The International economy - Economic development Flashcards
What is development?
Dudley Sears has defined development as “the reduction and elimination of poverty, inequality and unemployment within a growing economy”
What is the difference between growth and development?
economic growth is a sustained rise in a country’s productive capacity. An increase in the real value of GDP/capita. Increase in the productivity of factors of production. Whilst economic development involves progress in expanding economic freedoms, sustained improvement in economic and social opportunities and growth in personal and national capabilities.
The human development index (HDI)
Focuses on longevity, basic education and minimal income. A broad composite measure of improvements in people’s lives - it’s a weighted index.
1- knowledge
2 - long and healthy life
3 - a decent standard of living
Indicators of development
GDP growth (including forecasts)
GDP per head levels.
Unemployment and employment rates.
Average earnings levels.
Proportion of jobs in manufacturing.
Employment in the public sector.
Average house prices and annual change.
Public sector revenue and expenditure per head.
Primary product dependency
Heavy dependence measured as a share of GDP, total exports or employment from the extraction / cultivation of primary commodities such as copper and oil.
The Prebisch-Singer hypothesis
Suggests that, over the long run, prices of primary goods such as coffee and cocoa decline in proportion to manufactured goods such as cars and washing machines. Core idea:
- likely to be a long-term decline in real commodity prices
- In part, bc YED for commodities is lower than for manufactured goods
- worsens terms of trade for primary exporters over time for primary exporters
- in this situation, countries may be better off focusing on import substitution policies which encourage rapid industrialisation and improved export diversification designed to make a country more resilient to price shocks.
Dutch disease
Refers to the adverse impact of a sudden discovery of natural resources on the national economy via the appreciation of the real exchange rate and the decline in export competitiveness.
Savings gaps
In many smaller low-income countries, high levels of extreme poverty make it difficult to generate sufficient savings to provide the funds needed to fund investment projects. This increases reliance on aid or borrowing from overseas. This problem is known as the savings gap.
Foreign currency gaps
In development economics, a foreign currency gap refers to a situation where a country’s expenditures in foreign currency, such as payments for imports or servicing foreign debt, exceed its foreign currency earnings from exports or other sources, such as foreign investment or remittances.
Capital flight
The uncertain and rapid movement of large sums of money out of a country.
Brain drain effect
The movement of highly skilled or professional people from their own country to another country where they can earn more money. Can lead to de-population.
External debt
Gross external debt measures the total debt a country owes to foreign creditors – i.e. it considers only the liabilities of that country. Debtors can be the government, corporations or citizens of that country. Net external debt is defined as gross external debt net of external assets in debt instruments.
Non-economic factors that can affect development
- poor governance
- civil war and political unrest
- degree of corruption
- the geography of a country
Policies addressing growth and development
Free-market approaches favour giving a larger role to private sector enterprises using liberalisation of markets, structural supply-side reforms to raise incentives for people and businesses and increased transparency for government also high on the policy agenda.
Interventionalist strategies involve government intervention in markets.
- trade liberalisation
- promotion of FDI
- removal of government subsidies
- floating exchange rate systems
- microfinance schemes
- privatisation
- development of human capital
- protectionism
- managed exchange rates
- infrastructure development
- joint ventures with global companies
- industrialisation
- development of tourism
- Fairtrade schemes
- overseas aid
- debt relief
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