4.3 emerging and devloping economies Flashcards
(6 cards)
4.3.1 Measures of development
what is the HDI a measure of
what 3 factors make up the hdi, how i seach measured
what are 2 advantages of the hdi
what are 2 disadvantage of the hdi
what are 2 other indicators, and what do they measure
-the hdi is a measuere of economic development
-health- life expectancy
-education- mean years of schooling
-income-real GNI per capita
-it takes into account 3 key factors which are important for the devlopment if a country
-it is relatively easy to calculate because governments tend to collect the statistics used in the data
-no consideration for the equality of income
-some issues with the figures, as they health does not take the qwuality of life into account and education doesnt take into account the quality and success of education
-the IHDI, the inequality-adjusted Human Development Index. the IHDI is an adjustment of the HDI, which includes inequality. It is broader than the HDI, but still receives criticism for not taking into account more measures.
-the MPI, the multidimensional poverty index measures the percentage of the population that is multidimensional poor. uses data of heakth, education and standard of living, e.g uses years of schooling to measure education. It highlights the disparity between the wealthy and poor within a coutry, focuses on poverty. Cannot be calculated for all countries as the data is not always available.
4.3.2 Factors influencing growth and development
what are the 11 factors which influence growth and development
what are 3 non-economic factors which influence growth and development
economic factors:
-primary product dependency
-savings gap
-volatility of commodity prices
-capital flight
-absence of property rights
-foreign currency gap
-infrastructure
-skills/health/education
-debt
-access to credit and banking
-demographic factors
non-economic factors:
-corruption
-high levels of bureaucracy
-disease
4.3.2 Factors influencing growth and development
what are the 11 factors which influence growth and development, explain each one and how they influence growth and devlopment
what are 3 non-economic factors which influence growth and development, explain each one and how they influence growth and devlopment
economic factors:
-Primary Product Dependency:
-mainly refers to developing economies.Primary products are depemdent on weather conditions, natural disatsters and climate change can wipe out production of the primary product and depletes stock completely
-Primary products also tend to have a low-income elasticity of demand, meaning that as peoples incomes increase, they don’t buy more of the product - unlike the YED for manufactured goods (this can be linked to the Prebisch Singer hypothesis - this suggests that the long runprice of primary products declines in proportion to manufactured goods).This means that those economies who specialise in the prodcution of primary products will see a fall in their terms of trade. However, this is not the case for all PP, like diamonds.
-Primary product dependency can also lead to the issue of Dutch disease.This is when an economy becomes a large producer of a primary product in a short time period, this causes the demand for their curreny to increase as there is increased demand for the currency to purhcase the primary product. This then causes an appreciation of the currency, causing the price of exports to increase, making the country less internationally competitive
-Capital Flight:
-capital flight refers to the large-scale movement of financial assets or capital out of a country.
-causes include: high inflation, high taxes
-capital flight can lead to a depreciation of the currency, this is due to many firms selling domestic assets. Ths depreciation may trigger the government to deplete the foreign echange reserves in an attempt to stabilise the currency. they would sell their foreign currency reserves to buy back their own currency, increasing the demand for the currency, thus increasing the price and negating the effects of the depreciation
-capital flight can lead to less investment into the economy,thus reducing economic growth, as there will be a decrease in both C+I. May also reduce business confidence further, further incentivising capital flight.
-Savings Gap
-a situation where a country’s low savings rate is insufficient to finance investment, limiting economic growth
- a savings gap is caused by a low saving rate in a country (typically developing). savings are needed to fund capital investment. If people save less, there is less money for banks to loan to firms to use to reinvest back into the firm. This is likely to not increase the productive capacity within the economy. Causing a country’s growth to either stagnate or decline.
-This can be linked to the harrod-domar model as it shows how people’s savings provide the funds which are borrowed for investment purposes. also suggests that growth rates depend on the level of saving and the productivity of investment. one criticism of the model is that the investment could be wasted (e.g corruption may lead to the misallocation of resources)
-Access To Credit and Banking
-access to credit and banking is important for develpment as it determines the funds for investment, developed countries have better access to banking, meaning that it is easier to borrow money and invest
-foreign currency gap
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 economic growth
-education/skills/health
-poor education leads to low skilled workers, which may be unable to read/write, reducing productivity. They are also limited to primary/secondary sector jobs, which have relatively low incomes, and the goods sell for a relatively low price, reducing economic growth.
-infrastructure
-better/ high levels of infrastructure make it hard for businesses to tradeand setup within a country, this may reduce FDI and the LRAS.
-however, the development of infrastructure carries a great opportunity cost as it is expensive and can take a long time to set up.
-volatility of commodity prices
-primary products tend to have inelastic demand and supply curves, this means that small changes in demand and supply lead to a large fluctuations in price. The inelastic supply means that, producers cannot quickly increase supply to meet demand, spiking prices higher.
-these fluctuations in the price of commodities means that farmer’s incomes and the country’s earnings are also fluctuating. This discourages investment, as firms are uncertain of future levels of output.
-debt
-during the 1970-80s many developing country’s took out many loans that helped them develop. now they suffer from high levels of interest repayments, sometims exceeding the initial loan.
-this means that the developing countries have less money to spend on services for their population, and may need to raise finance to repay the loas - higher taxes, which may deter development.
-demographic factors
-developing countries tend to have high, growing populations, this is bad for the economy as it increase the amount of dependents in the country, potentially increase government spending on welfare patyments. they may also need to improve and expand healthcare services as the population ages.
-However it , may be beneficial in the future as the government benefits from a demographic dividend.
-absence of property rights
-property rights are where individuals are allowed to own and decide what happens to certain resources, a lack of rights mean that individuls cannot use the law to protect their assets, leading to both a reduction in investments and a decrease in consumption due to a fall in consumer and business confidence.
3 non-economic factors:
corruption:
-many developing countries suffer from corruption, this is when individuals make decions that willmaximise their bribes rather than the impact on development. Can be achieved through high levels of bureachracy, as this costly and time consuming, deterring businesses and reducing output for incumbent firms
diseases:
-diseases such as hiv/aids and malaria have a negative impact on labour and their productivity as it directly affects the health of workers
wars:
-countries that are in war tend to suffer a lot, this is because it causes high levels of poverty and destroys infrastructure, this incurs a great opportunity cist as wel as taking a long time to rebuild.
4.3.3 strategies influencing growth and development
what are the millenium devlepment goals
what were they preceeded by in 2015, provide 3 examples of SDG’s
there are 2 different types of startegies, what are they and what is the difference
what are the 6 market orientated strategies
what are the 6 interventionist strategies
what are the 9 other strategies:
-the MDG’s are 8 measurable goals which aimed to uphold equality, human rights and to reduce poverty.
-in 2015 the millenium development gals were preceeded by the sustainable development goals, aimed to be achieved by 2030
-3 examples of SDG’s are to end poverty; increased health; increased infrastructure; less inequality
-there are market-orientated and interventionist strategies
-market-orientated stratgies are those in which the market is enabled to drive econpmic growth and devlopemnt themselves, mainly through firms with little government involvement.
-interventionist strategies are those which involve the government playing a larger role in the economy to support growth, reduce inequality and fix market failures.
market orientated strategies:
-promotion of FDI
-privatisation
-trade liberalisation
-removal of domestic subsidies
-microfinance shcemes
-floating exchange rate systems
interventionist strategies:
-development of human capital
-protectionism
-managed exchange rates
-infrastructure development
-promoting joint ventures with global companies
-buffer stock schemes
other strategies to influnce economic development:
-industrialisation
-development of tourism
-fairtrade schemes
-development of primary industries
-aid
-debt relief
-World Bank
-IMF
-NGO’s
4.3 emerging and developing economies
define economic development
economic development refers to the sustained improved standard of living and well-being
4.3.3 strategies influencing economic developemnt
what are the 6 market-orientated strategies influencing economic devlopment, explain how each one leads to economic development
Trade liberalisation
-Making trade more free, less protectionist policies such as tariffs quotas or embargos.
