Theme 4:3.1 and 4:3.2 :Measures of development and Factors influencing growth and development Flashcards
what is HDI composed of?
health-lifexpectancy
education-average years of schooling
income-GNI per capita
what is the number range for HDI?
0-1, the higher the number the more development there is
what are the pros of HDI?
-It takes into account three key factors
-relatively easy to calculate
what are the cons of HDI?
-no consideration for the equality of income
-other factors which affect development e.g. corruption, environement
-
what is IHDI?
an adjustment of HDI which includes a fourth indicator of development:
(inequality) It is broader than HDI but can still be criticised
for not taking into account more measures and quality.
what are the factors that influence growth and development?
-primary product dependency
- volatility of commodity prices
- savings gap: Harrod-Domar model
- foreign currency gap
- capital flight
- demographic factors
- debt
- access to credit and banking
- infrastructure
- education/skills
- absence of property rights
explain primary product dependency
- a lot of developing countries economic activity is based on primary goods e.g.mining, agriculture
-natural disaster can wipe out goods and people left with no income
primary products tend to have a love income elasticity of demand so as incomes rise less people buy them and they buy manfactured goods instead
-Prebisch singer hypothesis suggests that long run price of primary goods declines in proportion to manufactured goods and those reliant of primary exports will see a fall in ToT.
Saudi used primary products to develop..oil
-Not all primary products have love income elasticity of demand e.g. diamonds
explain volatility of commodity prices.
-primary goods tend to have inelastic supply and demand so a change in S&D means there are huge fluctuations in price
- producers income and country’s earnings are also fluctuating meaning investment is difficult
producers income may fall causing poverty.
-when commodity prices rise there tends to be over-investment so there is a long term risk when prices fall.
explain the savings gap.
A savings gap is the difference between actual savings
and the level of savings needed to achieve a higher growth rate.
in developing countries incomes are low so they save less and banks have less money to lend and therefore less money to borrow so consumption and investment is less
-Harrod-Domar model suggests savings provide the funds which are borrowed for investment purposes and that growth rates depend on the level of saving and the productivity of investment. It concludes that economic growth depends on the amount
of labour and capital and that developing countries have a vast labour supply, so their problems are caused by capital. In order to improve capital, investment is
necessary and investment requires savings.
explain foreign currency gap
-exports from a developing country are too low to compared to imports to finance the purchase of investment or other goods from overseas fro faster economic growth.
explain capital flight.
This is when exports from a developing country are too low compared to imports
to finance the purchase of investment or other goods from overseas required for
faster economic growth.
explain demographic factors
Developing countries tend to have higher population growth, which limits development. If population grows by 5%, the economy needs to grow by 5% to even maintain living standards. This means developing countries need to have higher rates of growth to develop than more developed countries would do.
high population growth is caused by high birth rates, which increases the
number of dependents within a country but does not immediately increase those of
working age. It places strains on the education system and leads to youth
unemployment.
explain debt
in 1970s and 1980s, developing countries received vast loans from banks in the developed world. Now, they suffer from high levels of interest repayment ;
sometimes even higher than the loans and aid they receive from developed countries, meaning money is flowing from developing to developed countries
explain access to credit and banking
Developing countries have limited access to credit and banking compared to developed countries and can’t access funds for investment and can’t save for the future.
some may take loans from loan sharks who charge high interest and may leave them in debt
explain infrastructure
Low levels of infrastructure make it hard for businesses to trade and set up within the country, for example if there are a lack of roads. It makes their services and production less reliable.
