Emerging and developing countries

Question 1

What is economic development?

Answer 1

Sustainable increase in living standards for a country,typically characterised by increased increases in life span, education levels and income

Question 2

What are the measures of development?

Answer 2

Single indicators - infant mortality rate, % population with access to clean drinking water
Composite indicators - HDI

Question 3

What is the Human Development Index?

Answer 3

• Developed by United Nations and is a combination of 3 indicators:
  1. Health - life expectancy etc.
  2. Education - mean years of schooling and expected years of schooling
  3. Income - gross national income per capita and purchase power parity
• Each indicator is given equal weighting

Question 4

What are the advantages of HDI?

Answer 4

• Composite indicator which provides a more useful comparison metric than single indicators
• Incorporates three of the most important metrics for households
• Widely used so provides opportunities for meaningful comparisons
• Provides a goal for governments
• Provides info on quality of life

Question 5

What are the disadvantages of HDI?

Answer 5

• Does not measure inequality
• Does not measure or compare levels of absolute and relative poverty
• Does not provide useful short term info as gathering data is difficult, meaning data often lags reality by several years

Question 6

What are other indicators of development?

Answer 6

• Inequality adjusted HDI
• Multi dimensional poverty index

Question 7

How is primary product dependancy a factor that influences growth and development?

Answer 7

• Primary products tend to have very low elasticity of demand (YED) so as world income rises, there is a less proportional increase in demand
• Primary products have very little added value

Question 8

How is volatility of commodity prices a factor that influences growth and development?

Answer 8

• Inelastic nature of demand and supply of commodities means small changes in demand or supply can lead to large changes in price
• When commodity prices rise, GDP rises and vice versa

Question 9

How is The savings gap: Harrod D’omar model a factor that influences growth and development?

Answer 9

• Increased savings = increased investment = higher capital stock = higher economic growth = increased savings
• Any intervention to increase capital stock will lead to growth
• Does not account fro labour productivity, corruption or technological innovation
• Focused only on physical investment

Question 10

How is capital flight a factor that influences growth and development?

Answer 10

• Occurs when money or assets rapidly leave a country
• May happen due to: political upheaval, economic sanctions, war or changes to government
• Sanctions on Russia in 2022 led to $75 billions of capital outflow
• Reduces money for investment which reduces growth and development

Question 11

How do demographic factors influence growth and development?

Answer 11

• If dependancy ratio is high, means there is less money for investment and savings
• Many developing countries have high dependancy ratios

Question 12

How is access to credit and banking a factor that influences growth and development?

Answer 12

• Financial institutions enable individuals and firms to borrow money which can be used for investment or to generate growth

Question 13

How is infastructure a factor that influences growth and development?

Answer 13

• Good infrastructure reduces business costs and attract FDI
• Poor infrastructure makes it difficult to generate economic activity

Question 14

How are education and skills factors that influence growth and development?

Answer 14

• Investing in supply-side policy increases the potential output of a country
• Higher education/skills level = higher human capital = increased productivity = higher output = higher income

Question 15

How is absence of property rights a factor that influences growth and development?

Answer 15

• Property is a main household asset which can be used to secure loans or generate income
• A lack of property rights in developing countries prevent this from happening

Question 16

What are the non-economic factors affecting growth and development?

Answer 16

• Corruption = lower investment, divert funds, low levels of growth and development
• Poor governance = inefficient use of resources and poor decision making
• Wars = destroys infrastructure, disrupts supply chains and reduces post war supply of labour
• Political instability = changing policies and priorities reduces confidence so international investment is slower
• Geography = harder for landlocked countries to generate economic growth, transportation and administration costs are higher, cost of production increases and competitiveness decreases

Question 17

What are market orientated strategies?

Answer 17

Strategies that create the conditions for private individuals and firms to pursue economic activity with the aim of maximising profit

Question 18

What are the examples of market orientated strategies?

Answer 18

1. Trade liberalisation - increases output, incomes and employment
2. FDI - increases output, employment and income
3. Subsidy removal - increase competition, efficiency, employment, profits and income
4. Floating exchange rate system - generate higher incomes as cost of imported raw materials reduces
5. Microfinance - helps break out of poverty cycle in developing countries
6. Privatisation - increase competition, output, employment and incomes

Question 19

What are interventionist strategies?

Answer 19

Strategies which are put in place by governments to correct the failings of the free market and promote welfare/development of it’s citizens

Question 20

What are examples of interventionist strategies?

Answer 20

1. Human capital - raise potential output and increased incomes
2. Protectionism - lower wage rates, protecting employees and higher levels of income
3. Managed exchange rates - prevents appreciation and a slowdown in exports leading to long periods of growing income
4. Infrastructure - makes economic activity easier
5. Joint ventures - increase trade and output
6. Buffer stocks - income stability, increase employment

Question 21

What are buffer stock schemes and their issues?

Answer 21

Created when governments buy up stocks of agricultural products when harvests are plentiful, store them - and then sell them when supplies are low
Aim to support agricultural producers, consumers and stabilise market price of these products

Can cause issues:
- Storage is expensive
- Difficult to analyse and control market forces
- Requires all producers to participate honestly

Question 22

What are other strategies of growth and development?

Answer 22

1. Industrialisation (Lewis Model) - productivity and incomes are higher in industrial sector
2. Development of tourism - source of employment, incomes and revenue however negative externalities
3. Development of primary industries - comparative advantage
4. Fair trade schemes
5. Aid - beneficial in times of distress but may breed dependancy
6. Debt relief - can be used for infrastructure development, create welfare system and invest in education BUT can create dependancy and moral hazard

Question 23

What is the World Bank?

Answer 23

• Founded in 1944
• Provide reconstruction loans
• Provide loans for development
• Encourage economic reforms and trade liberalisation

Question 24

What is the International money fund (IMF)?

Answer 24

• Founded in 1944
• Monitor country’s policies and national, regional and global economic developments
• Help deal with balance of payment problems

Question 25

What are NGOs?

Answer 25

- Voluntary which do not make a profit but aim to provide a service - Engage in small scale operations - Draw on local skills - Encourage sustainability