Growth and development Flashcards
Define economic growth
The increase in real GDP
Define economic development
Increase in living standards, reduction in poverty, better diet, access to education and healthcare. QUALITY OF LIFE !!
What are the characteristics of LEDC’S
Low life expectancy, high mortality rate, high dependency ratio, low GDP, fast population growth, low levels of education, poor standards of living and nutrition and poor healthcare provision.
What are Rostow’s stages of economic growth ?
1.Trdaitional society
2.Preconditions for take off (transition stage)
3.Take off - industrialisation
4.Drive to maturity - diversification
High mass consumption - service sectors growth
What are the indicators of development: GDP per capita, GNI,GNP and PPP ?
1.GDP per capita
2.Gross national income (GNI) - includes income generated by a country’s agents at home but also that is generated abroad and sent home. In developed countries GNI>GDP where as in developing countries GDP >GNI because of profit outflows and interest payments to developed countries.
3.Gross national product(GNP) - Same as GNI but it also includes earnings of residents even if it is not sent home.
4.Purchasing power parity - compares economic productivity and standards of living between countries. It tries to equalise the purchasing powers of different currencies and see what they can purchase.
PPP exchange rate is used rather than exchange rates because it is easier to compare the cost of living.
What are the economic indicators: total economic welfare and the HDI ?
1.Total economic welfare = welfare from goods and services supplied from by the market + welfare from goods and services by the state + welfare from quality of life factors including externalities.
GNI can give reasonable estimates of the first 2 components of total economic welfare but not the last one because it doesn’t take into consideration externalities.
2.Human development index - an index based on health, knowledge and standard of living ( life expectancy). It ranks countries from a value of 0-1, 1 being high human development
Constructed by:
Health - measured by life expectancy at birth
Education - measured by mean and expected years of schooling
Income - meausred by GNI/capita
NOTE: Inequality HDI considers the real HDI after taking into consideration the inequalities in distribution of income.
What are the limitations of GNI ?
1.GNI can give reasonable estimates of the first 2 components of total economic welfare but not the last one because it doesn’t take into consideration externalities and quality of life.
2.Fails to consider the effects of resource depletion and environmental degradation resulting from current production. Therefore does not consider sustainability for the future.
How can you represent growth and development on a PPF diagram ?
When the ppf shifts outwards and there is an increase in education and healthcare.
What are the factors that affect growth ?
1.Investment - creates jobs and increases productivity
2.Education - boosts human capital
3.Training -boosts human capital
REPRESNT THEM ALL ON DIGRAMS !!
What are the barriers to growth: corruption, institutional factors and poor infrastructure ?
- Corruption - dishonest and illegal behaviours. It diverts away resources from productive uses to protect less efficient uses. It leads to an increase in production costs and consumer prices i.e through payments to corrupt officials.
Corruption inhibits FDI, allocative efficiency and increases income inequality.
- Institutional factors includes legal and judicial structures, availability of financial institutions, role of civil services, education and training. The “law of conduct” is very weak in LEDC’s which means that there are no rules guarding the transaction between consumers and firms, so consumers may end up paying but not receive their product.
- Poor infrastructure - usually done by public sector because its very expensive. This impacts productivity, efficiency and immobility.
What are the barriers to growth: inadequate human capital, lack of property rights and primary product dependency ?
- Human capital refers to the accumulated skill set humans have. Deficiencies can be a problem to raising productivity, income per capita and sustaining improved competitiveness.
2.Lack of property rights - exclusive authority to determine how a resource is used. These are very poor in LEDC’S which means that people cant move easily nor raise finance by using their property as collateral and hinders the ability to trade in private property.
3.Primary product dependency - refers to dependency on raw materials as part of their exports e.g Angola is 95% dependent on fuel exports. The problem is that when there is an increase in exports for raw materials this impacts exchange rates and so other exporting industries.
What are some policies that can be adopted to promote growth and development ?
- Macroeconomic policies - monetary, fiscal and supply side policies
2.Microeconomic policies - Indirect taxes to reduce externalities, subsidies and redistributive policies to narrow undesirable inequalities
What are some market based strategies for growth and development ?
- Trade liberalisation - removing protectionist policies, allowing countries to specialise and achieve growth
- Promotion of FDI
- Removal of subsidies
4.Freely floating exchange rates - self correcting meaning exports will adjust to be cheaper.
- Microfinance schemes - improves enterprise useful for countries with no established banks.
6.Privistaion - changing asset ownership from public to private, increases incentives to be more efficient and so increased growth.
What are interventionist strategies for growth and development ?
- Development of human capital through state provided education
2.Trade protection - using protectionist policies
3.Managed exchange rates - combine characteristics of free and fixed
4.Infrastructure development
5.Promoting joint ventures with global companies - allows small firms to get skills and an insight into a developed industry.
6.Buffer stock schemes - where the government buys up harvest during surpluses and then sell when supply is low to ensure that it guarantees incomes for framers, stabilise prices. BUT ITS EXPENSIVE FOR GOV.
7.Industrialisation - more factories, greater employment and less primary product dependency
8.Tourism
9.Development of primary industries -by giving subsidies to infant industries
- Fair trade schemes - ensure farmers receive a fair price by and ordering an exact quantity to enable them to plan for the future
How does trade or aid promote growth in LEDC’s ?
By bringing an inflow of forgein currency that helps governments fund development strategies e.g infrastructure, education and healthcare
