4.3 emerging and developing economies

Question 1

what is econmic development about

Answer 1

improvement in living standards

Question 2

what is a developed country

Answer 2

one with a high GDP per head and tends to be thought of as Western. high levels of education and healthcare, reliable and safe transport infrastructure and operations and high productivity and investment.

Question 3

what is a developing country

Answer 3

one with a lower GDP per head, low levels of physical health and human capital and high levels of unemployment and underemployment. heath tends to be low with high mortality rates and high levels of population growth, due to high birth rates

Question 4

what is the human development index

Answer 4

HDI is a measure of economic development calculated by the UN. It is a composite index based on three factors:

health as measured by life expectancy at birth

education as measured by the mean years of scooling of a current 5 year old over their lvies

inccome as measured by real GNI per capita at PPP.

Question 5

advantages of HDI

Answer 5

It takes into account three key factors which are important for the development of a
country.

It is relatively easy to calculate because governments tend to collect the statistics
used in the data.

Question 6

disadvantages of HDI

Answer 6

However, there are some issues with the figures : health takes no notice of the quality of life that people enjoy and education doesn’t take into account the quality and success of education.

no consideration for the equality of income

Also, there are other factors which affect development, for example freedom from corruption or the environment.

Question 7

what is the inequality-adjusted HDI

Answer 7

This is an adjustment of HDI which includes a fourth indicator of development: inequality. The Atkinson Index adjusts measures for education, health and income according to the level of inequality. It is broader than HDI but can still be criticised for not taking into account more measures and quality.

Question 8

what is the multidimension poverty index

Answer 8

This measures the percentage of the population that is multidimensional poor . It
uses data for health, education and standard of living but uses a broader range of indicators within these categories

It highlights the countries where some areas are extremely rich but where most of the population is not and focuses on poverty .

Question 9

downside of the MPI

Answer 9

cannot be calculated for all countries as the datra is not always available.

Question 10

what is the genuine progress indicator

Answer 10

It is calculated from 26 different indicators grouped into three main categories: economic, environmental and social . It aims to look at economic sustainability, to ensure development does not limit the amount produced and consumed in the
future.

Question 11

list of economic factors influencing growth and development

Answer 11

primary produt dependency

volatility of commodity prices

savings gap

foreign currency gap

capital fight

democraphic factors

debt

access to credit and banking

infrastructure

education / skills

absence of property rights

Question 12

primary product dependency as an economic factor influencing growth and development

Answer 12

Primary products include agriculture, mining etc. A large amount of most developing country’s economic activity is based on a primary product.

Natural disasters can wipe out production of the primary product and so means that farmers are left with no income. They are often non-renewable, which means the country will suffer when they run out of the product.

They tend to have a low-income elasticity of demand , which means as people get wealthier, they don’t continue to increase the amount of primary products they buy whereas they are likely to increase their demand for manufactured goods.

Question 13

volatility of commodity prices as an economic factor influencing growth and development

Answer 13

Primary products tend to have inelastic demand and supply curves which means relatively small changes in demand or supply leads to huge fluctuations in price.

These large changes in price mean that producers’ income and the country’s
earnings are also rapidly fluctuating, making it difficult to plan and carry out long term investment as well as meaning that producers can see their income fall very rapidly, causing poverty.

Question 14

savings gaps as an economic factor influencing growth and development

Answer 14

Developing countries have lower incomes and thus they save less. This means there is less money for banks to lend, reducing borrowing and thus reducing investment /consumption. A savings gap is the difference between actual savings and the level of savings needed to achieve a higher growth rate

India is a country with a low savings as a share of GDP.

Question 15

foreign currency gap as an economic factor influencing growth and development

example

Answer 15

This is when exports from a developing country are too low compared to imports to finance the purchase of investment or other goods from overseas required for faster economic growth.

Ethiopia. In 2018, public debt was around 60%
of GDP; most of it in foreign currency so it is possible that they will not have enough foreign currency to repay their debt. It is thought there are only enough currency
reserves to pay for a month of imports

Question 16

capital flight as an economic factor influencing growth and development

Answer 16

Large amounts of money are taken out of the country , rather than being left there for people to borrow and invest. If money was placed in banks within the country,
then credit could be created by banks for consumers and businesses to spend

This can occur because of lack of confidence in the country’s stability, to hide it from government authorities or simply for profit repatriation.

caused argentina economic crisis in 2001.

Question 17

democratic factors as an economic factor influencing growth and development

Answer 17

Developing countries tend to have higher population growth, which limits
development. If population grows by 5%, the economy needs to grow by 5% to even maintain living standards. This means developing countries need to have higher rates of growth to develop than more developed countries would do.

The high population growth is caused by high birth rates, which increases the number of dependents within a country but does not immediately increase those of working age. It places strains on the education system and leads to youth unemployment

Question 18

debt as an economic factor influencing growth and development

example of high debt country

Answer 18

During the 1970s and 1980s, developing countries received vast loans from banks in
the developed world. Now, they suffer from high levels of interest repayment ;
sometimes even higher than the loans and aid they receive from developed
countries, meaning money is flowing from developing to developed countries.

This means they have less money to spend on services for their population and
they may need to raise taxes, which limits growth and development.

nigeria debt 52% of GDP.

Question 19

access to credit and banking as an economic factor influencing growth and development

Answer 19

Developing countries have limited access to credit and banking compared to
developed countries, who have complex systems. This means those in developing countries cannot access funds for investment and they struggle to save for the
future.

Some families may use loan sharks, who give high interest rates and leave
individuals permanently in debt.

Question 20

as an economic factor influencing growth and development

Question 21

infrastructure as an economic factor influencing growth and development

Answer 21

in a developed country, there is a complex network of buildings, roads, ports,
railways, airports, utilities and electricity cables

oppositte in developing countries

Low levels of infrastructure make it hard for businesses to trade and set up within the country, for example if there are a lack of roads. It makes their services and
production less reliable.

Question 22

education and skills as an economic factor influencing growth and development

Answer 22

Poor education within these countries means that workers are low skilled, sometimes unable to read and write, so have low levels of productivity.

Countries like China and South Korea invested heavily in their human capital when they were developing, and this has benefitted them in the long term. Ethiopia suffers from high illiteracy rates at around only 49%.

Question 23

what is the harrod-domar model

Answer 23

The Harrod-Domar model suggests savings provide the funds which are borrowed for investment purposes and that growth rates depend on the level of saving and the productivity of investment. It concludes that economic growth depends on the amount of labour and capital and that developing countries have a vast labour supply, so their problems are caused by capital. In order to improve capital, investment is
necessary and investment requires savings.

Question 24

problems with the harrod-domar model

Answer 24

. Economic growth is not the same as economic development. It is difficult for individuals to save when they have little
income and borrowing from overseas causes problems with debt. It is possible that investment could be wasted

Question 25

non economic factors influencing growth and development

Answer 25

Many developing countries suffer from corruption. Corruption means individuals will make decisions which maximise the bribes they receive as oppose to those which maximise development and output. Leaders are likely to make decisions which benefit themselves rather than benefiting the economy. Diseases such as HIV/AIDS and malaria have negative impact on economic growth. Countries with poor climates and geographical terrain may suffer from natural disasters and it may be difficult for farmers or to set up businesses. civil wars.

Question 26

trade liberalisation as a strategy to influence growth and development

Answer 26

Countries can aim for export led-growth Removing trade barriers will mean that domestic industries either close or are forced to become as efficient as other world producers. Resources will be allocated to their best use where the country has a comparative advantage.

Question 27

promotion of FDI as a strategy to influence growth and development

Answer 27

FDI is investment by one private sector company in one country into another private sector company in another . It includes direct acquisition of a foreign firm, construction of a facility, investment in a joint venture with a local firm or licensing of intellectual property. Firms tend to undertake FDI because production costs are lower in developing countries and because it enables them access to a new market. It is different from a loan because if the investment fails, it is the company who has to deal with it and the country does not owe money to foreigners. also creatres jobs and can help fill the savings gap.

Question 28

downside to fdi as a strategy to influence growth and development

Answer 28

repatriation of profits and developing countries may find the company exploits them, by offering lower wages and poorer conditions than they would in a developed country The country will also lose some sovereignty and become dependent on another firm. Local competition may find it hard to set up and compete and the best jobs often go to imported labour, leaving only low skilled jobs for locals. Environmental damage and exploitation of natural resources and tend to become problems.

Question 29

removal of government subsidies as a strategy to influence growth and development

Answer 29

They can be an effective way of minimising absolute poverty and ensuring a minimum standard of living but they create many problems. They are often poorly targeted since subsidies on basic goods like rice will benefit everyone in the country, not just the poor Subsidies to farmers and producers tend to lead to inefficiency and if they are given a large amount over a long period of time, the subsidy becomes ineffective in increasing development

Question 30

floating exchange rates as a strategy to influence growth and development

Answer 30

In these systems, market forces determine the currency. The country does not have to worry about their gold and foreign currency reserves and the government does not intervene.

Question 31

downside to floating exchange rates as a strategy to influence growth and development

Answer 31

However, there are problems with this. It means that the currency can be volatile which makes it difficult for exporters/importers to make decisions about the future and can cause large changes in macroeconomic variables, including economic growth.

Question 32

privatisation as a strategy to influence growth and development

Answer 32

Privatisation can end the corruption within a firm who is owned by the state, as well as encouraging them to be more efficient by increasing competition. Selling off a firm, particularly if it is loss making, will improve government finances and reduce levels of debt.

Question 33

development of human capital as an interventionist strategy to influence growth and development

Answer 33

This would provide workers with skills and training and thus help them to be more efficient and improve productivity Human capital could be developed through schools or vocational training, whether this be apprenticeships or simply classes provided for business people. Higher skills would allow the country to develop from the primary sector to a manufacturing sector, overcoming primary product dependency. Better education also improves quality of life.

Question 34

protectionism as an interventionist strategy to influence growth and development

Answer 34

Protectionism allows domestic industries to grow by keeping foreign goods out and protects them from strong competition. This will create jobs in the short run and will allow the industry to develop, perhaps to the extent where the barriers can be removed , and the industry can compete globally

Question 35

downside to protectionism as an interventionist strategy to influence growth and development

Answer 35

lose out from the benefits of specialisation and comparative advantage and could cause inefficiency, since domestic producers suffer from a lack of competition. Other countries are likely to retaliate.

Question 36

managed exchange rates as an interventionist strategy to influence growth and development

Answer 36

The currency could be fixed against a number of different exchange rates . They can introduce high exchange rates for the import of essential products and lower exchange rates for others. There could be an even lower one for exports. A high exchange rate for essential products will mean that the price within the country is low, which helps to reduce poverty if the goods are consumer goods and encourages investment if they are capital goods. A lower exchange rate for other imports will mean that the price of these goods within the country is higher, discouraging their import and encouraging consumers to buy from domestic producers.

Question 37

downside of managed exchange rates as an interventionist strategy to influence growth and development

Answer 37

The problem with these tiered exchange rates is that they often fail to work in practice; black markets in foreign exchange develop which can destabilise the system and corruption becomes an issue, when government officials buy currency at one exchange rate and sell it for profit at another

Question 38

infrastructure development as an interventionist strategy to influence growth and development

Answer 38

Infrastructure is essential for development ; a country needs roads, airports, schools, hospitals, railways etc. Infrastructure tends to suffer from the free rider problem and has very high capital costs , making it unlikely the private sector will develop it. Moreover, it has many positive social benefits which suggests the government should provide it.

Question 39

downside to infrastructure development as an interventionist strategy to influence growth and development

Answer 39

the government may not have the funds to provide the infrastructure and it is argued that they may be inefficient. Infrastructure projects are often associated with bribery and corruption , cause environmental damage and may be poorly built and maintained.

Question 40

industrialisation to influence growth and development

Answer 40

the lewis model suggested that the modern industrial sector would attract workers from rural areas by offering higher wages. Lewis believed that labour productivity was so low in agricultural areas that people leaving the area would have no impact on output and would in fact mean there was a surplus of food, since the same amount was being shared amongst less people. Those who moved to the urban areas would have higher incomes and thus more savings for investment. believed savings and investment were the key to growth and thus growth could be achieved through rural-to-urban migration. It can be argued that industrialisation is a result of development , rather than a cause.

Question 41

development of tourism as a method to influence growth and development also the effects (positive)

Answer 41

countries can take advantage of their climate and geography and develop a tourist industry. the Caribbean. This provides them with the funds to develop their economy and improve living standard Tourists represent a source of foreign currency, which will fill the currency gap. so countries will be able to fund their imports without negative consequences. Countries are likely to attract investment from transnational hotel companies, who will also bring knowledge with them. It can help to fund improvements in infrastructure, as tourism requires reliable electricity, airports, clean water etc. and so the government have an incentive to provide this. Jobs are created locally since the tourism industry relies on low skilled workers who know the local area, rather than to high skilled workers which may be sourced from abroad The government will see higher tax revenues due to higher income and higher profits.

Question 42

counter argument to tourism as a way to growth and develop

Answer 42

However, the industry is seasonal and involves low skilled, low paid jobs which means the effect of the multiplier is limited. Tourism destinations can go in and out of fashion , meaning some areas will see a loss of employment and that investment may only receive a short-term return.

Question 43

info on the world bank

Answer 43

founded at the Bretton woods conference after the second world war. aims to bring about long-term development and a reduction in poverty. made up of many smaller institutions including the international finance corporation and the international development association. the world bank has funded over 12k development projects since 1947 through interest free loans and grants and supports long term human and social development.

Question 44

info on the IMF

Answer 44

the IMF was set up in the Bretton Woods Conference but it was not set up to promote economic development, instead to ensure that exchange rate systems work well. They provide loans to help countries when there are international exchange rate crises or when they cannot afford to pay off their international debt. When providing loans, the IMF insists that countries make macroeconomic reforms to resolve the problems The IMF also provides advice which aims to bring about economic stability and raise living standards and help countries to develop their economic institutions through training and technical assistance

Question 45

info on NGO's

Answer 45

These are non-profit organisations that are run independently from the government. they can provide direct assistance to countries in the form of project work, for example Oxfam or CAFOD they can act as pressure groups to lobby governments to adopt more pro-development strategies.

Question 46

downside of NGO's

Answer 46

it is believed that they alone can never solve the problem, it is the government who has to fix the issues. many see them as having an anti-capitalist agenda which blames problems on the World Bank, the IMF and the WTO. This causes divisions in the development project and is also an issue since past experience suggests global capitalism is the best system for development.