4.3 Emerging and Developing Economies (1) Flashcards
(52 cards)
1
Q
How is economic growth measured?
A
- by real GDP
- by productive potential of the country
2
Q
How is economic development measured?
A
- improvements in living standards
3
Q
Characteristics of a developed country?
A
- high GDP per head
- high levels of education and healthcare
- reliable and safe transport infrastructure and operations
- high productivity and investment
- likely to be de-industrialised, i.e. developed service sector
- governments are democratically elected, not corrupt
4
Q
Characteristics of developing country?
A
- lower GDP per head
- low levels of physical and human capital
- high levels of unemployment / underemployment
- low quality of health
- high mortality rates and birth rates
- institutional sectors are weak and corrupt
5
Q
What is HDI?
A
Measure of economic development
6
Q
How is HDI measured?
A
- life expectancy at birth
- mean years of schooling of adults ages 25+
- expected years of schooling of a current 5-year-old over lives
- real GNI per capita at purchasing power parity
- number between 0 to 1, greater number, greater level of development
7
Q
Advantages of HDI?
A
- takes into account three key factors which are important for the development of a country
- relatively easy to calculate since governments tend to collect statistics required
- allows for comparisons between countries over time, highlights trends in development
- can guide policymakers to identify areas of development that require attention
8
Q
Disadvantages of HDI?
A
- quality of life not taken into account
- quality and success of education not taken into account
- no consideration for the equality of income
- doesn’t take into account corruption or environmental quality
- regional disparities
- equal weighting of dimensions - may not reflect a country’s development priorities
9
Q
What is IHDI?
A
Measure of HDI that includes a fourth indicator of development: inequality
10
Q
What is the MPI?
A
(Multidimensional Poverty Index): measures the percentage of the population that is multidimensional poor
- highlights the countries where some areas are extremely rich but where most of the country is not and focuses on poverty
11
Q
The Genuine Progress indicator?
A
- calculated from 26 different indicators grouped into three main categories: economic, environmental and social.
- aims to look at economic sustainability
- tend to show developed countries experiencing negative growth over time due to their impact on the environment
12
Q
What is primary product dependency
A
when a country is dependent on primary product exports as its main source of revenue (agriculture, mining etc)
13
Q
Problems associated with primary product dependency?
A
- natural disasters can wipe out production of the primary product leaving farmers with no income
- primary products are often non-renewable
- tend to have low income elasticity of demand meaning as people get wealthier, they don’t increase the amount of primary products they buy
- Prebisch Singer hypothesis
- Dutch disease
14
Q
What is the Prebisch Singer hypothesis?
A
The long run price of primary goods declined in proportion to manufactured goods
- those dependent on primary exports will see a fall in their terms of trade
15
Q
What is Dutch disease?
A
- a country becomes a significant commodity producer in a short amount of time
- causes increase in demand for the currency (to allow people to buy the goods)
- pushes value of currency up
- increases export prices and reduces competitiveness of the economy
causes fall in output in other areas
16
Q
How can PPD be an advantage?
A
- using the revenue from exporting primary products to invest in manufacturing etc.
- Saudi Arabia has been able to do this for oil
- not all primary products have a low income elasticity of demand, like diamonds
17
Q
Why are commodities/primary products volatile?
A
Commodities tend to have inflation demand and supply, therefore small changes in demand or supply leads to huge fluctuations in price
18
Q
How can volatility of commodity prices impact countries?
A
- Large changes in price can make producers’ income and country’s earning to fluctuate
- can make it difficult to plan and carry out long term investment
- can cause poverty if incomes fall very rapidly
19
Q
Commodity volatility and investment?
A
If prices of commodities rise for a number of years, can lead to over-investment in the production of the commodity
- causes long-term risk when the price eventually falls
20
Q
What is a savings gap?
A
The difference between actual savings and the level of savings needed to achieve a higher growth rate
21
Q
Why do developing countries have a savings gap?
A
- lower incomes
- save less
- less money for banks to lend
- reduces borrowing
- reduces investment and consumption
22
Q
What is the Harrod-Domar model?
A
Increased savings => increased investment => higher capital stock => higher economic growth
23
Q
Issues with the Harrod-Domar model?
A
- developed countries have low MPS, so suffer from a persistent domestic savings gap
- many DC lack a sound financial system, so savings may not become funds available for firms to borrow and invest
- R&D needed to improve the capital/output ratio is often under-funded (market failure)
- borrowing from overseas to fill savings gap causes external debt problems later
24
Q
What is a foreign currency gap?
A
When a country’s imports exceed its foreign exchange services
25
What are foreign exchange reserves?
A collection of foreign currencies and other assets held by a country’s central bank or monetary authority.
26
Why do countries hold foreign currency reserves?
- to do international trade and payments
- for exchange rate stability
- financial crises
- investment
27
How do foreign exchange reserves facilitate international trade and payments?
- when a country’s imports exceed imports goods or services, they need to pay in foreign currencies
28
How do foreign exchange reserves facilitate exchange rate stability?
- if domestic currency is depreciating rapidly, the central bank can sell foreign currency from its reserves to buy back domestic currency
- prevents excessive volatility and stabilises value of domestic currency
29
How do foreign exchange reserves help in financial crises?
- provide a cushion in the form of stabilising the financial system, maintaining confidence and preventing currency collapses
30
How do foreign exchange reserves facilitate investment?
- some countries invest a portion of their forex reserves in safe and liquid assets denominated in foreign currencies
- generate income for the country
31
How do foreign exchange reserves help in a financial crisis?
- when currency devalues, use foreign reserves to buy domestic currency back
- therefore domestic currency is in demand, increases valuation
32
Hedging vs speculation?
Hedging => trying to reduce the risk of a loss as a result of volatile price change in a security
Speculation => to profit on the direction that the asset is thought to be going in
33
What is a security?
A tradeable financial asset
34
What is capital flight?
- when investors move assets out of a country due to unfavourable economic conditions
35
What demographic factors can impact economic growth?
- population growth
- age distribution
- workforce skills
36
How can population growth impact economic growth?
- increased migration can cause increased gov revenue, can allow for more productivity in skilled sectors (visas), however can cause downwards pressure wages for lower skilled sectors
- increased dependents (short term), can be a demographic dividend in the long term as young people become productive adults
37
How can debt levels impact economic growth?
High levels of debt can lead to debt servicing burdens, reducing resources for development
38
What can cause high levels of debt?
Structural unemployment
Economic restructuring
Ageing and care
39
How can structural unemployment cause high debt levels?
=> loss of manufacturing jobs due to globalisation (emerging countries take those instead)
=> leads to pool of workers without jobs
=> rely on social security payments
40
How can economic restructuring lead to high levels of debt?
=> high costs of regenerating formerly industrial areas
=> workers require retraining and re-skilling in tertiary sectors
41
How can ageing and care result in high levels of debt?
=> Care home, nursery care and pension costs are rising
=> Has to paid for by a shrinking working population in many European countries
42
How can access to credit and banking impact economic growth?
Limited access to credit and banking in LED’s
- can prevent investment and can lead to a savings gap since no one can save
43
How can infrastructure lead to economic growth?
- allows labour and capital to move freely inside and outside the economy
- can promote investments into the economy
- reduces the cost of production and transportation of goods and services
44
How can education and skills lead to economic growth?
- allows for innovation, productivity and economic diversification
45
How can property rights impact economic growth?
- weak property rights can deter investment as people lack security over their assets
46
Examples of non-economic factors that can impact economic growth?
- political stability
- corruption
- conflict
- health and education
- geography and climate
- environmental sustainability
47
How can political stability impact economic growth?
- attracts investment
- political instability can lead to more frequent switch of policies = volatility (shortens policymakers horizons)
48
How can governance and corruption impact economic growth.
- individuals will make decisions that maximise the bribes they receive rather than maximise development and outputs
- high levels of bureaucracy can be linked to corruption , which can deter new businesses and reduce output
49
How can conflict impact economic growth?
- civil wars cause high levels of poverty
- destruction of infrastructure
- can make rebuilding difficult
50
How can health and education impact economic growth?
=> education helps individuals develop skills and knowledge in important areas
=> enriches the labour pool and stimulates economic outputs
=> poor health can cause excess absences and prevention to work, also can increase caring responsibilities
=> poor health increases costs for the government (lost tax revenue, benefit payments, NHS costs)
51
How can geography and climate impact economic growth?
- countries that suffer from natural disasters can make it difficult for farmers to set up businesses
- agricultural productivity
- diseases
- proximity to markets, transport costs
52
How can environmental sustainability impact economic growth?
- job creation in new sectors
- reduced healthcare costs from improved air quality
