Theme 4 - Economic development Flashcards
What is the human development index?
A measure of development that takes into account the 3 most important indicators
What are the 3 factors HDI measures?
- Education
- Health
- Living standards
What is the IHDI measure of economic development?
The inequality human development index takes into account inequality distribution in an economy.
What is the multidimensional poverty index?
This measures the percentage of the population that is multidimensional poor. It uses data from HDI factors breaks them down into smaller categories
3 main advantages of HDI?
- Measures the 3 most important factors
- It is a good comparative measure
- Fairly reliable measure as many countries use it
3 main disadvantages of HDI?
- Only looks at income, doesn’t consider other factors
- Ignores distribution of development
- Other factors have become more important over time that HDI doesn’t consider
What is the genuine progress indicator?
It is calculate from 26 different indicators grouped in social, environmental and economical.
How can a lack of education lead to a reduction in growth and reduced development?
Lack of human capital which means low skilled labour therefore reducing productivity. This restrains growth from low AD and restrains development from low govt tax revenues
What government intervention can be used to increase human capital?
Build new schools:
- Increased investment in human capital so better skills and increase high paid jobs, increases productivity and growth
- Increased govt tax revenues so increased spending on development
What are some problems of investing in new schools?
- Poor countries may lack funding for spending
- More people going school means fewer people working in poor countries and so growth and development is constrained
How can a lack of infrastructure refrain growth and development?
- Fewer jobs, less disposable income, less consumption and so growth
- Higher costs, higher prices, reduced competitiveness, less corporation tax
How can a lack of infrastructure refrain growth and development?
- Fewer jobs, less disposable income, less consumption and so growth
- Higher costs, higher prices, reduced competitiveness, less corporation tax
What strategy could a country use to improve infrastructure?
- promotion of FDI
- This could be from a prompt of lower corporation tax revenues so investors from other countries invest or by reducing wage costs such as the eradication of the minimum wage
- Countries can expand, be more competitive and increase tax revenues for the government.
What could be some issues with promotions of FDI?
Reducing wage costs means there are less incomes, fall in Consumption of AD, Lower corporation tax so less growth and development
- Lower tax rates means less revenue for the government
How can poor health lead to a lack of growth and development?
- Poorer countries have bad facilities and lack of staff
reduces workers productivity which refrains growth
Less government tax revenue and therefore profits - Poor sex education means more people are likely to develop health problems etc
What strategy could be used to help restore health in a country?
AID. This could then be spent in improving the number of hospitals, staffing and facilities. More labour are well enough to obtain jobs
- Could also help spend money on educating children on sex
What could be a constraint of AIDs as a strategy of development?
Corruption in the government. Governments may obtain finances to personal gains
Population growth means more people out of work to look after children
How can population growth prevent growth and development?
More people out of work to look after their children. They may take lower income jobs.
Means less disposable income therefore lower consumption from AD. This may decrease growth and restrict tax revenues for development
- Poorer quality healthcare and education
How could population growth be managed used a strategy?
More spending on Education.
If countries have people with better human capital, then more will get higher paid jobs and therefore will be more unlikely to have more children. This therefore may prevent huge increases in population growth. especially for women so that have fewer children from being more career driven
- Improving education on sex
What are some reasons that spending on education may not beneficial to reducing population growths?
Potentially religious beliefs that prevent the use of people using contraception.
How can corruption lead to a reduction in growth and development?
Tax revenues and AID (public funds) could be spent by governments for private gain. This therefore means that less money is available for the public to benefit from
How can some cases of corruption be prevented?
Fair trade scheme.
Part of the price paid on fair trade products can be sent directly to farmers who produced it. This prevents money being sent to the government. Some of the money also goes to fair trade premiums which is a communal fund that farmers can spend on development
How can fair trade schemes further constrain growth and development?
There is no official system that monitors how many fair trade products are being sold and therefore how much farmers are benefitting.
You also have to pay to participate in fair trade schemes therefore very poor countries don’t benefit
- Not all of the price of goods goes to farmers
How can landlocked countries lead to a reduction in development and growth?
More expensive to transport. exports goods which can lead to higher costs and less government tax revenue
Higher national debt because of larger government borrowing
What is one strategy that could help developing countries that are landlocked
The world bank could offer debt relief which could help the country have less national debt and therefore spends less govt tax revenue on repaying debt and more on development
How could debt relief be ineffective in helping landlocked countries?
Corruption means debt relief could just lead to more public funds available for the private gain of public officials
What is a savings gap and how could this refrain development and growth in a country?
What theorist relates to this?
The gap between how much someone saves in the bank and how much firms borrow to invest
- links to the Harrod-Domar model
- Low savings, lack of investment limiting growth
What strategy could be used to help prevent savings gaps?
Microfinance. This means that more money for smaller businesses to invest in capital goods. Higher productivity so higher incomes and therefore increased AD and tax revenues for growth
Why may microfinance schemes not be beneficial for improving savings gaps?
Microfinance lenders can charger very high interest rates which may lead to there being no extra income for firms
How may infant industries lead to a lack of development and growth?
This is when an industry is too small to yet benefit from economics of scale
Higher costs, higher prices, less international competitiveness. Less corp tax and less money for develpoment
What could be used to help infant industries?
- Protectionism which could reduce trade barriers and lowers costs such as Government subsidies into the infant industries which gives them more incomes to invest
- competitive devaluation makes imports cheaper and competitive
How may protectionism such as government subsidies refrain growth?
- Depends on the countries productivity and output and may also increase a countries debt.
Further may lead to a reduction in tax revenue gained from tariffs
Competitive devaluation may lead to a currency war where many countries devalue their currency which raises import prices
How may property rights be a constrain of development and growth?
Low investment because people have no property rights therefore cannot prove collateral in order to obtain loans. Many people have dead capital according to de soto
What strategy could be used to help improve growth and development in a country with no property rights?
Microfinances help very poor countries and don’t required collateral to be provided given it is hard to get these people property rights
- Building more banks
Why may microfinance schemes not work in the case of helping people with property rights?
- Some people may not want property rights to obtain loans but instead may want them for the protection of their belongings
- Some people may lack confidence in the banking sector
What is a foreign currency gap and how may this constrain growth and development?
When a country imports more than exports, more foreign currency flows out of the economy that comes in
This means that the there are more leakages flowing of the economy that into the economy and therefore, a fall in AD. limiting growth and development
What is one strategy that could be used to help with foreign currency gaps
Floating exchange rate systems.
- This means that countries will have to spend less of their currency reserves on managing the exchange rate and therefore they will have more available to spend on growth and development
Why might floating exchange rates not increase growth and development in countries?
Uncertainty in the economy may lead to less economic growth and development in an economy
What are primary products and why might they be a constraint to development?
Price, supply and income inelastic goods
price instability. small changes in quantity leads to large changes in the price level. Limits investors certainty to invest in industries.
What strategy could be used to help primary product dependency?
Buffer stock schemes
In high supply and low price, government buy some of the stock to reduce the supply and increase prices to average. In low supply, governments will sell some of the stuck to increase supply and lower prices
Suppliers would be more willing to invest and therefore increase growth and development
How can buffer stock schemes not be beneficial to a country and how may it limit economic growth and development?
May incentivise workers to increase the supply of the good because they know that the government will buy the excess supply
Why may the development of primary industries be bad?
- Over-dependence
- Prices are volatile
- Export prices will be cheap but import prices expensive - worsens TOT
Why are the removal of domestic subsidies bad?
They have a significant opportunity cost
Why is trade liberalisation good for the economy?
Cheaper imports means cheaper capital to be more efficient
Why may moving from a fixed to a floating exchange rate be beneficial?
- No need to hard large foreign currency reserves
- Can implement monetary policy as there is no fixed exchange rate to manage
- Automatic adjustment to external shocks instead of actively changing the ER
Why may privatisation be beneficial?
- Selling government assets raises finance
- Private sector are more efficient as they have a profit incentive
Why is the development of the tourism sector not beneficial?
- seasonal demand
- Damage natural resources
- Over-dependence
How is promoting joint ventures with global companies beneficial?
- Can export without high barriers to entry
- Develop knowledge through MNCs
- Attracts FDI
What are some examples of non-economic factors affecting growth and development?
Corruption, war, poor governance, geography and political instability
What are examples of demographic factors that influence development and growth?
Gender distribution, how many people of working age, population growth, age of population
The world bank main responsibilities
Handing out:
development loans and debt relief
Main responsibilities of the IMF?
- Ensuring policies in countries are running smoothly
- offering bailouts
What are NGOs main responsibilities?
- They offer specialist knowledge on more specific issues
What are the problems with NGOs
They have localised knowledge - asymmetric information
- They have lower budgets
- They may not have the presence like the world bank and IMF do
