T4 EMERGING AND DEVELOPING ECONOMIES Flashcards
What is meant by Low Human Capital
When workers don’t have the necessary knowledge, skills or assets to be productive.
If the standard of education is poor, students will leave school with:
Low human capital
What are the 10 constraints to economic growth and development
Poor education
Poor infrastructure
Poor health
Population growth
savings gap
property rights
corruption
being landlocked
primary product dependency
infant industries
What is the HDI
It is a measure of development which includes education (average years of schooling), health (life expectancy) and living standards (real GNI per capita).
What is the I-HDI
The IHDI is the normal HDI adjusted to account for different levels of inequality. If the IHDI is below the HDI, then there is inequality.
What is the advantage of the HDI
The first advantage of the HDI is that it is holistic- it focuses on a range of indicators rather than just one.
What is the disadvantage of the HDI
The first disadvantage of the HDI is that it can still be unreliable as there are many indicators that it does not use.
What does an HDI value of 0.95 mean?
Very High development
What are the 5 indicators of development
Access to clean water, number of mobile phones, energy consumption, Access to the internet. Proportion of population in agricultural work.
the definition of: Economic Development
An increase in living standards in an economy.
What three indicators does HDI measure?
Education, years of school.
Health, life expectancy at birth.
Living standards, real GNI per capita
What is Gross National Income?
Gross National Income is Gross Domestic Product plus the net income from abroad.
How is gross national income per capita calculated
gross national income divided by the country’s population .
What are the three measures used by the Human Development Index to determine the level of development based on the indicators
Life expectancy, real GNI per capita and average years spent in school
If a country’s HDI value is between 0 and 0.49 it has
low development
If a country’s HDI value is between 0.50 and 0.69 it has
medium development
If a country’s HDI value is between 0.70 and 0.79, we say that country has
high development
What does a high Gini coefficient mean for an economy?
more unequal economy
Whats does IHDI account for
IHDI accounts for the distribution of development within a country.
What are the 3 measures of development
HDI
IHDI
Multi dimensional. Poverty Index (MPI)
What else does the multidimensional poverty index measure that the HDI doesn’t
The average intensity of poverty
Unlike with HDI and IHDI, a high multidimensional poverty index means that a country has ???? levels of development.
low
What does the Multidimensional Poverty Index measure?
Measures education, health and living standard using 10 different indicators. It measures the number of people in poverty and the average intensity of poverty.
What are the two main reasons for low savings ratio
Low income many people in developing countries don’t earn enough to have money left to save
small amount of banks to save, which are often far away and not always seen as secure
What is meant by a savings gap
when there is a gap between the amount of money held at banks, in the form of savings, and the amount of money that firms want to borrow from banks.
Explain the harrod-domar model
Low incomes
Low savings
No money in the bank to lend
Low investment
Low AD and low LRAS
Low economic growth
Low incomes
What is Microfinance
Small loans provided to small businesses who otherwise would have no access to financial services
How should microfinance loans affect small businesses?
(chain of reasons)
Increase productivity → Decreases unit costs → More competitive prices → Increase incomes
What is the impact of higher incomes on the savings gap?
it will decrease
Why might microfinance not lead to economic development?
Microfinance lenders may charge very high interest rates
What are property rights?
The legal right to your property
Possessions without property rights are called
dead capital
Dead capital can not be used as:
Collateral when taking out a loan
What does it mean if assets are given property rights?
They can be used as collateral when taking out loans with a bank
What is collateral
An asset given as security for the repayment of a loan
Is allocating property rights a market based or interventionist policy for development?
market based
Why might a strategy of assigning property rights not lead to economic development?
If they don’t increase the number of people taking out loans
What is the definition of corruption
Corruption is when people working for the government use government funds for their own private expenses.
What is the Fair Trade premium?
Money from the sale of products which can be used by farmers to pay for development themselves
What is the fair trade scheme
is a communal fund for Fair Trade farmers.
How can Fair Trade schemes lead to economic development?
Increase farmers’ incomes → Increase aggregate demand → Increase real GDP → Increase economic growth
What is the world bank
A bank for countries which promotes development by offering development loans and debt relief.
What two core things can the World Bank provide developing nations?
debt relief
development loan
How much money did the World Bank loan out in 2016?
World Bank loaned out $61 billion to countries in need of development loans.
What is the IMF
An organisation which monitors the global economy to ensure that it is healthy and stable.
What are the roles of the IMF
oversee economic development.
provide bailouts to struggling economies.
How does the IMF promote growth and development
Maintaining stability in the global economy
occasionally provides bailouts to countries in need
How much money did the International Monetary Fund give to Greece as a bailout in 2010?
a $147 billion bailout
What are NGO’s
Organisations that help to promote development by focusing on smaller-scale, specific issues.
How do NGO’s promote growth on development
Focus on smaller more specific issues, operate on a local scale.
benefit of NGO vs IMF or World bank
Smaller scale operations, less bureaucratic and more localised knowledge
How many NGO’s are there across the world
estimated 10 million
disadvantages of NGO’s
smaller budgets compared to IMF or World Bank
what are infant industries
Infant industries are industries which are too small to benefit from economies of scale
how do infant industries constrain growth and development
what is meant by protectionism
What are the four types of restrictions on free trade
tariffs
quotas
subsidies
non trade barriers (regulations for example)
Why might protectionism and subsidies not lead to improvements in domestic growth and development
may encourage laziness and inefficiency
what is competitive devaluation
Where a government reduces the value of their fixed exchange rate in order to make exports more competitive.
how can competitive devaluation increase development
what are two main ways to depreciate a currency:
lower interest rate
sell domestic currency
eval to compe depreciation
what is meant by a foreign currency gap
A foreign currency gap occurs when the amount of foreign currency in a country decreases.
The most common cause is when net imports are greater than net exports
how can a foreign currency gap restrain development
what are the three characteristics of primary products
demand for primary products is inelastic
supply of primary products is price inelastic
demand is income inelastic
what is a negative impact of primary products inelastic supply and demand
Price instability :
The supply and demand curves for primary products are very steep.
This means that any change in supply or demand leads to a very large change in price
what is a primary product
a good made from raw materials
why does price instability of primary products, constrain growth and development
Unstable prices make it much harder for investors to predict future prices.
This makes it harder for them to predict their future revenue and, therefore, their future profit.
This means investments in the country remains low, so does ad / lras and real gdp.
also less profit means less corp tax rev
what is the main purpose of the buffer stock scheme
To reduce extreme fluctuations in the price of primary products
what is the prebisch singer hypothesis
As world income grows, there will be a small increase in demand for primary products,
but there will be a large increase in demand for manufactured products.
This means that the price of manufactured products will increase by much more than the price of primary products.
This will worsen the terms of trade for countries who depend on exporting primary products and importing manufactured products.
What is the Lewis model for industrialisation
As countries industrialise, manufacturing firms will make more profit and increase investment.
This will increase their demand for labour which will increase wages and attract even more workers into the manufacturing sector.
Making them less vulnerable to the prebisch-singer hypothesis and price instability.
Why might industrialisation not improve economic growth
Through transfer pricing, manufacturing companies can avoid paying corporation tax in developing countries.
No money for government to spend on development
how much tax is lost through transfer pricing each year
estimated several hundred billion usd
What is meant by industrialisation
Where the main industry in a country shifts from agriculture to manufacturing.
What are the 2 reasons why inequality limits economic growth
In a capitalist system when workers have low wages, then they will not have enough money to investin the economy. This will therefore hold back adand limit economic growth.
