Economic Development Flashcards
(25 cards)
What is economic development
Increase in the quality of life of citizens of a country over time by expanding people’s freedom to live long, healthy and creative lives.
What is human capital
A measure of the skills, education, capacity and attributes of labour which influence their productive capacity
What is the difference between GDP and GNP (gross national product)
GDP measures the value of all goods and services produced within the country’s borders.
GNP measures the value of all goods and services produced by a country’s citizens both domestically and abroad
Why is some human capital under-developed
Too few resources put into schooling
Poor access to education
Human capital flight (brain drain)
What are the problems associated with lack of development due to poor education
Low labour productivity, as less skills in the workforce and less innovation
Lower earnings
What does HDI measure
Economic development via a combination of average life expectancy, average number of years in school and gross national income
Policies to promote economic development - market based
Trade liberalisation
Promotion of FDI
Removal of government subsidies
Floating exchange rate system
Microfinance schemes
Privatisation
What types of strategies can promote development
Market based, interventionist and other
Policies to promote economic development - interventionist
Development of human capital (education and training)
Protectionism
Managed exchange rates
Infrastructure development
Buffer stock schemes
Other policies to promote economic development
Development of tourism
Development of primary industries
Aid
Debt relief
Measures of economic development
HDI
Economic structure of the economy
More indirect indicators eg access to health and education, access to the internet and mobile phone usage
What is purchasing power parity
A metric which compres economic productivity and standards of living between countries. It compares currencies through a basket of goods.
What is the importance of PPP adjustments
When price levels in a country are much lower than US, using US dollars at market exchange rates will underestimate standard of living
What is national income
A measure of the monetary value of the flow of output of goods and services produced in an economy over a period of time
Evaluation of trade liberalisation
Making use of comparative advantage is at odds with helping a developing economy to move away from primary commodities because that is likely what its best at
Removal of tariffs may be one sided- trade partners leave tariffs in place
Can cause domestic workers to suffer if there is now less demand for domestic goods
Evaluation of policies to encourage FDI
Impact of FDI from MNCs is often harmful due to its exploitative nature.
Most policies which make countries attractive to FDI also limit its benefits eg lower corp tax.
MNCs take advantage of cheap labour and exploit natural resources
Obstacles to development
How beneficial is natural resource endowment?
Low levels of health and education
Low life expectancy
Impact of More Economically Developed Countries’ trade policies,
Impact of poor infrastructure, capital and tech
Institutional weakness
Poor governance
High public sector debt
How does trade liberalisation raise development
Allows for comparative advantage, which increases world output and promotes efficient allocation of resources
Allows developing countries to access the protected markets of the developed world
Improves consumer welfare as lower prices
How does international aid help development
Can increase life expectancy as investment can be directed into health care or improved infrastructure
Same with education
Better education means more income, AD up rGDP up
What is international aid
The transfer of capital, goods or services from a country or international organisation for the benefit of the recipient country. Can be in the form of loans or money that isn’t required to be repaid
Evaluation of international aid
Can create reliance on aiding country/organisation
Half of international trade is “tied”, meaning recipients have to use it to buy goods and services from the donor nation, so it’s less effective
Loans can worsen situation due to debt accumulating.
How does debt relief help development
Countries can invest more as they don’t have to worry about repaying debt
Can lead to lower taxes as govt doesn’t need as much revenue to pay for debt. Disposable income up, consumption up. More savings, so cheaper investment
Evaluation of debt relief
By providing an insurance policy against poor financial management by national governments debt relief causes moral hazard, so precautions preventing future debt aren’t taken.
Corrupt countries won’t make use of the help
How does import and export substituting industrialisation help development
Growth in rGDP due to exports up (exploit comparative advantage) and imports down (improving domestic production)
Profits from exports can be invested
