4.3 Measure of economic development Flashcards
(37 cards)
Define economic growth
An increase in the productive output of an economy
Leading to an increase in real value of GDP
What are the indications of growth in national capabilities?
Infant mortality (0-5 year olds)
Persecution and intolerance
Starvation and nutrition
Illiteracy
What are the characteristics of an emerging economy
High corruption
Absence of infrastructure like welfare
High pollution
High % of people in rural areas
Low years in education
pool of young workers
What ways does growth lead to economic development?
fall in income and wealth inequality
Closes the informal economy
Lifts people from poverty
increase tax revenue
What is HDI
Human development Index - use to measure economic development
1 being more developed 0 being not developed
What indicators are used to measure HDI
- life expectancy at birth
- expected years of schooling
- Mean years of schooling
(standard of living)
- GNI per capita
- ODA
What countries have the highest and lowest HDI
Switzerland : 0.962
Rwanda : 0.362
Evaluate the limitation of using HDI?
questions the data due to informal economy
Environmental impacts are not recorded
No account of income distribution
Define economic development?
The increase in economic and social opportunities
What factors influence the growth and development of economies?
- lack of infrastructure e.g monetary or welfare systems
- external factors like wars
- weak supply side policies mean inability to use their natural resources
- corrupt political system
- export dependency
- protectionism of world economies
- savings gaps in poorer households
Define savings gap?
It is the difference between actual levels of savings and levels of saving needed for a higher growth state
(17% of GDP in Africa) - which is very low
What is the middle income trap?
Middle income economies unable to become advanced economies due to regulation
Why are savings important in an emerging and developing economy?
- To afford education for children
- lead to investment in healthcare, entrepreneurship and education
- monetary protection over external shocks
What is Harrod Domars model?
The cycle between
1. savings 2. investment 3. capital accumulation and technology 4. output and income
Explain Harrod Domars model:
Savings - loanable funds in financial markets
investment - invest in capital stocks so firms can undertake production
capital accumulation - funds must be used to upgrade technology and production process
output and income - will lead to higher output, more savings and higher incomes allowing more savings
Why Harrods model does not work in emerging economies?
Savings: low income households and low profits from firms
Investment: lack of entrepreneurs and underdeveloped financial markets
Capital accumulation: less dynamic efficiency due to info gaps and funds needed for human capital and improving infrastructure
Output and income: Break downs in chains cause smaller growth
What are the limitations of harrods model
- information gaps in where to invest
- savings are volatile e.g remittances
- corruption can reduce growth
- barriers to economic growth like lack of healthcare
- low saving due to absolute poverty
What is Lewis Model
He presented a dualistic economy
Where there is rural agriculture and a manufacturing sector
He says economic growth comes from the movement of workers from agriculture to urban manufacturing areas
Why may wages be higher in urban manufacturing areas
- excess supply of workers in rural area
- diminishing marginal labour in rural areas as labour is variable and land is fixed, marginal workers contribute less to output
- difference in mrpl of labour
- presence of trade unions
- high concentration of firms lead to excess demand in urban areas
How is rural migration incentivised to urban areas
Pay offer that is 30% or higher
- high profits make firms expand and hire more
What are the limitations to the Lewis model?
Karl Marx states workers will be exploited due to overcrowdedness, unsanitary environment and businesses and shareholders retaining all profit
- assumes no capital in rural areas
- assumes skills are inferior in rural areas
- depends on WED and WES
- Other factors like non-monetary benefits
- can cause regional inequality
- 100% migration is undesirable leaving no farmers and high inflation
What are the benefits of export led growth?
- rise in international competitiveness
- cyclical employment in X industry
- improvement in ToT
- fall in poverty and inequality
- improve C.A
- lead to accelerator effect
- increase investment and government revenue
What is the Dutch Disease?
When a country becomes a commodity producer in one area in a short period of time, this leads to appreciation, which increases price of all exports, in turn lowering international competitiveness in some industry leading to fall in output
AP Netherlands 1880s exporting natural gas
What is Prebisch Singer’s hypothesis
Suggests over time, prices of primary commodities fall, which worsens ToT, can only be sold by diversification.
