Theme 4 emerging economics

Question 1

Sen’s definition of economic development

Answer 1

• the process of improving people’s well-being and quality of life, involving improvement in standards of living, reduction in poverty, improved health and education
• increased freedom and economic choice

Question 2

Todaro definition of economic development

Answer 2

• availability and distribution of life sustaining goods
• an increase in standards of living
• expansion and economic and social choices

Question 3

why is growth beneficial for development

Question 4

why is growth beneficial for development

Answer 4

1. higher incomes lead to more jobs
   - economic growth increases AD, prompting business to expand and hire more workers
   - this reduces unemployment, providing individuals with stable incomes and improving living standards
2. Higher Incomes Improve Quality of Life
   - Growth raises household incomes, enabling access to better housing, education, and healthcare.
   - This alleviates poverty and enhances human capital, contributing to a more productive workforce.
   - Reduced income inequality fosters social cohesion and stability.
3. Higher Profits Enable Technological Advancements
   - Businesses benefit from increased profits during economic growth, providing resources for R&D.
   - This encourages innovation and improves productivity, leading to better goods and services.
   - Technological advancements can address societal challenges like energy efficiency or healthcare.

Higher Profits Increase Employment Opportunities
- Profitable firms expand their operations, creating new jobs across various sectors.
- This diversifies the economy, reduces dependency on one industry, and stabilizes employment rates.
- More jobs contribute to economic stability and reduce reliance on government welfare programs.

Fiscal Dividend Boosts Public Spending
- Economic growth increases tax revenues without raising tax rates due to higher incomes and profits.
- Governments can invest these funds into critical sectors like healthcare, education, and infrastructure.
- Improved public services enhance social welfare and support long-term economic development.

Question 5

why might growth NOT be beneficial for economic development

Answer 5

1. No Guarantee of Progressive Income Distribution
   - Economic growth does not inherently ensure equitable income distribution.
   - Wealth may concentrate among the rich, exacerbating income inequality and social divides.
   - This limits the trickle-down effect, leaving marginalized groups behind in development progress.
2. Negative Externalities and Sustainability Issues
   - Growth often comes at the cost of environmental degradation, such as pollution and deforestation.
   - This undermines long-term sustainability and imposes health costs on populations.
   - Unsustainable growth harms future generations by depleting natural resources.
3. Growth in One Dominant Sector
   - Economic growth concentrated in a single sector, such as oil in Nigeria, can lead to resource dependency.
   - This limits economic diversification, making the country vulnerable to sector-specific shocks.
   - A lack of investment in other industries stifles balanced development and job creation.
4. Growth as a Necessary but Insufficient Measure of Development
   - GDP growth does not capture social indicators like healthcare access, education quality, or happiness.
   - Development requires inclusive policies that address inequality, infrastructure, and basic needs.
   - Focusing solely on growth may overlook human welfare and broader social objectives.

Question 6

characteristics of developing countries

Answer 6

• low standards of living due to low incomes, low job creation
• low levels of productivity due to lack of investment/capital
• low levels of saving, so hard to get out of poverty trap because of bad education
• high population growth
• primary sector dominance eg oil in nigeria
• incomplete markets
• high unemployment and underemployment
• low economic power on the international stage - eg have less of a say in wto

Question 7

what are single indicators

Answer 7

indicators that look at one thing in isolation

Question 8

single indicators of development

Answer 8

GDP/capita - outdated, GNI usually used more
Health measures
education measures

Question 9

what is gdp/capita

Answer 9

the average income per person in the economy
gdp/pop

Question 10

Advantages of Using GNI to Measure Development Rather than GDP Per Capita

Answer 10

1. Accounts for Income from Abroad
   - GNI includes net income from abroad (e.g., remittances, foreign investment returns), whereas GDP only reflects domestic production.
   - For countries with significant income from abroad (e.g., remittances in the Philippines), GNI provides a more accurate picture of national income.
   - This ensures that development assessments reflect all sources of income available to the population, not just domestic activity.
2. Better Indicator for Open Economies
   - Countries with high levels of cross-border trade or investment flows may experience distortions in GDP due to foreign-owned production.
   - GNI adjusts for these factors, subtracting income earned by foreign investors while adding income earned by nationals abroad.
   - This distinction makes GNI a more representative measure of the income available to a country’s residents.
3. Reflects Standards of Living More Accurately
   - GNI per capita captures the income actually available to individuals and households, as it includes transfers like remittances.
   - For nations where significant portions of the population rely on income from abroad (e.g., workers sending money back home), GNI better represents citizens’ purchasing power.
   - This can offer a clearer understanding of poverty levels and living standards.
4. Reveals Economic Dependency or Strength
   - GNI helps highlight a country’s reliance on foreign income sources or the outflow of income to foreign entities.
   - For example, a country with a high GDP but significant foreign profit repatriation may have a much lower GNI, indicating economic vulnerability.
   - This insight aids policymakers in designing strategies to reduce dependency and enhance sustainable development.
5. Allows for Comparisons Between Countries
   - Since GNI includes cross-border income, it enables fairer comparisons between countries with varying levels of global economic integration.
   - This is particularly useful for assessing development in globalized economies or small nations with limited domestic production but high external income.
   GDP, by contrast, may underestimate the economic well-being of such nations.

Stronger Link to Development Indicators
- GNI often correlates more closely with other development metrics, such as the Human Development Index (HDI).
- By accounting for income received from abroad, GNI aligns better with the resources individuals and governments can spend on education, healthcare, and infrastructure.
- This makes GNI a more comprehensive tool for measuring overall progress in development.

Question 11

what does what does GDP and GNI not tell us

Answer 11

how far money can go (use ppp for this)

Question 12

how do we make comparisons between countries development

Answer 12

• GDP/capita or GNI per capita is calculated for a currency
• that income is then converted that is accepted worldwide(eg US dollar)
• that allows us to make comparisons between GDP/capita or wealth

Question 13

disadvantages of GNI

Answer 13

1. Does Not Account for Income Distribution
   - GNI measures average income but does not reflect how income is distributed within a country.
   - A country with a high GNI may still have significant income inequality, with wealth concentrated among a small elite.
   - This limits GNI’s ability to provide insight into poverty levels and the standard of living for the majority of the population.
2. Excludes Non-Monetary Aspects of Development
   - GNI focuses purely on income and ignores non-monetary factors like access to education, healthcare, political freedom, and environmental sustainability.
   - This means GNI cannot capture the broader dimensions of development that affect well-being and quality of life.
   - For example, a country with a high GNI but poor public services may not be as developed as its income suggests.
3. Vulnerability to Exchange Rate Fluctuations
   - When GNI is measured in a common currency (e.g., USD), it can be distorted by changes in exchange rates.
   - Sudden currency devaluations can make a country’s GNI appear lower, even if its actual income levels have not changed.
   - This makes international comparisons less reliable, especially for developing countries with volatile currencies.
4. Ignores Informal Economy
   - In many developing countries, a significant portion of economic activity occurs in the informal sector, which is not captured in GNI statistics.
   - This can result in an underestimation of actual income and economic activity, particularly in low-income nations.
   - For example, subsistence farming or unregistered small businesses may contribute to livelihoods but are excluded from GNI measurements.
5. Fails to Reflect Regional Disparities
   - GNI provides a national average and does not account for significant differences in income and development across regions within a country.
   - For instance, urban areas may drive GNI growth, while rural areas remain underdeveloped and impoverished.
   - This can mask challenges faced by marginalized regions or communities.
6. Inclusion of Foreign Income May Be Misleading
   GNI includes income from abroad, which might not always benefit the wider population.
   For example, income from foreign investments may go to a small group of elites rather than being distributed widely.
   This can inflate GNI figures without genuinely improving the living standards of the majority.
7. Data Collection Challenges
   - Accurately measuring GNI relies on comprehensive data collection, which may be difficult in developing countries.
   - Poor record-keeping, lack of infrastructure, and informal economies can lead to unreliable or incomplete GNI statistics.
   - This reduces the accuracy and usefulness of GNI as a measure of development.
8. Short-Term Focus
   - GNI reflects current income levels but does not account for long-term sustainability or potential future growth.
   - Countries with high GNI today may be overexploiting resources, leading to unsustainable development that GNI does not reveal.
   - This limits its effectiveness in assessing sustainable development strategies.

Question 14

what is the multidimensional index

Answer 14

• measure the percentage of the population that is multidimensionally poor
• can highlight differences in richer countries that allow a portion of their population to not see the benefits of high GDP rates

Question 15

what is the genuine progress indicator

Answer 15

• calculated from 26 different countries
• grouped into 3 categories: economic, environmental and social
• co2 emissions are accounted for
• puts high negative value on loss of the natural environment

Question 16

advantages of the MPI

Answer 16

1. Captures Non-Income Dimensions of Poverty
   - The MPI considers factors beyond income, such as education, health, and living standards.
   - This provides a more comprehensive understanding of poverty and highlights areas requiring targeted interventions.
   - For example, a country with high GDP may still have poor healthcare or education systems, which the MPI can reveal.
2. Highlights Inequalities Within Countries
   - MPI can uncover disparities within countries, even in wealthier nations with high GDP.
   - It reveals the segments of the population that do not benefit from overall economic growth, such as marginalized communities or rural areas.
   - For example, in the United States, despite a high GDP, certain regions experience poor access to healthcare and education, which the MPI can capture.
3. Useful for Policy Targeting
   - By breaking poverty into specific dimensions, the MPI allows governments to design more precise policies.
   - For instance, if a region shows high deprivation in education but not in health, resources can be allocated more effectively.
   - This leads to better resource management and improved outcomes for the impoverished population.
4. Global Comparability
   - The MPI provides a standardized framework that allows comparisons of poverty across countries and regions.
   - This helps in assessing the effectiveness of poverty-reduction strategies and sharing best practices globally.
   - For example, countries with similar GDP per capita can have vastly different MPI scores, indicating different development priorities.
5. Tracks Progress Over Time
   - MPI enables governments and organizations to monitor progress in reducing poverty across multiple dimensions.
   - This offers a dynamic view of development, unlike static measures like GDP per capita.
   - For example, an improvement in education access can be tracked separately, even if income levels remain stagnant.
6. Identifies Overlapping Deprivations
   - Unlike single indicators, MPI shows where deprivations overlap, such as poor health and low education simultaneously.
   - This helps address the root causes of poverty rather than treating symptoms in isolation.
   - For example, improving sanitation could simultaneously enhance health and educational attendance

Question 17

disadvantages of MPI

Answer 17

1. Complexity and Data Requirements
   - The MPI relies on comprehensive data collection, which can be challenging in developing countries with weak statistical systems.
   - Incomplete or inaccurate data can lead to unreliable results, limiting its usefulness.
   - For example, rural areas with limited record-keeping may not provide accurate information on living conditions.
2. Difficulties in Interpretation
   - The composite nature of MPI makes it harder to interpret compared to single measures like income poverty.
   - Policymakers may find it challenging to prioritize interventions when faced with multiple dimensions of deprivation.
   - For instance, deciding whether to focus on healthcare or education first might not be straightforward.
3. Neglects Income as a Key Driver of Poverty
   - Although multidimensional, the MPI may underplay the significance of income in alleviating poverty.
   - Low income often underpins other deprivations, such as poor housing or inadequate access to education.
   - This could lead to policies that overlook income generation as a poverty-reduction strategy.
4. Does Not Fully Address Inequality
   - While the MPI highlights disparities, it does not measure inequality directly within each dimension.
   - For example, it might show average improvements in education but fail to reflect persistent gaps between urban and rural areas.
5. Limited Applicability in Richer Countries
   - The MPI may lose relevance in high-income nations where poverty is more nuanced and relative rather than absolute.
   - For instance, it might not capture issues like housing affordability or mental health challenges prevalent in developed economies.
6. May Overlook Regional Specificities
   - Global comparisons may obscure local cultural and contextual factors influencing poverty.
   - For example, deprivation in education may look similar across countries but have vastly different causes and solutions in rural India versus urban Brazil.
7. Static Snapshots
   - MPI often provides a snapshot of poverty at a particular time but may not fully capture how poverty evolves dynamically.
   - For example, seasonal variations in income or health shocks might not be reflected, limiting its real-time usefulness.

Question 18

advantages of genuine progress indicator

Answer 18

1. Incorporates Environmental Factors
   - GPI accounts for environmental costs, such as CO₂ emissions and resource depletion.
   - This provides a more holistic measure of progress, balancing economic growth with sustainability.
   - For example, a country with high GDP growth from industrialization but significant CO₂ emissions may score lower on GPI, reflecting the true cost of growth.
2. Considers Social and Economic Well-Being
   - Unlike GDP, GPI includes social factors like income distribution, volunteer work, and unpaid household labor.
   - This captures a broader picture of societal welfare and equity.
   - For instance, if a country invests in education or reduces income inequality, its GPI rises even if GDP remains unchanged.
3. Groups Development Into Categories
   - GPI segments development into clear categories, such as economic, social, and environmental well-being.
   - This allows policymakers to identify which areas require improvement rather than focusing solely on income.
   - For example, a high GPI score might result from strong social cohesion and low environmental degradation, even if GDP growth is moderate.
4. Highlights Sustainability
   - GPI encourages sustainable practices by penalizing activities that degrade the environment or deplete resources.
   - This aligns development goals with long-term ecological health.
   - For example, renewable energy investments would boost GPI, while heavy reliance on fossil fuels would lower it.
5. Tracks Net Progress
   - GPI subtracts negative externalities, such as pollution or crime, from economic outputs to calculate net progress.
   - This avoids the misleading overestimation of prosperity often associated with GDP.
   - For instance, economic activities like deforestation or industrial accidents would reduce GPI despite contributing to GDP.
6. Encourages Policy Balance
   - By integrating diverse metrics, GPI supports balanced policymaking across economic, social, and environmental dimensions.
   - For example, a government can track how increased healthcare spending affects long-term societal well-being rather than just short-term GDP growth.
7. Accounts for Quality of Growth
   - GPI focuses on the quality rather than the quantity of growth by emphasizing sustainable and equitable practices.
   - For instance, a country with moderate but equitable growth and low environmental impact might score higher on GPI than a country with rapid but unequal and unsustainable growth.
8. Highlights Hidden Costs of Economic Growth
   - GPI sheds light on the hidden costs of growth, such as mental health issues or loss of leisure time due to overwork.
   - This ensures a more comprehensive evaluation of how growth impacts quality of life.
   - For example, overburdened workforces contributing to high GDP might see their contribution devalued in GPI due to social stress factors.
9. Facilitates Global Comparisons
   - By standardizing environmental and social indicators, GPI provides a framework for comparing countries on broader measures of well-being.
   - For instance, countries with similar GDP per capita can be differentiated based on their environmental sustainability and income distribution.
10. Supports Public Awareness
    - GPI communicates complex trade-offs between growth and well-being to the public in an understandable way.
    - For example, a country experiencing declining GPI despite rising GDP might prompt public discourse on sustainability and equity.

Question 19

disadvantages of genuine progress indicator

Answer 19

1. Subjectivity and Bias in Measurement
   - GPI involves subjective judgments to assign monetary values to non-market activities (e.g., unpaid labor) and environmental degradation.
   - This can introduce biases, as different entities may prioritize or measure certain components differently.
   - For example, one country might undervalue CO₂ emissions or overvalue social contributions, skewing the index.
2. Difficulty in Data Collection
   - Many components of GPI, such as unpaid work or volunteer contributions, are hard to measure accurately.
   - This makes the index less reliable than straightforward economic indicators like GDP.
   - For instance, informal economies or unrecorded environmental costs might lead to under- or overestimation in GPI.
3. Complexity and Lack of Standardization
   - The multidimensional nature of GPI makes it complex to calculate, and there is no universally agreed-upon methodology.
   - This limits its comparability across countries and over time.
   - For example, one country might include certain social costs that another country excludes, leading to skewed comparisons.
4. Limited Policy Adoption
   - GPI is not as widely recognized or adopted as GDP, which reduces its influence on global policymaking.
   - Policymakers may prefer simpler and more established measures like GDP for economic analysis and decision-making.
   - For instance, international organizations often prioritize GDP growth when assessing economic health, sidelining GPI.
5. Potential for Manipulation
   - Governments may manipulate GPI by selectively prioritizing or neglecting certain components to inflate their scores.
   - This undermines its credibility as a genuine measure of progress.
   - For example, downplaying environmental degradation or overestimating social benefits could artificially boost GPI.
6. Challenges in Valuing Non-Market Activities
   - Assigning monetary values to non-market activities, such as household labor or community engagement, is inherently difficult.
   - This can lead to inaccuracies or disputes about the true value of these activities.
   - For instance, the economic value of caregiving might differ significantly depending on cultural or regional norms.
7. Lack of Focus on Immediate Economic Performance
   - GPI prioritizes long-term sustainability and well-being, which might downplay the importance of short-term economic performance.
   - This could mislead policymakers in addressing urgent economic issues like recessions or unemployment.
   - For example, a government might overlook immediate GDP growth needs in favor of policies that enhance GPI over decades.
8. Data Gaps in Developing Countries
   - Many developing countries lack the data infrastructure needed to measure GPI components accurately.
   - This makes it difficult to apply GPI universally as a global metric.
   - For instance, tracking environmental degradation or social cohesion in regions with limited statistical capacity can be problematic.
9. May Not Reflect Immediate Quality of Life Improvements
   - Short-term improvements in living standards from economic growth may not translate into immediate increases in GPI.
   - This disconnect might undervalue policies that boost income or employment in the short run.
   - For example, industrial expansion might temporarily improve living standards but reduce GPI due to environmental costs.