development economics Flashcards

Question

evaluation points for sources of growth

Answer 1

1. Natural Factors (Land) Depends on sustainability – Overexploitation of natural resources (e.g., deforestation, soil degradation) can lead to environmental damage and long-term economic decline. - Limited by geographical constraints – Some countries have poor-quality land or limited natural resources, restricting growth potential. - Technological advancements may reduce dependence – Advances in hydroponics, synthetic materials, and AI-driven farming could reduce reliance on natural resources for growth. 2. Human Capital - Quality of education matters more than quantity – Simply increasing access to education doesn’t guarantee better skills; curriculum and teaching quality are critical. - Brain drain – High-skilled workers may migrate to developed countries for better opportunities, limiting the benefits of human capital development in their home country. - Short-term costs vs. long-term benefits – Investments in education and healthcare take time to yield economic benefits, which can be challenging for developing economies with limited resources. 3. Capital and Technological Factors - Risk of capital misallocation – Investments in capital may not be efficient if there is corruption, weak institutions, or poor planning. Technology requires skilled labor – Without proper human capital development, technological advancements may not be fully utilized, leading to underemployment or increased inequality. - While boosting efficiency, automation and AI can lead to job losses, particularly in low-skilled industries, which could slow consumption-driven growth. 4. Institutional Factors - Institutions require strong governance – Corruption, weak enforcement of laws, or political instability can undermine economic growth despite improvements in banking and infrastructure. - Financial accessibility does not guarantee growth – Even with a strong banking system, high interest rates, risk aversion, or financial exclusion can limit investment and entrepreneurship. - Government policies can create inefficiencies – Overregulation or excessive state intervention in markets may hinder private sector growth and discourage innovation.

Answer 2

1. Exploiting Comparative Advantage - Trade allows countries to specialize in industries where they have a comparative advantage, leading to more efficient production. - This increases aggregate demand (AD) as exports rise, boosting economic growth. Higher growth leads to increased tax revenues, which governments can reinvest in infrastructure, healthcare, and education, driving long-term development. 2. Access to Diverse Goods and Services Trade increases availability of varied goods → Consumers get better quality and lower prices → → Improved living standards and wellbeing → → Supports broader economic development beyond GDP growth 3. Poverty Reduction through Employment Trade expansion leads to higher demand for labor in export sectors → → Creates more jobs for low-income workers → → Incomes rise, reducing poverty levels → → Enhances human development and social progress. 4. Spillover Effects on Institutions and Skills Engagement in trade requires better institutions and infrastructure → → Governments improve regulations and invest in education → → Workforce skills and governance quality rise → → Supports sustained human development and institutional progress

Answer 3

⚠️ 1. Primary Product Dependency Developing countries often rely on exports of low-value primary goods → → These products face volatile world prices due to inelastic supply and demand → → Leads to unstable export revenues and difficulty planning long-term development → → Increases vulnerability to external shocks and worsens income instability ⚠️ 2. Terms of Trade Deterioration (Prebisch-Singer Hypothesis) Export prices of primary goods tend to fall relative to imports of manufactured goods → → Countries must export more just to import the same amount → → Worsens trade balance over time and reduces purchasing power → → Limits resources available for development and industrialisation ⚠️ 3. Lack of Diversification Heavy trade reliance can discourage investment in other sectors → → Countries fail to develop a broad-based, resilient economy → → Any disruption to key exports (e.g. crop failure) severely harms GDP → → Slows structural transformation needed for sustained development ⚠️ 4. Exposure to Global Economic Conditions Dependence on global trade makes economies vulnerable to external shocks → → E.g. global recessions, changes in demand, or protectionist policies → → Can cause sharp falls in export revenue and currency value → → Triggers unemployment, inflation, or balance of payments problems ⚠️ 5. Weak Bargaining Power and Exploitation Developing countries may lack power in trade negotiations → → Accept unfair trade terms or face tariffs/quota barriers → → Reduces profits from exports and limits technology transfer → → Leads to dependency and hampers long-term development gains ⚠️ 6. Environmental and Social Costs Pressure to increase exports can drive unsustainable production → → Overuse of land, deforestation, or poor working conditions → → Damages natural resources and social capital → → Undermines the sustainability of economic development

Answer 4

suggests that the prices of primary goods tend to decline relative to the prices of manufactured goods over time.

Answer 5

1. Income Elasticity of Imports vs. Exports = Developing countries primarily export primary commodities, which have low-income elasticity, meaning that as global incomes rise, demand for these goods does not increase significantly. - However, the goods they import—such as capital equipment and manufactured products—have higher income elasticity, meaning their demand grows rapidly as global incomes rise. - This creates an imbalance where developing countries struggle to increase their export earnings while facing rising import costs. 2. Rising Demand for Manufactured Goods - Globalization and technological advancement have led to an increase in demand for manufactured goods, pushing up their prices relative to primary products. - Since developing countries rely on importing these goods for industrialization, they face rising costs, reducing their ability to generate long-term economic growth. - Meanwhile, the prices of their primary exports remain stagnant or decline, worsening trade imbalances. 3. Long-Run Decline in Terms of Trade - As manufactured goods become more expensive relative to primary products, developing countries experience a decline in their terms of trade. - This means they must export more commodities just to afford the same amount of imports, leading to lower real incomes and reduced government revenues. - This weakens economic development, making it harder for these nations to invest in infrastructure, education, and industrial growth. 4. (Evaluation) Solution: Diversification - To break free from declining terms of trade, developing countries should reinvest export revenues into diversifying their economies. - By developing secondary and tertiary industries, they can reduce dependency on volatile commodity markets and transition towards higher-value-added sectors. - This would make their economies more resilient and enable sustainable long-term growth.

Answer 6

tariffs on imported manufactured goods to allow domestic industries to grow

Answer 7

🏭 Encourages Domestic Industry Development Tariffs and quotas reduce import competition → → Domestic firms face less pressure from foreign producers → → Increases investment in local manufacturing → → Leads to job creation and industrial diversification 🛠️ Reduces Dependence on Foreign Goods Import barriers encourage consumption of domestic goods → → Lower reliance on volatile global markets → → Improves economic self-sufficiency → → Shields economy during external shocks (e.g. global downturns) 💸 Improves Current Account Balance in the Long Term Substituting imports with domestic goods reduces import spending → → Current account deficit may shrink → → Exchange rate pressure eases → → Enhances macroeconomic stability 🧠 Can Support Infant Industries Young domestic firms are protected from foreign competition → → Allows time to grow and become efficient → → Can achieve economies of scale → → Potentially become globally competitive over time 2. *Reducing Foreign Influence & MNC Dominance* - Restricting imports prevents multinational corporations (MNCs) from dominating domestic markets, allowing local firms to develop without external competition. - This fosters economic independence and strengthens national industries. - However, without exposure to international best practices and competition, domestic firms may lack the incentive to innovate, reducing long-term growth potential. **Problems with ISI** 3. *Short-Run Job Creation vs. Long-Term Unemployment* - In the short term, ISI boosts employment by fostering new domestic industries. However, these industries may become dependent on government protection. - If tariffs are lifted or subsidies removed, inefficient firms may collapse, leading to mass unemployment and economic stagnation. 4. *Loss of Comparative Advantage* - By prioritizing domestic production over imports, ISI diverts resources from industries where the country has a comparative advantage. - This results in inefficiencies, higher production costs, and lower international competitiveness, ultimately reducing export revenue and economic growth. 5. *Risk of Retaliatory Protectionist Measures* - If a country imposes high tariffs or import restrictions, trading partners may respond with their own protectionist measures. - This can lead to trade wars, reducing export opportunities and harming industries that rely on global markets. In the long run, this isolates the economy, limiting growth potential and slowing development.

Answer 8

removing protectionist policies, encouraging trade

Answer 9

1. Reducing Primary Product Dependence - By focusing on export promotion, developing countries can diversify their economies away from volatile primary product markets. - This reduces vulnerability to fluctuating commodity prices and long-term declines in terms of trade, stabilizing economic growth. Increased exports lead to higher demand for domestic goods → → Firms expand production and hire more workers → → National income and GDP grow → → Economic development accelerates Higher export demand encourages firms to invest → → New industries and businesses emerge → → More employment opportunities are created → → Unemployment rates fall Export growth increases foreign currency inflows → → Improves country’s balance of payments → → Helps finance imports and debt repayments → → Stabilizes the currency and economy Exposure to global markets pressures firms to innovate → → Firms adopt better technology and management practices → → Workforce skills improve through training → → Overall productivity and competitiveness rise **Problems with Export Promotion** 3. Protectionism Abroad - Developing countries may face tariffs, quotas, and non-tariff barriers when trying to access global markets. - High-income nations often implement protectionist policies to shield their industries from competition, making it difficult for developing economies to expand exports. This limits the effectiveness of export promotion policies and can slow economic growth. 4. Widening Income Inequality - Export-oriented growth can disproportionately benefit capital-intensive industries and skilled workers, leading to a widening income gap. - Those in traditional or low-skill sectors may see little benefit, increasing inequality within the economy. If wealth remains concentrated among a small elite, domestic demand and overall development may suffer. 5. Overdominance of MNCs - Multinational corporations (MNCs) often play a key role in export promotion strategies, bringing investment, expertise, and global market access. - However, they may exploit local resources, repatriate profits, and use their power to suppress wages and working conditions. - This can limit the long-term benefits of export-driven development for local populations

Answer 10

- in 2020, fairtrade sales reached 19.2 billion - fairtrade supports over 1.8 million producers and workers in over 70 developing countries - the top 5 fairtrade products are bananas, cocoa, tea, coffee and sugar - Biggest fairtrade markets are UK,USA, Germany, Switzerland, Netherlands

Answer 11

✅ 1. Price Stability for Farmers Fairtrade guarantees a minimum price for products (like coffee or cocoa) → Protects farmers from extreme price volatility in global commodity markets → Ensures stable income and reduces vulnerability to poverty → Increases economic security and ability to invest in future production 📚 2. Investment in Social Projects Fairtrade includes a "social premium" paid to producers → Communities use this for projects like schools, clinics, or water systems → Improves access to basic services → Raises living standards and long-term human development ⚖️ 3. Empowerment and Better Working Conditions Fairtrade standards promote safe working conditions and prohibit child/exploitative labour → Workers have more rights and protection → Improves well-being and dignity of labour → Contributes to more equitable and inclusive development 🛍️ 4. Encourages Sustainable Practices Fairtrade promotes environmentally sustainable production methods → Reduces soil degradation, deforestation, and pollution → Supports long-term agricultural productivity and food security → Benefits future generations and sustainable development goals 📈 5. Market Access and Brand Recognition Fairtrade products can access premium markets in developed countries → Producers can earn higher incomes compared to local market prices → Incentivises better quality and improved production methods → Supports rural livelihoods and encourages economic diversification

Answer 12

💸 Higher Consumer Prices in Importing Countries Fairtrade sets minimum prices above market rates → → Retail prices in developed countries rise to support these premiums → → Reduces consumer surplus and may dampen demand → → Limits global efficiency and creates distortions in trade flows 🚫 Limited Reach – Only Helps a Few Fairtrade often benefits only a small number of producers who meet certification standards → → Many small farmers are excluded due to costs or bureaucracy → → Creates inequality even within developing communities → → Weakens the overall effectiveness in reducing national poverty 🧱 Dependency on Niche Markets Fairtrade producers may focus only on producing for Fairtrade markets → → Less incentive to diversify crops or innovate → → Vulnerable to shifts in consumer demand or Fairtrade popularity → → Long-term development is stunted due to lack of competitiveness 💼 Administrative and Certification Costs Certification, auditing, and compliance increase costs for producers → → Profits are reduced despite Fairtrade premiums → → Less investment in local economies or productivity improvements → → Hinders broader developmental progress 🌍 Does Not Tackle Structural Issues Fairtrade improves individual incomes but not trade infrastructure → → Poor roads, storage, and market access still limit economic potential → → Structural bottlenecks remain unsolved → → Broader development outcomes (like health and education access) stay limited ⚠️ Distorts Market Incentives Fairtrade guarantees minimum prices regardless of global demand → → Farmers may overproduce certain crops even when they’re not efficient or needed → → Misallocation of resources reduces overall productivity and competitiveness → → Long-term development suffers as producers don’t respond to market signals 📉 Limited Impact on Global Poverty Fairtrade accounts for a tiny share of global trade (e.g., <0.02% in 2020) → → Only a narrow slice of producers benefit → → Aggregate effects on poverty and inequality at national or global levels are negligible → → Fairtrade fails to deliver transformational change in development outcomes

Answer 13

money, or technical assistance given by one country to another to promote social and economic development done to: - reduce poverty - improve living conditions - promote sustainable development in developing countries forms: - grants - loans - technical assistance funded by: - government - international organisations - private foundations

Answer 14

- UNICEF - WFP - WHO - OXFAM

Answer 15

1. project aid: financing projects for a donor, eg hospitals 2. technical assistance - funding of expertise 3. humanitarian aid - emergency disaster relief, food aid 4. soft loans - a loan made on a concessionaire basis such as China to Africa 5. tied aid - projects tied to suppliers in donor countries 6. debt relief - refinancing of a countries external debt

Answer 16

🇩🇿 Dependency Culture 🔹 Regular aid inflows may reduce the incentive for governments to raise tax revenue ➡️ This creates a reliance on aid instead of building sustainable institutions ➡️ Domestic industries and initiatives may not develop ➡️ Long-term economic development is hindered due to weak self-sufficiency 💰 Misallocation of Resources 🔹 Aid may be allocated based on donor interests rather than local needs ➡️ Infrastructure projects may be prioritised over healthcare or education ➡️ This reduces the effectiveness of aid in tackling poverty ➡️ Opportunity cost of using funds poorly can be high 🧑‍⚖️ Corruption and Mismanagement 🔹 Aid can be siphoned off by corrupt officials or misused ➡️ This leads to minimal improvements for the poor ➡️ Citizens lose trust in institutions ➡️ Aid fails to achieve its intended developmental goals 🧨 Undermining Local Businesses 🔹 Free or subsidised goods can undercut local producers (e.g. free food aid) ➡️ Domestic farmers and manufacturers may lose income ➡️ This stifles entrepreneurship and local job creation ➡️ Long-term damage to private sector growth

Answer 17

💡 1. Helps Fill the Savings Gap (Harrod-Domar model) Many developing countries lack sufficient domestic savings → This restricts investment in capital goods and infrastructure → Aid can provide the investment needed to stimulate growth → Higher growth can lead to job creation, income, and development over time 🏥 2. Supports Essential Public Services Aid can be directed towards sectors like health and education → Improves human capital (e.g. better-skilled, healthier workforce) → Raises productivity and earning potential in the long run → Contributes to higher living standards and poverty reduction 🛠️ 3. Enables Infrastructure Development Tied or project-based aid may fund roads, ports, or energy projects → Reduces transport costs and improves connectivity → Encourages private investment and integration into global trade → Stimulates economic diversification and development 🌾 4. Can Support Agricultural Development Aid targeted to farming inputs, irrigation, or training → Boosts productivity and food security in rural areas → Increases rural incomes and reduces hunger → Enhances overall welfare and reduces inequality 🌍 5. Emergency Aid Prevents Development Reversal In times of conflict, famine, or natural disaster → → Emergency aid can provide vital support (food, shelter, healthcare) → → Prevents loss of life and protects economic capacity (workers, infrastructure) → → Ensures development progress is not reversed during crises

Answer 18

a theory that suggests that countries can achieve economic growth by transferring labour from the traditional agricultural sector to the modern industrial sector

Answer 19

- according to the LM, in a traditional agriculture economy, labour is abundant, as wages are low because workers are not highly skilled - As industrialisation begins, labour is gradually drawn from the agricultural sector to the modern industrial sector, leading to a shortage of labour in the agricultural sector - at the **Lewis Turning Point**, the supply of labour from agriculture becomes limited, and wages in farming begin to rise. This increase in wages leads to higher production costs in agriculture, which raises the price of agricultural goods - as a result, the modern industrial sector becomes more competitive, as they can produce goods at a lower cost than the agricultural sector

Answer 20

📈 Lewis Model – Labour Transfer from Agriculture to Industry Traditional agricultural sector is labour-surplus → → Marginal productivity of labour is close to zero, so moving workers doesn’t reduce output → → These workers move into the industrial sector where productivity and wages are higher → → Increases industrial output, profits, and savings, leading to investment and economic growth 🔁 Capital Accumulation Cycle Profits in industry are reinvested → → Expands the industrial sector’s capital stock → → Absorbs more surplus labour from agriculture → → Sustains growth until surplus labour is exhausted (turning point) 🧍‍♂️ Turning Point and Rising Wages Eventually, all surplus labour is absorbed → → Industrial labour becomes scarce → → Wages rise as firms compete for workers → → Marks shift to modern economy with improved living standards ⚠️ Development Trap if Reinvestment Fails If profits are not reinvested in productive capital (e.g. go to luxury imports or capital flight) → → Industrial growth stagnates → → Surplus labour remains underemployed in agriculture → → Development stalls and dual economy persists

Answer 21

China(as of 2020):~ - Rural population = 510 million (36%) - urban population = 891 million (63%)

Answer 22

👨‍👩‍👧‍👦 Larger Workforce An increase in population generally leads to a larger working-age population → This larger workforce can contribute more to the economy, increasing the total output → With more people available for work, firms can expand production and services, leading to higher economic growth → The increase in available labor can drive higher productivity and output, boosting the overall economy. 📈 Increased Demand for Goods and Services A growing population results in greater demand for goods and services → This increased demand incentivizes businesses to expand and produce more to meet the needs of the population → Firms invest in new products and services to cater to a larger market → As a result, economic activity increases, leading to higher growth rates due to rising consumption. 🏗 Investment in Infrastructure and Capital A larger population often requires more infrastructure, such as roads, schools, healthcare, and housing → To meet the demands of a growing population, both the government and private sector will likely increase investments in infrastructure and capital → These investments create jobs, stimulate economic activity, and increase the economy's productive capacity → Long-term growth can occur as improvements in infrastructure enhance the efficiency of the economy. 🌍 Innovation and Entrepreneurship A larger population increases the number of individuals with diverse talents, ideas, and perspectives → This diversity can lead to more innovation and entrepreneurship, with new businesses and technologies emerging to cater to a growing market → As innovation increases, productivity rises, creating more opportunities for economic growth → A more dynamic and competitive economy encourages further investment and development. 🧠 Evaluation Points (It depends on...) 💡 Quality of Human Capital It depends on the quality of human capital → If the increase in population leads to more skilled and educated individuals, it can result in higher productivity → However, if the population increase leads to a higher proportion of unskilled labor, economic growth may be limited → The impact of population growth on economic growth is stronger when there are effective investments in education and skill development. 🌐 Economic Systems and Policies It depends on the economic system and policies in place → In a free-market economy, increased population can lead to higher competition and innovation, boosting growth → In economies with restrictive policies or weak institutions, a population increase may strain resources and services, leading to economic challenges rather than growth → The extent to which a government supports infrastructure, education, and healthcare can determine how effectively population growth translates into economic progress. 🌍 Resources and Environmental Constraints It depends on available resources and environmental constraints → A rapid increase in population may outstrip the economy's ability to provide essential resources (e.g., food, energy, clean water) → In such cases, population growth might lead to resource scarcity, higher prices, and environmental degradation → If managed sustainably, however, a growing population can drive innovations that overcome resource limitations, leading to growth. 💰 Access to Capital and Investment It depends on access to capital and investment → A larger population increases demand for goods and services, but if businesses and the economy lack sufficient investment to meet this demand, growth may be stunted → Efficient financial markets, access to credit, and international trade can help businesses expand in response to population growth, contributing to overall economic growth.

Answer 23

⚠️ 1. It depends on the absorptive capacity of the modern sector If the industrial sector cannot absorb surplus labour quickly → Unemployment or underemployment may persist → Wage rates may not rise as expected → Structural transformation slows down 🏭 🔄 2. It depends on whether profits are reinvested domestically If profits from the capitalist sector are sent abroad (capital flight) → Investment in domestic industry stagnates → Slower productivity growth and fewer jobs → Model’s prediction of development through reinvestment breaks down 💸 🧑‍🌾 3. It depends on whether there’s truly “surplus labour” in agriculture If rural labour is already productively employed → Moving workers to industry could reduce agricultural output → Food shortages or inflation may occur → Weakens foundation of the dual sector idea 🌾 💼 4. It depends on quality of jobs in the modern sector If industrial jobs are low-paid, insecure or informal → Transition may not improve living standards significantly → Informal urban sector may grow instead → Urban poverty and inequality could worsen 🌆 🏛️ 5. It depends on effective government support and policy If the state fails to provide infrastructure, education or health → Labour may not be productive in the modern sector → Diminishing returns could set in earlier → Industrial growth slows, and the dual transition is incomplete 🏗️ - Countries like Ghana being heavily reliant on agriculture is a limitation of the model. Lewis model may not apply universally, especially where agriculture is a key export or linked to comparative advantage.

Answer 24

🥥 Primary Product Dependency Heavy reliance on raw material exports → → Vulnerable to price shocks and falling terms of trade → → Reduces export earnings and makes planning difficult → → Leads to unstable growth and limits diversification 📉 Volatility of Commodity Prices Prices of goods like oil or coffee fluctuate widely → → Causes unpredictable government revenue and export income → → Makes budgeting and long-term planning difficult → → Discourages investment and hinders development 💰 Savings Gap (Harrod-Domar) Low incomes lead to low domestic savings → → Insufficient funds for capital investment → → Slows down capital accumulation → → Restricts long-run economic growth and development 🌍 Foreign Currency Gap High imports but low foreign exchange reserves → → Difficult to pay for capital goods or essential imports → → Leads to balance of payments deficits or IMF reliance → → Weakens development prospects due to dependency 🏃 Capital Flight Economic instability or corruption reduces investor confidence → → Wealth is moved abroad into safer economies → → Reduces domestic investment and tax revenue → → Triggers liquidity problems and economic stagnation 👶 Demographic Factors High population growth increases demand for services → → Strains resources like healthcare and education → → Lowers human capital quality → → Can hinder growth unless turned into a demographic dividend 💸 Debt High public or external debt burdens → → Large % of budget spent on debt interest → → Less room for education, infrastructure, or health → → Slows development and may trigger debt crises 🏦 Access to Credit and Banking Many people excluded from formal financial systems → → Can't borrow to start businesses or invest → → Limits entrepreneurship and innovation → → Slows down private sector development 🛣️ Infrastructure Poor roads, energy supply or internet access → → Increases business costs and inefficiency → → Reduces trade competitiveness and deters FDI → → Slows industrialisation and long-run development 🎓 Education and Skills Poor education systems lead to low-skilled workforce → → Reduces productivity and innovation → → Traps economy in low-value-added sectors → → Limits economic transformation and growth 🏠 Absence of Property Rights People/businesses lack legal ownership of assets → → No collateral to access credit or invest → → Leads to informal economies and insecurity → → Discourages investment and undermines growth

Answer 25

Economic growth primarily focuses on increasing a nation's total output of goods and services, often measured by GDP. Economic development, on the other hand, is a broader concept that encompasses not only economic growth but also improvements in living standards, quality of life, and social well-being

Answer 26

🌐 What Are Joint Ventures with Global Companies? A joint venture (JV) is when a domestic firm partners with a foreign/global company to share ownership, resources, risks, and profits in a specific business project or entity. This often happens in sectors like energy, manufacturing, or technology in developing countries. 📈 How Joint Ventures Can Boost Economic Growth 🛠️ Technology Transfer → Improved Productivity → Economic Growth Global firms bring advanced technology and processes → → Domestic firms adopt more efficient production methods → → Higher productivity and competitiveness → → Boosts GDP and industrial output 👷 Job Creation → Income Growth → Demand-Led Growth JV projects often require labour across multiple sectors → → Increases employment and household incomes → → Raises aggregate demand → → Stimulates further economic growth 🌍 Export Capacity Improves → Foreign Exchange Increases → Stronger Growth Global partners help expand access to international markets → → Boosts exports and foreign currency earnings → → Reduces trade deficits → → Supports long-term economic growth 🏗️ Infrastructure Investment → Crowds In Domestic Investment → Growth Joint ventures often require improved infrastructure (ports, roads, power) → → Attract more domestic and foreign firms → → Multiplier effect on private investment → → Fuels sustained economic expansion 🌱 How Joint Ventures Can Promote Development 🎓 Skill Development → Human Capital Improves → Better Living Standards Global companies train local workers in new skills and technologies → → Enhances employability and long-term incomes → → Lifts people out of poverty → → Improves education and long-term development 🏥 Higher Government Revenue → More Public Spending → Development Profits from JVs (taxed or shared) raise government revenue → → Funds healthcare, education, and welfare → → Expands access to basic services → → Improves life expectancy and HDI 🏘️ Regional Development → Reduced Inequality → Inclusive Growth JVs often set up in rural or underdeveloped areas → → Generates local employment and business opportunities → → Reduces rural-urban divide → → Supports balanced development ♻️ Environmental Standards → Long-Term Sustainability Global firms may be required to follow international environmental regulations → → Promotes green practices in the host country → → Supports sustainable development → → Preserves resources for future generations

Answer 27

Capital flight is when large sums of money are moved out of a country, often due to lack of confidence or instability

Answer 28

🔹 1. Price Volatility → Economic Instability Primary products (like oil, cocoa, or copper) often face volatile prices → This creates fluctuating export revenues for the country → Makes it hard for governments to plan spending or repay debts → 🚨 Leads to macroeconomic instability and uncertainty for businesses 📉 🔹 2. Risk of Overdependence Economy becomes too reliant on one sector for GDP and foreign exchange → A fall in demand or discovery of substitutes hits export earnings hard → Limited revenue for healthcare, education, or infrastructure → 📉 Development slows, increasing vulnerability to external shocks ⚠️ 🔹 3. Prevents Diversification Resources and investment are focused on the dominant primary sector → Other sectors like manufacturing or services are neglected → Slows innovation, limits job creation in value-added industries → ❌ Structural weaknesses develop in the economy 🏗️ 🔹 4. Deteriorating Terms of Trade (Prebisch–Singer Hypothesis) Over time, prices of primary goods rise slower than manufactured goods → Countries must export more to import the same amount → Worsens trade balance and increases foreign debt dependency → 🔻 Long-term decline in living standards and purchasing power 🌍

development economics Flashcards

(52 cards)