4.3

• What is primary product dependency, how does it affect growth and development and what are the evaluations


  Many developing economies are reliant on growing/extracting and exporting low value primary commodities

  Dependency on low value goods limits the total value of exports thus limits AD and therefore the level of actual growth is also limited

  
  

  It also limits the income earned by workers, this limits GNI per capita and hence limit living standards

  
  

  Evaluation could be that it depends on the product, raw material from mining are less likely to have supply issues and are often high value
• What is volatility of commodity prices, how does it affect growth and development and what are the evaluations


  It is quite closely related to PPD, primary goods often have volatile prices ie. prices fluctuate up and down unpredictably

  High levels of uncertainty may lead lower investment and limit actual growth, it also limits the productive potential of an economy

  Low investment means quality and quantity of capital develop at a slower rate, this leads to slower gains in the level of living standards, HDI and GNI per capita

  Eval: Depends on products
• What is savings gap: Harrod-Domar model, how does it affect growth and development and what are the evaluations



  Low savings leads to low investment leads to low capital stock leads to low incomes leads to low savings and repeat.. Also financial markets may not be established in LEDCs (lack of access to funds)

  Lack of funds, leads to lack of investment which limits actual growth

  Can also lead to slower rate of GNI per capita, HDI and capital growth and quality increasing

  Eval- any intervention which breaks the cycle eg. Microfinance
• What is Foreign currency gap how does it affect growth and development and what are the evaluations


  Developing countries can face shortage of foreign currency, can lead to lack of foreign currency with which to buy imported capital goods

  Lack of capital goods limits the productive capacity of the economy, restricts potential growth

  Slower gains in the level of living standards, slow growth of GNI per capita and HDI grows more slowly

  Foreign finance may be available to provide funds for capital goods, aid could also provide the capital goods or the funds to buy them
• What is capital flight? How does it affect growth and development and what are the evaluations?


  Capital flight is the uncertain and rapid movement of large sums of money out of our country

  Due to the lack of funds for domestic investment, along with lack of FDI, it's limits actual growth and limits potential growth due to the lack of investment

  Governments can impose restrictions on the freedom to move money out of the economy. Any strategy that creates funding/credit for investment could resolve the problem for example, micro financing.
• What is demographic factors? How does it affect growth and development and what are the evaluations?

  The vague term covers a range of different population issues. The main problems include high population growth.

  Rapidly rising population can lead to rising level of potential growth

  If total population rises faster than GNI, then GNI per capita will fall, living standards also fall. It's also makes education less accessible as there is limited capacity of how much a school can take.

  Evaluation: falling birth rates overtime means that globally population is not rising as rapidly as it was
• What is debt? How does it affect growth and development and what are the evaluations?


  Historical lending can leave developing economies burden with significant levels of debt

  It will decrease A.D as there are withdrawals from the economy this reduces actual growth. It's also reducing the ability of government to develop supply side of the economy, therefore limiting potential growth.

  Greater spending on interest, payments limits, health and education spending. It's also reduces years of schooling and life expectancy and reduces level of HDI.

  Evaluation could be debt relief
• What is access to credit and banking? How does it affect growth and development and what are the evaluations?


  Developing countries often have less developed financial systems than develop countries

  Lack of finance means lack investment, this limit actual growth and potential growth

  Lack of funds for investment means output of the economy remains low. This slim is the level of GNI per capita. This also limits living standards and HDI

  
  

  Evaluation could be citizens have access to mobile banking. Alternatively, other sources of funds could be available for example, micro finance
• What is infrastructure? How does it affect growth and development and what are the evaluations?


  Infrastructure includes transport, communication, energy

  Lack of investment reduces aggregate demand this limits, actual growth and potential growth

  Low investment (capital quality and quantity develop at a slower rate) leads to slow gains in the level of living standards GNI per capita, and therefore HTI grows more slowly

  External funding can help to plug any domestic funding up
• What is education/skills? How does it affect growth and development and what are the evaluations?

  The education and skills of the workforce is sometimes referred to as human capital

  Low productivity, negatively impacts, LRAS, so reducing potential growth, lack of investment would limit actual growth.

  Low skills and productivity levels limit, the earning potential workers. This limits the level of GNI per capita so limiting living standards and therefore HDI

  One evaluation could be aid, could provide sources of funding to help more children go to school
• What are non-economic factors how does it affect growth and development and what are the evaluations?


  For example, diseases corruption

  Corruption can lead to poor economic decision making this may reduce business confidence, therefore lack of investment which lowers aggregate demand therefore actual growth

  Health problems from diseases limits HDI, by lowering life expectancy. Conflict may lower income, earning potential, disrupt schooling, and reduce life expectancy.

  Problems at immense can be overcome, for example COVID-19 vaccine
• What is trade liberalisation? How does it affect growth and development?


  Reducing various to trade with foreign countries

  If a country has comparative advantage, they may decide to exploit it and increase total real output, which increases actual growth, improved efficiency and productivity helps to increase the potential growth of the economy. Greater output and lower prices are good for living standards and may raise more people out of poverty
• What are the evaluations of trade liberalisation?

  Evaluations could be loss of import tariff revenue. risk of structural unemployment. Gains of trade liberation may be in the long run.
• What is protectionism and how does it affect growth and development?


  Protect domestic industry from foreign competition by putting up trade barriers

  High tariffs, reduced demand for import which switches consumer spending to domestic production- this increases aggregate demand and therefore actual growth. If infant industries get established, then it could create future export markets also raising aggregate demand.

  Higher value goods should lead to higher paid jobs, increasing GNI per capital, raising living standards, and therefore, HDI
• What are the evaluations of protectionism?

  Retaliation – when raising tariffs, it is likely that other countries will respond by raising tariffs themselves

  Dependency- if firms get used to being shielded from foreign competition, they can become dependent on it, and never become efficient enough to compete in a global market
• What is a floating exchange rate system and how does it affect growth and development?


  Allowing the currency to be determined by markets, with no government or central bank interference

  A fixed currency uses valuable government resources to maintain the currency fix, this could allow more investment into the economy, stimulating, aggregate demand, therefore actual growth

  Increase levels of 80 should increase GNI per capita which increases living standards and HDI
• What are the evaluations of floating exchange rate system?


  Evaluation: floating systems are likely to be more volatile in the short run. Therefore this creates uncertainty which could reduce investment especially from FDI. This could be detrimental to A.D.
• What is managing exchange rates? How does it affect growth and development?


  Intervention by government or central bank to influence the value of the currency relative to a significant trading partner

  We currency makes a price of input rise and relative price of export for this should increase X and reduce M causing A.D. to rise therefore actual growth

  Increases in demand for export should create jobs and stimulate the economy. This should raise GNI per capita which raises living standards and HDI.
• What are the evaluations of HDI?


  Evaluation a managed exchange rate is fighting against the market rate-therefore, constant intervention is needed to maintain the rate at a market this equilibrium

  A government may lack the funds to manage your currency for a sustained period of time
• What are the evaluations of absence of property rights?


  Evaluation – property rights can be given to assets that previously had no ownership or common ownership, micro finance can provide lending to individuals that would otherwise not get credit due to lack of assets
• What is absence of property rights? How does it affect growth and development?


  When assets lack defined ownership, they cannot be used effectively to create investment.

  Lack of investment reduces actual growth and potential growth.

  Low investment means capital, quality and quantity developer, a slow rate, which means slow against the level of living standards. GNI capital and HDI grow more slowly.
• What is promotion of FDI? How does it affect growth and development?


  Foreign direct investment includes any investment by foreign firms or government into domestic businesses or projects

  Increasing investment, creating an injection which increases A.D and creates actual growth. Great investment increases the productive potential of the economy which increases potential growth.

  FDI also the opportunities for developing economies to move into higher value, secondary and touch sectors and increase income lending to higher living standards. Improving HDI.
• What are evaluations of promotion of FDI?


  FDA may lead to exploitation, by multinational cooperatives- taking far more than the gains they provide

  Can create a race to the bottom for example, lower tax levels and regulations levels in order to attract MNC's
• What is promoting joint ventures?


  Foreign companies investing in a country may result in repatriation of profit and little gains for the host country. For example, profits are split 50-50.

  Sharing of ideas in good practices, along with investment in capital should raise product productivity and increase potential growth, injection from abroad, raises, aggregate, demand and leads to actual growth

  Join ventures allow access to higher value goods, therefore increasing GNI per capita and living standards due to raised incomes
• What are the evaluations of promoting joint ventures?


  The imposition of restrictions and ownership rules may act as a distance incentive to foreign companies

  If the joint venture is accompanied by significant regulations and rules on the business practices, then it may discourage FDI
• What are government subsidies and how does it affect growth and development?

  Government can provide farming, subsidies and manufacturing subsidies.
• What what is removal of government subsidies and how does it affect growth and development?


  Subsidies can create dependencies, encourage inefficiencies, therefore, a government may remove the subsidy

  Switching from inefficient subsidies to spending on infrastructure, health or education, could raise the productive potential of the economy, therefore increasing potential growth.

  If spending is focused on health or education, then it should lead to improve in HDI
• What are the evaluations of removal of government subsidies?


  May create even greater competitive disadvantage of a country compared to more developed country for example, cotton substance, significantly higher in US and EU

  Subsidies are an injection to economy. Therefore, removal of a subsidy can lead to reduce aggregate demand which would reduce actual growth.
• What are the evaluations of buffer stock scheme?


  Not very common

  Huge financial capital required a start and maintain a scheme

  Generally attempting to influence a global commodity price, which may not be sustainable

  Leads to a constant need to buy stocks in order to maintain the price

  Scheme simply have money
• What is buffer stock scheme and how does it affect growth and develop?


  Use the minimum maximum price correctly, if the price falls below the price floor, the buffer stock agency by the stock to increase demand and raise the price above the floorCommodity price volatility is a problem for countries dependent on primary export, buffer stock schemes, aim to reduce volatility

  Greater price stability means investment is more likely, therefore boosting that actual growth, potential growth

  Minimum price creates guarantee of income, increases living standards of the poorest workers
• What is the micro finance scheme and how does it affect growth and development?


  A significant number of people in developing economies lack access to basic banking. Micro finance provides very small loans to individuals that otherwise we're not get them

  Encourages investment, therefore increasing potential growth and actual growth

  It generates income living standards and can reduce inequality
• What are the evaluations of micro financing?


  Due to the lack of regulation, micro finance organisations may charge individuals, high interest rates and therefore create a debt trap
• What is privatisation and how does it affect growth and development


  It's involves selling of state owned enterprises to the private sector

  Due to the greater competition cost of production should reduce therefore increasing short run, AS. If firms become more internationally competitive then could raise AD thus increasing actual growth.

  Increased real output should lead to rising GNI per capita which increases a living standard
• What are the evaluations of privatisation?


  Privatisation of an industry that remains a monopoly may not increase efficiency

  Corruption-nationally owned firm may be sold below marketplace for financial gain of the ruling party
• What is infrastructure development and how does it affect growth and development?

  Development of infrastructure

  Improved infrastructure makes the economy stronger option of FDI, which could link to actual growth

  Also increases the productive potential, therefore increasing potential growth

  Improvement in productivity means value that the workers are producing increases, this can increase income so increasing GNI per capita improving living standards and HDI
• What are the evaluations of infrastructure development?


  Government may not have the funds to develop all the infrastructure necessary, and may not complete if the structure project efficiently
• What is the development of human capital? How does it affect growth and development?

  Developing the quality and accessibility of education to raise skills levels in the economy

  Improvements and skills and productivity increased the quality of labour in the economy, so should raise the productive potential of the economy

  Greater access to education should increase the means years of schooling in the economy, increasing the education dimension of HDI. High skills mean that the work is connected as higher value and therefore higher paid jobs increasing living standards.
• What are the evaluations of developing of human capital?


  Affordability problems for very low income countries

  Can be very long time lag before the impact

  Governments and donors may be too short-termist

  There's a lot of suitable skilled jobs it may simply lead to a brain drain effect
• What is industrialisation: the Lewis model? How does it affect growth and development?

  Development countries can achieve economic growth by transferring labour from the traditional agricultural sector to the modern industrial sector

  Increasing the level of productivity overtime, should increase a productive capacity of the economy, therefore increasing potential growth

  High productivity and higher value of good should lead to high wages which increases living standards
• What is the evaluation of industrialisation: the Lewis model?


  The model doesn't suggest how the process should happen. For example, should the government full issue, or is this something that will happen organically as the economy develops

  No guarantee that workers in urban sectors will have higher productivity or income levels, especially in countries where there's no minimum wage