficiency and competitiveness.
Measures to promote economic development
- Import substitution
- Promote exports by exposing domestic firms to market forces
- Improve the country’s infrastructure, capital stock, education, training and healthcare systems
- Attract multinational companies (MNCs)
Advantages + Disadvantages of MNCs
They can increase employment and wages, train and educate workers, bring in new technology and improve infrastructures.
MNCs may pay workers in poor countries less than that in their home countries and may provide them with poorer working conditions.
MNCs may deplete non-renewable resources, cause pollution and put pressure on host governments to pursue policies which have a detrimental effect on development such as reducing health and safety regulations.
The vicious cycle of poverty for countries
Low income ↓ Low savings ↓ Low investments ↓ Low productivity
