4.3 Emerging and Developing Economies Flashcards
(52 cards)
What three factors does the human development index account for and how is each factor measured?
Health - Average life expectancy at birth
Education- average schooling of a 25+ year old and the expected education a 5 year old would receive
Income- Real GNI per capita at purchasing power parity
How is the HDI measured?
Each of the factors is averaged and equally weighted and thus giving a number between 0 and 1, with 1 being maximum levels of development
What are the advantages of using HDI?
It is relatively easy to calculate as it uses dat5a the countries may already be collecting
It used three important metrics and weights them out evenly to give accurate measures
What are the disadvantages of using HDI?
It fails to account for the quality of life and thew quality of education and the applicability of education for example there could be very educated population but they could all be underemployed due to a deficiency in demand
It fails to account for income inequality
There are other factors which affect development more such as freedom of trade and other factors of production
What 11 factors affect growth and development?
Primary Product Dependency
Savings Gap
Foreign Currency Reserve Gaps
Volatility of Commodity Prices
Capital Flight
Debt
Infrastructure
Education
Demographic Factors
Access to credit and banking
Absence of property rights
What is the Prebisch Singer hypothesis?
The long term price of primary products depreciates more in proportion to manufactred goods, so countries dependent on primary products will see a fall in there terms of trade in the long term
What is the Dutch Disease?
This is where the price of one primary commodity an economy exports is increasing largely, causing a spike in the demand for the currency leading to the exchange rate strengthening, thus driving export prices up and the international competitiveness of all other goods falls and thus leads to a fall ion output of all other major sectors.
Who are winners and losers of the Dutch Disease?
Winners- Saudi Arabia with Oil
Loosers - Venezuela with oil
How does primary product dependency affect economic development?
It causes the Prebisch Singer hypothesis to be true and the Dutch Disease to be likely as well. Also, primary products are prone to natural disasters and are often farmed and utilized in a non renewable way so long term reliance may not be viable
Example of a country with primary product dependency?
Ghana with over 75% of their exports being primary products such as gold and cocoa
How does volatility of commodity prices affect economic development?
Due to extremely inelastic supply and demand for commodities, the price fluctuates a lot therefore the incomes of those reliant on the sale of such goods also fluctuates. This causes difficulty in planning out long term investment and leads to underdevelopment across the economy
What is a savings gap?
The difference between actual savings and the amount of saving required to achieve a higher growth rate.
How does a savings gaps affect economic development?
Harrod Domar Model
What is the Harrod-Domar model?
Low savings ratio leads to low levels of investment and therefore low savings leads to less investment (also contributed by weak and uncredible financial system), thus low capital stock which leads to less output and low incomes leads to a low savings ratio.
Application of a savings gaps?
Zambia has a savings ratio of over 50% but it is still primary product dependent and a GDP per capita of less than $4,000 adjusted for PPP.
Mali has a savings ratio of just over 10%, but in West Africa it is common to have savings in the form of gold, as it is a prominent part of West African culture, which this doesn’t take account of.
What is a foreign currency gap?
This is when a country exports relatively less than they import, therefore they have a lack of foreign currency to use for investment or purchase of goods overseas
Application of a foreign currency gap?
Ethiopia in 2018 had a debt to GDP ratio of 60% but they didn’t have enough foreign currency reserve to pay their debt
What is capital flight?
It is when there is a lack of confidence in the economic performance in an economy so large sums of foreign investment is withdrawn
Application of capital flight
Argentina financial crisis 2001
How does demographic factors affect development?
Developing countries tent to have higher population growth rates, and therefore if the population grows by 5% then the economy must also grow by 5% to maintain living standards but this is not often the case and can causes vast unemployment.
How does debt affect development?
Money that was going to be put towards public spending would have to be used to service the debt, and can also causes taxes to rise in order to pay the debt itself
How does access to credit and banking affect development?
No financial systems to lend money means that people are not able to take out loans to fun investment and may go to loan sharks instead who charge large amounts of interest
How does a lack of infrastructure affect development?
Lack of infrastructure can cause it hard for business to set up and have their goods and services mobile and able to be transported across the country thus limiting the amount they can produce and sell
How does education affect development?
A lack of education means the workforce is less skilled leading to lower productivity
