Y2 - Emerging and developing economies Flashcards
What are the measures of development?
HDI
- % access to clean water
- Energy consumption per person
- Degree of inequality
- Mobile phones per 1000 people
What are the advantages of HDI?
- Broader than GDP per capita
- According to UN = 3 most essential measurements
- Used for international comparison
- Shows development as a whole (not just social/economic)
Define HDI
A composite measure that consists of GDP per head (ppp), health (LE) and education (mean years of schooling at 25 and expected at 4)
What are the limitations of HDI?
- Too narrow = only 3 measures
- Only concerned with LT development outcomes
- Average measure = does not show development inequalities within a country
What are factors influencing growth and development?
- Savings gap
- Foreign currency gap
- Demographic factors/education/access to credit
- Debt
- Volatility of commodity prices/dependence on primary products
- Non-economic factors = poor governance/corruption etc
What are the issues with primary product dependency/volatile commodity prices?
- Price fluctuations (inelastic PED/PES) and revenue fluctuation
- Protectionism
- Shortage of domestic supply (all is exported)
- Falling terms of trade
- Finite supply of hard commodities
- Currency appreciation = demand for commodity = more demand for currency
What is the Prebisch-Singer hypothesis?
- Primary products have inelastic demand (more price fluctuation)
- Manufactured products have elastic demand (price rises with income faster than primary products)
= terms of trade for developing countries falls relative to developed countries
What is the evaluation of Prebisch-Singer hypothesis?
- Developing countries may have comparative advantage
- Real price of primary products might increase over time (more population/incomes)
- More FDI in primary product countries
What is the savings gap?
HARROD - FOMAR MODEL = shows how countries with low GDP has low savings ratio = difficult to finance investment = capital accumulation is limited = low output and low GDP
What is the evaluation of the savings gap?
- Only focusses on physical capital (not human)
- Assumes constant relationship between capital and output
- Savings gap could be filled by something else (such as FDI)
What is the foreign currency gap?
Shortage of foreign currency caused by:
- Dependency on primary products (low rev)
- Expensive to import oil/manufactured goods
- Interest payments on debt to foreign countries
- Capital flight (assets or money taken out of a country)
= insufficient foreign currency to buy imported capital goods needed to increase productive capacity
What is the evaluation on the foreign currency gap?
- LDCs could seek foreign aid/loans
- Other factors may be more important
How do demographic decrease development and growth?
- Thomas Malthus = famine inevitable because population grows geometrically but food grows arithmetically
- population grows > GDP
How does debt decrease development and growth?
CAUSES
- Dependant on primary products and falling terms of trade
- Developing countries borrow when low interest rates (cannot afford when interest rises)
- Currency depreciation (more burden)
How does credit/banking decrease development and growth?
Entrepreneurs need to borrow to start business = if not possible then growth is restricted
How does infrastructure decrease development and growth?
Physical and organisational structures required for society and enterprises
- Can deter FDI
How does education decrease development and growth?
- Low literacy = less education = low worker productivity and FDI deterred
What is the impact of non-economic factors for development?
Poor governance/instability
- Resources allocated inefficiently
- Likely to be gov failure (net welfare loss)
- Civil wars = expensive, destroy infrastructure, FDI deterred
Corruption:
- Higher business costs, less FDI, capital flight (= foreign currency gap)
What are the strategies influencing growth and development?
Market
Interventionist
Other
What are market orientated methods influencing growth and development? (6)
- Trade liberalisation (remove barriers)
- FDI promotion
- Remove gov subsidies (more competition)
- Floating exchange rate systems (more international competitiveness)
- Microfinance
- Privatisation
What are interventionist methods influencing growth and development? (5)
- Developing human capital (education)
- Protectionism
- Managed exchange rates (can engineer devaluation)
- Buffer stock schemes
- Joint ventures
Define buffer stock schemes
Aims to decrease price fluctuations and involves gov buying/selling stocks to maintain price
- Price floor and ceiling
What is the evaluation of buffer stock schemes?
- Floor price too high = surpluses
- Ceiling price too low = insufficient stock
- Costs of storage
- Not for all goods (perishable)
Define joint venture
Enterprise undertaken jointly by two or more firms which retain their distinct identities
- Foreign investor and local business join
What are the advantages/disadvantages of joint ventures?
Advantages: - Lower costs/risks - Less vulnerable to political instability Disadvantages: - Different interests (conflict) - Loss of expertise/technology control
List the ‘other strategies’ influencing growth and development
- Industrialisation (Lewis model)
- Tourism development
- Primary industries development (YED inelastic = comparative advantage = FDI)
- Fair trade
- Aid
- Debt relief
How does industrialisation increase development and growth?
- Shows transfer of labour from low-productivity agriculture to high-productivity industry
- MR = 0 = LDMR (0 opportunity cost)
- Higher savings ration = more investment
HOWEVER - TNCs profit repatriated to foreign owners
- Needs lots of FDI
- Depends on state of economy/level of education
- Negative externality to environment
How does tourism development increase development and growth?
- More foreign exchange and investment (more employment)
- More infrastructure (more tax rev)
HOWEVER - Worsens trade balance on BoP (more imports)
- Demand fluctuates with trade cycle
- Only seasonal employment
What are advantages and disadvantages of fair trade?
- Higher income (guaranteed
- More investment into education
- Only small investment
- Can lead to more supply = price falls
How does aid increase development and growth?
Transfer resources from one country to another
- Tied, bilateral or multilateral (from country through organisation)
What are advantages and disadvantages of aid?
- Less absolute poverty/global inequality
- Fill savings gap/foreign exchange gap
- More human capital
- Dependence/corruption
- Interest on loans (tied)
What are advantages and disadvantages of debt relief?
- More business confidence
- Less poverty/inequality
- More investment (positive multiplier)
- Long time to agree
- Moral hazard problem
- Adverse impact on financial institutions and shareholders in developed countries
What are the different international institutions promoting development and growth?
- World bank = poverty reduction (directed towards stable/trying countries)
- IMF = more liquidity and stability in capital markets (also temporary loans = 2008)
- NGOs = community-based development = sustainable growth/development
ALL DIFFERENT SCALES
