1
Q
What are the three equal weights within the HDI?
A
- education - mean years of schooling
- health - life expectancy at birth
- real GNI per head at PPPs
2
Q
Waht are the advantedges of HDI?
A
Combines effects of increased growth with other quality of life indicators
3
Q
What is a disadvantedge of HDI
A
- does not take into account inequality, poverty or other measurements of deprivation (qualitative factors)
- no income distribution (inequitable development is not human development)
- PPP values used to adjust GNI data change quickly can be in a cure or misleading
4
Q
When was Inequality adjusted HDI (IHDI) introduced
A
2010
5
Q
What is the IHDI
A
- HDI adjusted for inequalities in the distribution of achievements in each of the three dimensions of the HDI
6
Q
What is the multi dimensional poverty index?
A
- published in 2010
- reports and complements money based measures by considering multiple deprivations and their overlap
- identifies deprivations across the same three dimensions as the HDI
- it shows the number of people who are multi dimensionally poor (suffering deprivations in 33% of weighted indicators) and the number of deprivations with which poor households typically contend
7
Q
What other indicators can be used?
A
- proportion of the male population engaged in agriculture
- energy consumption per person
- the proportion of the population with access to clean water
- the proportion of the population with internet access
- mobile phones per thousand of population
8
Q
What is economic development?
A
- an increase in welfare or living standards over time
- economic development is subjective
9
Q
What is primary product dependency?
A
- demand for these products tend to be relatively price elastic (large impact on TR)
- supply is quite inelastic (crops taking a long time to grow)
- change in supply or demand will have a big impact on the country’s export values.
- dependence on volatile products reduces investment
- Angola exports 97% oil
- Kenya: 19% tea, 12% horticulture
10
Q
Sectoral imbalance - Prebisch-Singer hypothesis
A
- developing countries may tend to export primary products whilst importing manufactured products
- primary products tend to be income inelastic
- as world incomes rise demand wont increase, unlike manufactured goods
- Firms focused on producing primary products wont be able to afford as many imported goods over time
- ToTs deteriorates relative to prices of primary products
- PREBISCH SINGER HYPOTHESIS (cash crops is not an effective long term development plan)
11
Q
What
A
12
Q
What are some criticism of the PS hypothesis
A
- as population grows, demand for agriculture products will push up price
- demand for some primary products (oil/gold) is income elastic
13
Q
How do you calculate terms of trade?
A
Index of export prices/index of import prices *100
- over 100 means exports are improving
14
Q
What is the harrod domar model
A
GDP growth = savings rate/capital output ratio
15
Q
What is the capital output ratio
A
- how much capital it takes to make a certain amount of output
16
Q
How does savings gap lead to a barrier in development
A
Low GDP per capita -> low marginal propensity of saving
Low savings -> lack of funding for investment
Low investment -> low capital and infrastructure accumulation
Low capital -> low GDP per capita
17
Q
Compare to saving rates in Africa to middle income countries
A
17% of GDP vs 31% of GDP
18
Q
Low saving rates and poorly developed or malfunctioning financial markets make it more…
A
Exspensive for Africa sectors to get funds for investment (higher interest rates)
19
Q
How can instability lead to a savings gap?
A
- capital flight
- people hold money abroad
20
Q
What is the foreign currency gap?
A
- outflows of money are higher than inflows of money into an economy
- often due to primary product dependency or foreign debt
21
Q
Why does a foreign currency gap act as a barrier to development
A
- does not have enough foreign currency to pay for essential imports such as medicines, food and raw materials
- severely hamper SRAS
22
Q
Why does a foreign currency gap act as a barrier to development
A
- does not have enough foreign currency to pay for essential imports such as medicines, food and raw materials
23
Q
How do countries deal with a foreign currency gap?
A
- devaluing the exchange rate to improve competitiveness
- may even increase as investors get nervous
24
Q
Describe debt as a barrier to development
A
Money was often borrowed at times of low interest rates and has since become harder to repay:
- debt may finance risky projects where export prices for output were high and returns have since fallen
- oil prices have risen
- currency value of the borrowers has declines (especially in comparison to $)
- loans may have been used for military
25
How does gender inequality contribute to barriers in development
- if woman cannot access the workplace the country misses half of its workforce - misallocating resources/
- lack of education healthcare and opportunities for women will socially hold a nation back as well
In Bangladesh 81.3% labour force participation rate for me, 36% for women
$12 trillion could be added to global GDP by 2025 by advancing women’s equality (McKinsey global institute report)
26
How does lack of physical capital contribute to barriers of development
- may be due to lack of property rights/lack of investment
- limits capacity, constrains production, leads to lower productivity -> SRAS shifted left
- cannot industrialize, and produce the necessary goods and services needed for economic growth
- leads to production being relatively inefficient therefore difficult to drive growth -> LRAS shifted left
Property rights:
- lack of makes it hard for people to access loans as they have no collateral
27
How does population growth affect development
- LEDCs have rapid population growth
- if population is growing faster than the economy, GNI per capita decreases
- Increased dependency ration and pressure on social infrastructure
- outwards migration of young people and ageing populations
28
How does poor infrastructure lead to barriers in development
- businesses will find it costly to trade
- deterrent to FDI and domestic
- low gdp -> low tax revenue
- countries with rich natural resources may receive multinational corporate investment in their infrastructure to facilitate businesses
29
Give examples of bad infrastructure that may harm development
- unreliable energy supplies
- poor transport networks
- bad internet coverage
30
What are examples of human capital problems
- low school enrollment leads to low productivity and low gdp growth
- in turn deters FDI because cost of training
- un/deremployment
- prevalence of HIV and AIDS causes problems
31
How much can malaria reduce GDP in African countries by?
5-6%
32
What is corruption?
- the use of power for personal gain
- includes bribery, extortion, diversion of resources to the governing elite
33
How does corruption act as a barrier to development
- deters domestic investment and FDI
- limits G&D
World bank withdrew investment to chad for oil pipeline because of corruption
34
What are some geographical factors to development
- lack of natural resources or difficulty farming
- landlocked so hard to access trade routes
35
what are some historical factors that can act as a barrier to devleopment
- exploitation
- slavery
- colonisation
36
How does disease affect development
- smaller work force
- lower productivity
- strain on healthcare system
37
How does civil strife affect development
- civil war leads to a reduction in the labour force
- destruction of capital/infrastructure
- often leads to capitral flight/high military spending once over
38
Give application for debt as a barrier to development
Ghana pays 30% of GDP in debt repayment
39
What are the two ways to increase growth according to the harrod domar model?
Increase savings rate
- higher savings means increase capital for banks
- increase ability to loan
- increase firm investment in capital
Decrease capital output ratio
- less capital to make the same amount of output (increase productivity)
40
What is the Lewis model?
- for a country to develop they need to improve their industrial sector
- assumes that there is excess labour capacity in the agricultural sector and therefore there is little opportunity cost to workers moving from agriculture to the industrial sector
- means that theoretically industrial sector can grow without any decrease in agricultural output, higher profits therefore can be invested in capital goods = more production = more profits
41
What are the drawbacks of the Lewis model?
Assumes manufacturing is labour intensive when its in fact mostly capital investment
- therefore investment in education and training for sectoral change; may be occupational immobility
- profits from investment may be reallocated inefficiently
42
How does trade liberalisation influence growth and development?
- removes trade barriers (free trade)
- free trade forces firms to become more competitive as there are larger markets + economies of scale
- higher efficiency + competitiveness leads to a rise in exports and export led growth
- reduces price of goods + provides more choice for consumers
- higher economic growth + living standards (led by higher productivity growth)
43
What are the drawbacks of trade liberalisation
- loss of government import tariffs revenue that could be used to invest in development projects
- risk of structural unemployment if demand shifts from domestic goods to imports
- risk of rise inequality if certain industry’s have little comparative advantages do not grow
- countries with uncompetitive goods will experience a trade deficit
44
Give an example of trade liberalisation being effective
African continental free trade agreement - 43 African countries
- Creates a single market of 1.3bn people
- liberalises ~90% of tariffs within Africa
45
What are government subsidies
- financial assistance or benefits provided by governments to support specific business or industries
46
How does removing subsidies contribute to development?
- cause firms to be inefficient as they don’t try to cut costs and become reliant on subsidies (removal forces them to be efficient)
- subsidies might have high opp cost
47
Drawbacks to removal of subsidies
- in developing countries (who dont have the same access to resources) removal coudl take them out of the market completely as they wouldn’t be able to continue operating and competing
48
Give a real life example of removing subsidies benefiting development
- Nigeria removed fuel subsidies, these mostly benefited the elite who could afford fuel at market price
49
What is FDI?
- the purchase of interest from a company by a foreign investor
50
Why do firms tend to undertake FDI?
- production costs are lower in developing countries
- enables them access to a new market
51
What are the benefits of FDI for development?
- creates new jobs and higher wages, leading to consumption, positive multiplier effect -> increase AD + GDP
- can improve capital output ratio and fill savings gap
52
What are the drawbacks to FDI?
- exploitation of workers in less developed countries by offering lower wages and worse working conditions
- profit earned in the country jay be taken out of the country and spent elsewhere
53
Give an example of FDI helping economic growth
- Samsungs investment in Vietnam has meant many local firms are part of their supply chain and other businesses have set up around
54
What are microfinance schemes?
Small loans for people who typically do not qualify for a loan. Uses social responsibility to grant out the loan.
55
What are the benefits of a microfinance scheme
- used in environments where there is little cash
- loan stimulates a lot of employment
- removes interest rates from loan sharks
- helping people pull sway from absolute poverty
56
What are the drawbacks of microfinance schemes
- dishonesty or bad investment can mean people cannot pay back their loans
- social responsibility can be detrimental
57
What are examples of microfinance schemes
- in Bangladesh microfinance schemes have pulled 10% of those engaged in those schemes out of absolute poverty (2.5mil)
58
What is privatisation
When government owned companies or services are transferred into the private sectors
59
How does privatisation increase real gdp?
- improve effiency and productivity because privatized companies are driven by profit
- increase economic output and GDP
- employment would rise as privatisation can create jobs
- reduce opportunity for corruption
- attracting FDI as international corporations perceive opportunities
60
Give the drawbacks to privatisation
- increased inequality if essential services become more exspensive
- private companies could prioritise profits over quality leading to a decline in standards of services provided
- monopolies created
61
Give a case study for privatisation
- indias pricvatisation led to a boost in FDI which brought in capital and also increased employment opportunities and skills development which contributed to economic growth
62
In many cases developing countries try to maintain an exchange rate at..
- An artificially high rate
- when exchange rates are floated there is a depreciation of the currency
63
What are floating exchange rates?
- currency who’s value is determined by foreign exchange markets
- affected by supply and demand of the currency in public markets
- by allowing markets to determine the exchange rate, when demand for exports fall, value of currency will fall, making the exports cheaper and increasing demand
64
What are benefits of floating exchange rates
- stabilizes bot
- if there is a current account deficit this will lead to an outflow of currency, causing a depreciation. This will lead to a greater demand of exports, improving current account
65
What are the drawbacks of floating exchange rates?
- you cant have free capital flows
66
Why is free capital flows a good/bad thing?
- encourages investment and the central bank to have control over interest rates
- allows speculative attacks
67
Case study - floating exchange rates
Argentina couldn’t match its currency to the true state of the economy
68
What is human capital
Value of workers experiences and skills
- includes assets like education training intelligence skills and health
- more human capital more productivity
69
Benefits of human capital
- more educated/skilled/healthier
- more productive workers
- firms costs will decrease, SRAS outwards
- LRAS outwards and real gdp not limited
70
Drawback of human capital development
- putting kids in schooling means those with sick parents will not have any income at all
- shift left in AD
- healthcare must improve as well
71
Case study for developing human capital
- Madagascar 1980-1990 - Malagasy
- GNI went from $460 to $240
- lost gen
72
What is protectionism?
- government policies that restrict international trade to help domestic industries
- in order to improve economy within a domestic economy and overall gdp
73
What are the benefits of protectionism?
- couteracting protectionism abroad
74
What is a managed exchange rate?
- when a country’s currency is determined by market forces but has occasional intervention from central banks to stabilise or influence the exchange rate
75
How do managed exchange rates help break down barriers to entry?
- can stop sharp fluctuations that disrupt economy, help exports and importers who rely on stable/predicable exchange rates to price goods and services
- price volatility reduced (investment increased, consumer confidence increase)
- buffers against speculative attacks when speculartors try to exploit rapid currency movements
76
What is an example of a country with a managed exchange rate?
Switzerland
77
What is infrastructure development?
- construction and improvement of physical facilities and systems that support economic growth (transport,water treatment)
78
What are the benefits of infrastructure development?
- Increase AD
- human capital leads to increased productivity
- crowding in
- corp tax
79
What are joint ventures?
- business agreement where two or more companies join together to form one collective entity, sharing resources
80
What are the benefits of joint ventures
- job creation
- access to international markets, distribution networks
- higher quality, labour practices, environmental regulation
- more competitive - FDI
81
What are the drawbacks of joint ventures
- reliance on foreign partners for investment
- short term profit maximisation by foreign companies
- exploitation
- local businesses may not be competitive
82
Examples of joint ventures
- 2008 India company
- taya motors with Land Rover
- Improve in car manufacturing led to innovation in India
83
How does tourism benefit eco growth
- better facilities
- more jobs
- multiplier effect + income tax
84
Drawbacks to development of tourism
- season
- low skilled so income is limited and the multiplier effect is limited
- transaction corportations may move their profits out of country
- environmental damage
85
Example of development to tourism
- Morocco
- kings ten year plan includes building seven new eco resorts on the north coast where unemployment is 40%
86
What is fair trade
- de marginalises small scale farmers and workers by increasing price of good so it covers the cost of sustainably producing the good
87
Benefits of fair trade
- additional money
- allows access to credit ahead of harvest
- improves working conditions bans child labour
- stronger relationships with buyers
88
What are drawbacks to fair trade
- higher price discourages consumers from buying the good
- exspensive to become fair trade certified
- dependency on primary resources
89
Examples of fair trade
- the economist report, for each dollar paid only three cents more are transferred to the country where the product came from
- Guatemalan coffee farmers have been found to have higher incomes, better access to healthcare and education
90
What is globalisation?
- the ever increasing integration of the worlds local regional and national economies into a single international market
- free trade of g&s, capital and labour
- exchange of technology and intellectual capital
91
What are factors contributing to globalisation in the last 50 years?
- trade in goods and services
- trade liberalisation
- MNCs
- international financial flows
- communication and IT
- containerisation
92
Why has there been an increase in trade in services?
- the trade of tourism, call centre services, and software production (particularly from India) has increased from developing countries
93
What are MNCs?
- organisations that own or control the production of goods and services in multiple countries
- large economies of scale
94
Why has a rise of communications and it contributed to globalisation?
- easier and cheaper to communicate
- better transport links and transfer of information has been made easier
95
What is containerisation
- cheaper to ship goods across the world causing prices to fall
- easier to load and cheaper to distribute
BUT MAINLY MNCS LEADING TO STRUCTURAL UNEMPLOYMENT
96
What is the impact of globalisation on individual countries?
- large trade imbalances
- inequality
- cultural diversity or less of
97
What is the effect of globalisation on governments?
- may lose sovereignty due to increase in international treaties
- have to abide to rules
98
What is the effect of globalisation on producers and consumers?
- specialisation and economies of scale
- more competitive - more efficient
- switching production to places with cheaper labour - spread of technology
- increase in world incomes
- wider range of goods - may be some homogenisation
99
What is the effect of globilisation on workers?
- more job opportunities
- structural unemployment
- exploitation or higher incomes
100
Give an example for structural unemployment caused by globalisation in the UK
- collapse of ship building and mining industries and its more efficient to manufactures abroad due to cheaper labour
101
What is absolute advantage?
When a country can produce a good or service using fewer resources and a lower cost than another country
102
What are the assumptions and limitations of the theory of comparative advantage
1. Perfectly competitive market
2. Structural unemployment, less transferable skills
3. Exchange rates
4. Simple model w two countries
5. Countries produce a wide range of goods
103
What are the advantages of specialisation and trade in international context
- greater world output - economic welfare
- higher quality - specialisation
- variation
- more competitive markets so reduces prices
- ppf outwards
- eons
104
What are the disadvantages of global specialisation-
- Less developed countries may use up their non-renewable resources quickly
- primary product dependency
- structural unemployment - brain drain?
- stuck in production of one good
105
What are factors influencing the pattern of trade and changes in trade flows between countries
- comparative advantage
- impact of emerging economies
- growth of trading blocks and bilateral trading agreements
- changes in relative exchange rates
106
How does comparative advantages influence patterns of trade
- growth in exports of manufactured goods from developing countries to developed countries
- de industrialisation of developed countries
- production of manufactured goods shifted to other countries (China and India have a larger proportion of world trade)
107
How has the growth of trading blocs affected flows of trade?
- increased trade between members but diverted from somewhere else
- trade creation/diversion
108
What is trade creation?
- when a country consumes more imports from a low cost producers and fewer from a high cost producer
109
What is trade diversion?
- trade shifts to a less efficient producer
110
What is the eu common agricultural policy?
- domestic farmers receive subsidies to encourage production and lower costs so farmers in other countries find it hard to compete with them
111
How do hangers in relative exchange rates affect trade flows?
- affects relative prices of goods between countries
112
What are the types of trading blocs?
- free trade area
- customs union
- common market
- monetary unions
113
What is a free trade area?
- where countries agree to trade goods with other members without protectionist barriers
NAFTA , EFTA
- allows members to exploit their comparative advantages which increases efficiency
114
What is a customs union? -
- countries in a customs union have established a common trade policy with the row
- common external tariff
- free trade between members
- EU
115
What is a common market?
- establishes free trade in goods and services
- common external tariffs allows free movement of capital and labour across borders
- EU
116
What are monetary unions?
- share the same currency
- economically integrated
- same interest rates
- respond similarly to external shocks or policy changes
- flexibility in product markets and labour markets to deal with shocks
117
What are the criteria for countries within eurozone?
- budget deficits cannot exceed 3% of GDP
- gross national debt below 60% of gdp
- inflation below 1.5% of three lowest inflation countries
- bond yield has to be below 2% of the yield of the countries with lowest interest rates
118
What are the costs and benefits of regional trade agreements
- trade diversion (welfare reducing)
- reduced transaction costs
- economies of scale
- enhanced competition
- migration
119
Why are trading blocs seen as the second best solution to complete free trade?
- many benefits of free trade but distribute gains unequally
120
What is the WTO
- promotes free trade through reducing trade barriers and policing existing agreements
- settles trade disputes
- 161 members in 2015
- requires all trading partners treated equally
121
What are some negative effects of trading blocs -
- May distort world trade or adversely affect those who do not belong to them
- inefficient allocation of resources as a result of policies
- protectionism
122
What is protectionism
The act of guarding a countrys industries from foreign competition by imposing restrictions on free trade
123
What impact does protectionism have on the trade deficit?
- reduction
- importing less due to tariffs and quotas
124
Why may a country introduce protectionism?
- infant industries might need protecting.
- used to correct market failure (demerit goods)
- retaliation
125
What are infant industries?
- industries which a relatively new and need support
- protectionism is usually short term until the industry develops
- new industries face high start-up costs
126
What are the types of restrictions on trade?
- tariffs
- quotas
- subsidies to domestic producers
127
What are tariffs?
- taxes on imports to a country
- could lead to relatiation so exports may decrease
128
What are the barriers to development
- PPD
- volatilityy of commodity prices
- savings gap
- foreign currency gap
- capital flight
- demographic factors
- debt
- access to credit and banking
- infrastructure
- education/skills
- absence of property rights
129
What are market orientated strategies to improve development?
- trade liberalisation
- removal of govt subsidies
- microfinance schemes
130
What are interventionist strategies to improve development?
- development of human capital
- protectionism
- managed exchange rates
- infrastructure devleopment
- joint ventures
- buffer stocks schemes
Other:
- industrialisation
- development of tourism
- aid
- fair trade schemes
131
What is the cause of a foreign currency gap?
- Persistent current account deficit (ie through foreign debt)
- Capital flight - outflow of capital from investors
- Fall in value of inflows of remittances
- Reliance on primary exports
132
what are the market orientated strategies to development?
- trade lib
- microfinance schemes
- removal of govt subsidies
- promotion of FDI
- privatisation
- floating exchange rates systems
Econ
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