Chapter 9 - Economic Development Flashcards
What is economic development?
The process of improving individual well being and quality of life in an economy, including improvements in standards of living, aleviating poverty, improving health and education and increasing freedom and economic choice.
How can developing countries with access to a primary resource encourage growth?
Specialis in production and export of primary commodities like oil, gas, copper, etc -> high demand from developed countries and emerging markets -> developing countries can exploit comparative advantage where they have opportunity cost advnatage compared to other countries -> boosting export revenue -> boosting (x-m) -> boosting AD -> growth -> using revenue generated to purchase imports
What are the Pros of using growth to acheive development for developing coutries? 3
1) Income Growth;
GNI/capita will rise -> basi life sustaining goods become more affordable -> lifting people out of poverty -> improving material standards of living -> improve job prospects as labour is derived demand -> reducing unemployment -> increasing productive potential of economy -> possible improvement in income distribution with gini coefficient moving toward 0
2) Profits for firms -> investment
Increased revneu and profits for domestic firms in developing countries -> demand for primary commodities is driven by booming emerging markets such as China -> firms can afford clean tech nad reduce level of enviromental pollution and resource delpetion -> sustainable economic growth -> reduced negative externalities -> improved productive capacity of economy as a result of investment in new capital boosting long term sustainable growth ->enabling further increases in AD and per capita income growth
ALSO profits -> further investment -> diversification -> supporting long term economic growth -> breaking resource curse -> preventing unbalance growht and over specialisation -> can generate further incomes and profits in future promoting development overtime
3) Fiscal Dividend
Increase in net exports -> incomes, output and expenditure rise -> increased income tax, VAT, cooporation tax -> GOv spending on infra -> health and edu -> improving literacy rates and life expectancy levels -> areas of economic development -> infra like roads and bridges -> reducing transport costs for firms -> imporving efficiency -> reducing prices / allowing businesses to access more areas
What are the cons of growth and development for developing countries? 4
1) Income inequality
Corrupt gov -> profits from exploitation of pimaru commodity tends to be kept by elite in society -> millions see no significant improvement at all in living standards -> capita incomes have not increased with GDP -> those working in agriculture sector are stuck in poverty trap.
CAN BE TACKLED WITH FISCAL POLICY; changes in Gov spending and taxation I.E increasing coorp tax to then redistribute incomes, but is unlikely due to corruption in these countries -> income inequality persists as natural resources are exploited with no economic transitions into diversification
2) Negative externalties
USE IN PRODUCTION DIAGRAM, EXPLAIN
Depeltion of naural resources, excessive pollution, deforestation, loss of biodiversity -> When resource depletion occurs ->converterd from resource rich to resource poor country -> declined export earnings -> deteriorating public finances -> cutting off major area of economic development, GOv spending
3) Government corruption
I.E using tax money for inefficient pruposes such as politca oppresion, pocketing the money themselves, or promoting activity in their own political self-interest
-> no key development areas promoted, divide between rich elite and rest of society -> gov failure and misallocation of resources
4) Inflation
Uncontrolled and unbalanced growth from demand side -> high demand pull inflation -> more pressure BLAH BLAH ->consequently poverty can persist as pruchasing power of individuals falls if incomes do not rise in line with infaltion -> reducing their ability to imrpove material and non material standards of living
What are the evaluation points for growth and development in a developing country?
1) Growth should be sustainable
-Future generations should benefit and experience same growth and development as current generations -> NO excessive infaltioanry pressure -> NO significant enviromental costs, no risk of resource depletion. How is this achieved?
-Effective enviromental policies
-Persistent supply side policies to increase LRAS to reduce risk of inflation, also promoting diversification
2) Movement towards better and more efficient government
For true ssutainable development to be achieved -> moer transparency, accountability to tax payer and more effective public spending -> IF NOT high governance corruption results to Gov failure and hindered benefits of economic development
3) Strong role for gov
In short term while demand is booming = effecient tax system, w/o corruption
Long term, sustaining comparative advantage = Taxing/fining firms who are over extracting
Long term, diversifying = Subsidising firms aiming to manufacture goods and compete in secondary sector / promoting training schemes
What are the single measures of development?
GDP/Capita
What are the pros of using real GDP/Capita to measure development? (1)
1) International benchmark to evaluate standards of living
Rise in GDP/capita is indicative of rise in living standards for all and if this has been trend overtime, indicative of economic prosperity -> link can be made to income equality and poverty alleviation. Comparisons can be made between countriews
What are the cons of using real GDP/Capita to measure development? 7
1) Single measure
Only measure income, wheras development compromises of far more than just higher incomes;
Health and education, infra, the enviroment, gender equality, freedom
2) ONly accounts for quantity of output, not quality
negative externalities in production not counted; air pollution, resource depletion, degradation, deforestation -> this reduces development and is not counted
3) No info regarding distribution of income
Incerases in real GDP/Capita may only benefit small elite part of population; growth generated from one dominant sector / growth being capital intensive with money going to owners of capital / corrupt governance preventing redistribution
4) Nominal exchange rates not real exchnage rates
As GDP is usually converted into USD, then the PPP of the domestic currency is not accounted for, meaning a small rise in GDP in terms of dollars may actually by a large rise in purchasing power for consumers in domestic country
5) Informal economy
Not accounted for, official GDP/capita will be inacurate
6) Remitance income not accounted for
7) Profit from MNCs is accounted for but will not be spent domestically
CAN USE GNI/capita INSTEAD FOR 6 and 7
What is the Human Development Index?
The Human Development Index (HDI) is a tool developed by the United Nations to measure and rank countries’ levels of social and economic development, taking into account multipal measures of development ; Incomes, school and health progress.
What are the indicators that make up HDI?
Life expectancy at birth
Mean years of schooling + expected yeards of schooling
GNI per Capita, in PPP terms
What are the Pros of using the HDI to measure development? 4
1) More encompassing and broader measures of development
GNI/Capita is included, but aswell as other elements
2) HDI purely focuses on development outcomes
GNI/Capita may not always translate into development due to corrupt governance, capital intensive production or one sector dominance.
HDI sees whether growth has lead to improved schooling and healthcare
3) Allows for measured development progress overtime
Countries can meaningfully track their development progrss from year to year, enabling judgements to be made over policies used and effectivenss of governments
4) Indicated where development progress may need to be concentrated
Breakdown of HDI shows where development proges may be lacking, allowing for effective implementation of relative policies
What are the cons/evaluation for using the HDI to measure development?
1) Does not account for income inequality
For example the rates of development between rural and urban areas can not be differentiated, therefore income ineqaulity may be persistent despite rises in HDI.
HOWEVER an income inequality adjusted HDI can be used
2) Incomes, schooling and healthcare are weighted equally
This can be argued to be inacutare, may make it harder to allocate funds effciently to the correct areas
3) Only including 3 areas of developemtn could be argued to be narrow
Development also includes; freedom, gender equality, infrastructure, poverty alleviation and a clean enviroment
EVAL = Given above limitations, HDI should be used as indicator of developemnt ALONGSIDE other such as ‘Global Competitiveness INdex’, ‘Gini Coefficient’, ‘GLobal Poverty Index’
What are the sources of develoment for an economy? 6
Education = Directly improving several development indicators such as adult literacy, school enrollement rates, mean years of schooling
Healthcare = Improving health indicators such as life expectancy at birth, infant mortality rates, a fundamental indicator of development given the links to productivity, incomes and quality of life
Infrastructure = Essential facilities and services for economic activity to take place such as roads, airports, power lines, sewage treatment, water systems etc… -> Transport infra = easier to access jobs, education, hospitals and busienss to export -> also reduces costs of production
Political Stability = A stable, accountable and transparent government free of corruption can increase economic growth, reduce income inequality, and promote development outcomes -> confidence in governments promotes FDI, domestic investment, lending to Gov at lower rates, aid money in economy
Taxation = Fundamental for three pillars of development to flourish; infrastructure, education and healthcare
Financial Institutions = Important for long-term sustainable development -> individuals can save, entrepreneurs can access loans -> grow small businesses -> boost employment, fiscal intake blah blah
What are the barriers to education for development? 3
use better words
1) Funding
Indebted governments in developing countires lack the necessary funds to provide universal education free / at an affordable price -> reducing access to and availability of schools -> even where they do exits, quality of education can be low
2) Income inequality
Rural households w lower incomes than their urban counterparts may not be able to afford education -> given problem of funding education is often privatised -> under developed transport infrastructure can make it hard to actually access the schools
3) Culture of child labour
Low income households, especially in rural areas, promote a work over education attitude as the cost of having children can be expsenive for families, therfore pushing their children to work at a young age to provide -> undecuated parents do not fully understand benefits of education -> tapping family in long term poverty cycle -> also due to gender inequality in many developing countries girls are either not allowed / or very rarerly pushed into education
What are the barriers to healthcare for development? 2
1) Funding
Indebted governments in developing countires lack the necessary funds to provide universal healthcare free / at an affordable price -> reducing access to and availability of hopsitals -> even where they do exits, quality of healthcare can be low
2) Income inequality
Rural households w lower incomes than their urban counterparts may not be able to afford healthcare -> given problem of funding healthcare is often privatised -> under developed transport infrastructure can make it hard to actually access the hospitals
What are the barriers to infrastructure for development?
more detail, explain why
1) Funding
Indebted governments in developing counrties lack the necessary funds to provide adequate infrastructure projects that are hugely expensive -> tax revenue is limited due to corruption, inefficient tax collection, tax incentives or underdeveopled systems to monitor tax evasion -> innoativ approaches to funding are needed such as Public Private Partenership
What are the barriers to political stbaility for development?
1) Government conflict and corruption
I.E using tax money for inefficient purposes such as politcal oppression, pocketing the money for themselves in hidden international bank accounts, promting activity in their own self-interest.
Not only will key deveoplemtn pillars not be met, there also be less FDI as their is a lack of confidence in the gov
What are the barriers to taxation for development? 4
1) Tax emptions
To attract FDI and to persuade domestic producers to remain producing in economy, alot of the time governemtns have to offer tax inscentives, reducing fiscal intake
2) Corrupt governance
I.E using tax money for inefficient purposes such as politcal oppression, pocketing the money for themselves in hidden international bank accounts, promting activity in their own self-interest.
3) Inefficient government
In the form of inefficeint tax sytems, ways of monitoring tax avoidance as cash is dominant in developing cuontries rather than onlikne banking
4) Greater role of WTO
has led to reductions in Tariffs and thus tariff revenues -> heavily impacting developing countries that are large importers -> tariff revenues are easy to collect and generate large sums of money
