Th4.3: ^^ Primary Product Dependency Flashcards
What do primary products include?
agriculture, mining e.t.c
What kind of country mainly relies on primary product?
developing
Why can this be bad?
natural disasters
non renewable
low-income elasticity of demand
Dutch disease
Natural disasters
natural disasters can wipe out production of the primary product, meaning farmers are left with no income
Non-renenewable
they are often non-renewable, meaning the country will suffer when they run out of the product
Low-income elasticity of demand
meaning as people get wealthier, they don’t continue to increase the amount of primary products they buy whereas they are likely to increase their demand for manufactured goods
What does the Prebisch Singer Hypothesis suggest?
the long run price of primary goods declines in proportion to manufactured goods, meaning those dependent on primary exports will see a fall in their terms of trade
However in recent years there has been a rise in the prices of some key commodities and a fall in prices of manufactured goods, due to…
the expansion of places like China
What is the Dutch disease?
when a country becomes a significant commodity producer in a short amount of time, causing an increase in demand for the currency, pushing its value up - increases export prices and reduces competitiveness
What is suggested for countries that develop primary products to do?
use the revenue to invest in manufacturing like Saudi Arabia and oil
