Changing Economic World: Paper 2

Question 1

Define Development Gap

Answer 1

The widening difference in standards of living and wellbeing between the world’s economically
richest and poorest countries (between HICs and LICs).

Question 2

Define HDI

Answer 2

A method of measuring development which combines economic and social indicators to produce an index figure that allows comparison between countries e.g. income, life expectancy and education
levels (GNI per capita, life expectancy and mean years of schooling and expected years of
schooling) to give an overview.

Question 3

Life Expectancy

Answer 3

The average number of years a person might be expected to live.

Question 4

Birth Rates

Answer 4

The number of births in a year per 1000 of the total population.

Question 5

Death Rates

Answer 5

The number of deaths in a year per 1000 of the total population.

Question 6

Gross National Income

Answer 6

A measurement of economic activity that is calculated by dividing the gross (total) national
income by the size of the population. GNI takes into account not just the value of goods and
services but also the income earned from investments overseas.

Question 7

Infant Mortality

Answer 7

The average number of deaths of children under one year of age per 1000 live births per year.

Question 8

Literacy Rate

Answer 8

The percentage of people who have basic reading and writing skills.

Question 9

Historical/ Political Causes of Uneven Development

Answer 9

• Colonialism- Europeans sought new terittories and the natural resources widening the development gap.
• Scramble for Africa 1400’s- >10 million enslaved- less economically active people

Question 10

Economic Causes of Uneven Development

Answer 10

• Rich countries + large international companies have lots of power- pay less for raw materials from LIC’s/ NEE’s. Higher supply than demand keeps prices low.
  Processing adds value but takes place in wealthier countries e.g. crude oil into refined petroleum. Poorer countries may then have to import these back, increasing development gap.
• Manufactured products now makes up 80% of NEE’s exports after developing manufacturing industries:
• Trade Surpluses
• Trade Deficts leads to debt trap
• Copper in Zambia- 60% of total exports- fluctuating price- uncertain income.

Question 11

Transnational Corporation

Answer 11

A company that has operations (factories, offices, research and development, shops) in more
than one country. Many TNCs are large and have well-known brands.

Question 12

Aid- Reducing the Development gap

Answer 12

International aid is a gift of money, goods or service to a developing country. Unlike a loan, the gift does not need to be repaid. The donor could be a country or a group of countries such as the EU. Other donors could be individuals or non-governmental organisations (NGOs).
* Aid can be on a large scale or a small scale.
* Aid can come in many forms such as monetary, provision of better education and healthcare, installation of water pumps for clean water, large scale infrastructure projects.
* Large scale aid projects often are ‘top-down’ whilst smaller scale projects take a ‘bottom-up’ approach.

Question 13

Types of Aid

Answer 13

• Short Term
• Long Term
• Tied
• Voluntary
• Multilateral
• Bilateral

Question 14

Define Short-Term Aid

Answer 14

Emergency help immediately in response to a natural disaster.

Question 15

Define Long-Term Aid

Answer 15

A promise of aid over a long time period. This is usually tied to a long term project such as building water wells.

Question 16

Define Tied Aid

Answer 16

Aid given with certain conditions, e.g. aid must be spent on a certain thing.

Question 17

Define Voluntray Aid

Answer 17

Money donated by the general public in richer countries and is distributed by NGOs such as Oxfam.

Question 18

Define Multilateral Aid

Answer 18

Richer governments give money to an international organisation such as the World Bank, which then gives the money as aid to the poorest countries.

Question 19

Define Bilateral Aid

Answer 19

Aid given directly from one country to another.

Question 20

Disadvantages of Aid

Answer 20

• Some projects may actually lead to food and water costing more money.
• Some sceptics see aid as an extension to colonialism, with HICs remaining the ‘rich saviours’. Many LICs and some NEEs have become dependent on HICs for aid.
• Aid may not actually reach the people who need it the most. Local politicians may gain control.
• Sometimes aid may not be a gift but a loan. Which poor countries struggle to repay.

Question 21

Advantages of Aid

Answer 21

• In times of a disaster, short term emergency aid can save lives.
• Aid can lead to industrial development which creates jobs and improves infrastructure. This can result in self sufficiency.
• Projects which improve health and sanitation mean that people are able to work and earn a living, contributing to the development of their own country.

Question 22

Examples of Aid

Goat Aid + Pakistan

Answer 22

• Goat aid from Oxfam:
  People donate money to Oxfam which is directly used to buy families goats in African countries, like Malawi, a goat which produces milk, butter and meat. The manure is used as fertiliser and milk can be sold for extra income. This helps improve quality of life and raises the level of development.
• UK aid to Pakistan:
  Pakistan receives more aid from the UK than any other country. There are currently 66 million people in Pakistan living in poverty and UK aid is spent mainly in the education sector and to reduce hunger and poverty.

Question 23

Economic Investment- Reducing the Development Gap

Answer 23

TNC’s produce goods all around the world. The money invested into other countries by TNCs is called foreign direct investment (FDI). It helps development take place in different ways:
* Local people are employed to build factories or offices. People get jobs in the factories or offices. A multiplier effect can develop. Now, investment by a TNC can trigger further investment and help other local businesses thrive, creating work for even more people. Increasingly NEE’s have their own TNC’s that invest globally too. This is the case for many Chinese and Indian companies who are helping African LICs to develop.

Question 24

Economic Investment Examples

Answer 24

• China has become Africa’s most important trading partner. Over 2000 Chinese companies have invested billions of dollars in Africa, mainly in energy, mining, construction and manufacturing. They have invested in a power plant in Zimbabwe, hydro-electricity in Madagascar and railway construction in Sudan.

This caused new roads, bridges, stadiums and other projects being built all over Africa. However, some people think that China are exploiting Africa’s resources to benefit its own economy.

Question 25

Advantage of Economic Investment

Answer 25

They gain access to new markets and customers to more people buy their goods. There is an increasing ‘middle class’ with disposable income in these countries.

Question 26

Disadvantages of Economic Investment

Answer 26

Cheaper labour. TNCs relocate operations to countries where labour is cheaper so they get more profit. This can lead to exploitation of workers.

Question 27

Industrial Development- Reducing the Development Gap

Answer 27

Many LIC countries only trade in primary products leaving them vulnerable to poor economic growth. LIC's do not always get a good price (e.g. fluctuating copper prices in Zambia), which means they have insufficient money to import manufactured products from HIC's Primary products receive low prices because: **Overproduction** – if there are too much of a crop this pushes the price down. **Import taxes** – Import tariffs mean it costs a lot to sell to certain countries for LICs. Therefore, many LICs are investing in Industrial development by building factories and sites of industry: * Manufactured secondary goods can be sold at a higher price and are less vulnerable to price fluctuations. Value is added to the primary product, increasing profits for manufacturing companies which governments can tax and spend on education and healthcare. Some LICs rely on Foreign Investment in order to do this.

Question 28

Example of Industrial Development | China, Malaysia and Bangladesh ## Footnote DISADVANTAGES/ADVANTAGES

Answer 28

* Vulnerable to exploitation: Rana Plaza factory collapse in Bangladesh and poor working conditions in garment factories worldwide are evidence of poor considerations of safety for workers. (DISADVANTAGE) * The Chinese government introduced policies that turned the country into ‘the workshop of the world’. Industrial development was encouraged, and now China is one of the fastest growing economies in the world. (ADVANTAGE) Despite this, huge inequalities still exist. (DISADVANTAGE) * 1970's, Malaysia has increased its wealth a lot and the quality of life of its people, due to development of its natural resources such as oil, gas, palm oil and rubber. It has used foreign investment to exploit these and develop a huge manufacturing sector e.g. Proton cars. It now has a growing financial and service sector and trades worldwide.

Question 29

Debt Relief- Reducing Development Gap

Answer 29

Debt relief is when some or all of a country’s debt is cancelled, or interest rates are lowered, so they have more money to develop rather than pay back the debt. Zambia: $4 billion of debt cancelled in 2005- in 2006, the country had enough money to start a **free healthcare scheme** for millions of people living in rural areas. Ghana: the money saved is being used for basic infrastructure to rural communities + education + health care. In 2005, the worlds richest countries (G8) agreed to cancel the debts of many LICs. To qualify the countries had to: * Demonstrate they could manage their own finances * Show there was no corruption in their government * Agreed to spend the saved money on education, healthcare and reducing poverty.

Question 30

Examples of Debt Relief

Answer 30

Between 1960 and 1980 some HICs loaned LICs huge amounts of money to develop their countries. * Countries such as Laos borrowed money to build a dam and will use the hydroelectric power from the dam to pay back the loan and increase it’s GNI. (ADVANTAGE) BUT: * In Indonesia there was a World Bank funded project for roads, power stations and ports, but lots of money went missing through corruption. (DISADVANTAGE) * Seen as reward for 'countries that lack financial discipline' * Debt relief should give countries more money to spend on services and infrastructure rather than debt.

Question 31

Fair Trade- Reducing the Development Gaps

Answer 31

The fair trade movement is all about farmers getting a fair price for goods produced in LIC's, e.g. Coffee, cocoa and bananas, allowing them to provide for their families . Companies who want to sell products labelled as “fair trade” have to pay producers a fair price, and also give farmers a price guarantee. This means if the global price of a crop falls, the farmers still receive their regular income, protecting their quality of life. Buyers also pay extra on top of that as a ‘social premium’ to help develop the area where the goods come from e.g. to build schools, education and health centres.

Question 32

Disadvantages of Fair Trade

Answer 32

* Only a tiny proportion of the extra money reaches the original producers. Most of it still goes to the retailer * Due to the high cost many shoppers in HIC's avoid buying them. This limits the number of farms or villages that can be part of the scheme.

Question 33

Advantages of Fair Trade

Answer 33

* Consumers in HIC's are spending their money on Fairtrade food and goods. Some consumers are happy to pay more knowing that a higher % of money is going back to some of the world’s poorest * Fairtrade ensures that farmers get all of the money from their crop and guarantees a good price. Some of the price is invested in the local community. In return the farmer promises to farm in an environmentally friendly way. The product gets a strong position on the global market!

Question 34

Example of Fairtrade

Answer 34

Divine Chocolate bars: * Only Fairtrade chocolate company which is 44% owned by cocoa farmers. * Fairtrade ensures farmers receive a better deal for their cocoa and additional income to invest in their community, company ownership gives farmers a share of Divine’s profits and a stronger voice in the cocoa industry. * They have invested the Fairtrade premium in developing farming communities and farming skills – focusing particularly on water, health, education and sanitation to improve standards of living.

Question 35

Microfinance Loans- Reducing the Development Gap

Answer 35

* Small loans -people in LIC's who may not be able to get the loans from traditional banks. The loans enable them to start their own businesses and become financially independent. * Needed because subsistence farmers find it hard to escape poverty. They only grow enough food for their own needs, rather than selling it. The seeds they use do not always yield good enough crops, the soil they use might not be fertile. Microfinance loans can help to provide farmers with cash to **escape the poverty cycle.** Microfinance loans **must** be paid back.

Question 36

Example of Microfinance Loans

Answer 36

Phones for Women in Bangladesh (the Grameen Bank): The bank lends $200 to village women to buy a mobile phone. Other villagers then pay her for the use of it. They might use it to check the price of items at markets in surrounding villages or talk to family who have moved to the city. It has lent money to 9 million people, 97% of whom are women. This has improved the role of women in many communities. The loans can play a crucial part in kick-starting development at a local level. If enough villages are helped then, in time, a whole country can develop.

Question 37

Disadvantages of Microfinance loans

Answer 37

* Small Scale Development- impact it will have is unclear * Loans generally went to less poor due to emphasis on repayment

Question 38

Advantages of Microfinance Loans

Answer 38

* Bottom-up development * Poor feel as though they are able to stand on their own two feet and provide for themselves, rather than being dependent on others.

Question 39

Tourism in Jamaica: Advantages

Answer 39

* **200,000 jobs **provided directly by hotels, transport and tourist attractions, or indirectly in shops and banking- multiplier effect. (Social+Economic) * 35% of Jamaica's GDP comes from tourism (Economic) * Community and eco-tourism expanding in Isolated places with people running small-scale guest houses as guides. (Economic + Social + Environmental)

Question 40

Disadvantages of Tourism in Jamaica

Answer 40

* Tourism has caused environmental problems such as path erosion, waste and harmful emissions. (Environment) * Many jobs are seasonal so people are unemployed during the winter (Economic) * Sections of the coastline and reefs have been very severely affected by irresponsible and unsustainable (Environmental) * Cultural Pollution- Jamaica has problems with tourists using drugs and sex tourism (Social)