Economic Development

Question 1

What is Economic Development?

Answer 1

The increase in the economic welfare of people through growth in productive scale and wealth of an economy

Question 2

Differences between Economic Growth and Economic Development

Answer 2

Economic growth focuses on the change of the size of the economy which does not necessarily including improving the welfare of the people.

Question 3

What is Standard of Living?

Answer 3

The social and economic wellbeing of people in a country

Question 4

Characteristics of Industrial Structure in different economies

Answer 4

DEVELOPED ECONOMIES
- The largest sector is the tertiary sector
- Manufacturing output and employment declining
- Small Primary Sector

DEVELOPING ECONOMIES
- The secondary sector is expanding, as well as tertiary sectors industries
- The employment in primary sector is shrinking as they become more capital intensive

LEAST DEVELOPED ECONOMIES
- Most workers are employed in agriculture and other primary sector industries, with very few manufacturing industries
- Tertiary sector is small

Question 5

Characteristics of Educational Attainment in different economies

Answer 5

DEVELOPED ECONOMIES
- Most people spend several years in full time education and study, from primary schooling through to higher education in colleges and universities

DEVELOPING ECONOMIES
- Investment in the provision of schools & colleges is increasing
- Teaching quality and access to full-time education is improving

LEAST DEVELOPED ECONOMIES
- Provision is poor & few children attend school regularly

Question 6

Characteristics of Healthcare in different economies

Answer 6

DEVELOPED ECONOMIES
- Most people have free or subsidised access to high quality health care

DEVELOPING ECONOMIES
- Quality is good, and continues to improve and access is widening

LEAST DEVELOPED ECONOMIES
- Provision of healthcare is limited and the quality is poor

Question 7

Characteristics of Factors of Productivity in different economies

Answer 7

DEVELOPED ECONOMIES
- Most industries are capital intensive
- Labour and capital productivity are high

DEVELOPING ECONOMIES
- Labour skills and productivity are increasing, and they use capital to boost this further

LEAST DEVELOPED ECONOMIES
- Most industries are labour intensive, and labour productivity is low

Question 8

Characteristics of Saving & Investment in different economies

Answer 8

DEVELOPED ECONOMIES
- Banking systems are well developed and total savings are relatively high, and therefore there is lots of money ready to be used as investments
- Firms & Governments are able to access capital from international sources.

DEVELOPING ECONOMIES
- Banking systems are developing as average incomes and savings increase
- Capital from international sources are also attracted by new opportunities
- Infrastructure development is rapid and significant

LEAST DEVELOPED ECONOMIES
- Banking systems are non-existent, there is a lack of savings because average incomes are low, and there is an overall lack of capital to invest with

Question 9

Characteristics of Population in different economies

Answer 9

DEVELOPED ECONOMIES
- Population growth is low or negative due to low birth rates

DEVELOPING ECONOMIES
- Population growth is slowing in many developing economies

LEAST DEVELOPED ECONOMIES
- Tends to be high, as birth rates are high and exceeds death rates

Question 10

Characteristics of Income in different economies

Answer 10

DEVELOPED ECONOMIES
- Incomes and living standards are generally high and consumer spending is high

DEVELOPING ECONOMIES
- Incomes and living standards are improving for many people
- The amount and variety of affordable goods are growing quickly

LESAT DEVELOPED ECONOMIES
- The incomes and living standards for many people are low
- Access to basic goods & services are limited

Question 11

Indicators of Living Standards

Answer 11

REAL GDP PER HEAD:
This is the most commonly used indicator. However, this is a narrow measure as it doesn’t measure what people can buy with their income, their access to health care or non-economic factors like political freedom or quality of environment. No inequality shown as well.

HDI (Human Poverty Index):
The HDI combines GDP per head, life expectancy and year of schooling to form an indicator with equal weighting. This is good as it incorporates multiple different things, but it doesn’t take into account inequality, environmental damage, cultural differences, rights and happiness

Population in Poverty:
Another measuring method is by seeing the proportion of people who are living on incomes less than a dollar a day (Extreme Poverty) or 2 dollars a day (Moderate Poverty)

Question 12

Reasons for Low Economic Development Pt.1 (Over-Dependence, Domination, Capital & EduHealthSkill Issue)

Answer 12

OVER-DEPENDENCE ON AGRICULTURE
- More people in less developed economies work in farming rather than manufacturing
- They mostly produce as much as needed to eat, with little surplus
- Global warming has impacted these people as it has caused crop failures

DOMINATION OF INTERNATIONAL TRADE
- Rich developed countries exploit poorer countries by buying up raw resources then refining it and selling it back to those countries
- They also boost domestic industries through subsidies, meaning poorer countries can’t compete

LACK OF CAPITAL
- Because incomes are so low, there is insufficient funds to invest in factories and the purchase of machinery, so can’t build an industrial base
- Without capital goods, less developed countries can’t compete due to lower production

INSUFFICIENT INVESTMENT IN SKILLS, HEALTH & EDU
- Many people in less developed countries can’t access education, training or health care which would’ve made them healthier, more productive and more innovative workers
- Better education leads to lower birth rates too

Question 13

Reasons for Low Economic Development Pt.2 (Infrastructure, Inefficiencies, Population & Bonus)

Answer 13

LOW LEVELS OF INVESTMENT IN INFRASTRUCTURE
- Road, rail & communication networks are poor in poorer countries, so travel and sharing of information is difficult

LACK OF EFFICIENT PRODUCTION & DISTRUBUTION
- Many less developed countries lack industries and services. If incomes are low, there is less incentive to set up shops. If transport is inconvenient, rural areas are unable to go to cities, and it is difficult to get things to these rural places. If workers lack skills, the industry can’t employ them. These make trade difficult & production, with high costs and low revenue

POPULATION GROWTH
- In less developed countries, the population is rapidly expanding due to high birth rates, leading to the supply of goods & services being shared between more people over time

OTHERS
- Unstable corrupt governments & wars
- It diverts funds for investment to weapons or pockets of officials

Question 14

Differences between Nominal GDP, Real GDP and GDP per Capita

Answer 14

Nominal GDP does not adjust for inflation while real GDP does and GDP per capita means Real GDP that is divided by the population

Question 15

What is Absolute Poverty & Relative Poverty

Answer 15

Absolute Poverty is when someone is living below the poverty line, currently defined at $1.90 USD per day.

Relative Poverty is when someone is living on an income 50% less than the median income of their society.

Question 16

Causes of Poverty

Answer 16

LOW INCOME
Low income means… low income. What do you want?

UNEMPLOYMENT
You can’t earn income when you are unemployed.

ILLNESS
Sickness reduces your productivity, maybe causes you to lose your job and has high costs to pay for.

AGE
Unable to do certain types of work (Hard Labour), you’re only able to work fewer hours and are less productive.

Question 17

How to alleviate poverty? (They don’t)

Answer 17

ECONOMIC GROWTH
Trickle-down policy, a rising tide raises all boats, rich people can create more job opportunities for poorer people. However, people in reality outsource jobs to other countries for lower prices, and the rich don’t pay much taxes.

EDUCATION
Attracts investment from abroad and increases labour productivity. However this requires a functional education system.

PROGRESSIVE TAXATION
Reduce inequality and funds money for other government projects. However this requires stable government authority, a strong tax collecting system and overall stability.

NATIONAL MINIMUM WAGE
Reduces absolute poverty as people must pay. Requires strong institutions. This also causes less jobs available as people will demand less jobs due to higher price.

STATE BENEFITS & PENSIONS
Old people have hard time earning income, so pensions can help these people. Social benefits can also provide a safety net for those unemployed. However, this needs the country to have money.

Question 18

Factors of Population

Answer 18

BIRTH RATES
Low education, low access to contraceptives, less female independence, higher infant mortality rates and a lack of a pension all tend to cause high birth rates. The last two, if babies die more often, you want to make more, and these children take care of you when you are old.

DEATH RATE
Economic development/Income (More access to healthcare, less stress e.t.c), Civil Strife (War) and Poor Safety Regulations.

NET MIGRATION
Positive migration means a decrease in population and vice versa. Reasons for migration is economic opportunity, war, education & persecution.

Question 19

What is optimum population?

Answer 19

Optimum population is the population where GDP per capita is the highest.

Question 20

What is specialisation & national specialisation?

Answer 20

SPECIALISATION
When individual firms & economies concentrate on the production of particular goods & services.

NATIONAL SPECIALISATION
When an economy concentrates it’s production on a small range of goods and services to exploit cost advantages & availability of resources

Question 21

Benefits of Specialisation for Firms & Countries

Answer 21

A country can access greater productive potential through trading with other countries for goods they need. Both firms and countries can develop EoS which will increase productivity and/or economic growth.

Question 22

Disadvantages of Specialisation for Countries

Answer 22

Economies become reliant on one industry which can suffer. If demand for the good falls, a disaster occurs or tariffs & trade wars happen, your economy will suffer greatly.

Question 23

What is Globalisation & Multinational Corporations (MNCs)

Answer 23

Globalisation is the merging of economies into one global economy. Multinational Corporations are firms that operate in several companies but is headquartered in one.

Question 24

Benefits of Corporations going Multinational

Answer 24

They are able to access larger markets & access skilled/cheaper labour.

Question 25

Benefit & Disadvantages to host country of MNCs

Answer 25

Generates Employment, tax revenue, more consumer choice & the ‘Spillover effect’. Skilled labour is trained and they can then leave and go do their own stuff.

This can cause crowding out of local businesses, ring-fencing (not engaging in local economy/limited local exposure) and a race to the bottom where MNCs hold leverage over countries, forcing the countries to cause over-incentivisation, ruining any benefits.

Question 26

Disadvantages to headquarter country

Answer 26

It can cause loss of employment and tax revenue as it goes to other countries. The country also becomes more vulnerable to foreign events as they disruption to them will cause harm to you.