EMERGING + DEVELOPING COUNTRIES

• Economic development


  Improvements in living standards
• Human Development Index (HDI)

  A composite index based on three factors: health, education, and income
• HDI


  • It takes into account three key factors which are important for the development of a country
  • It is relatively easy to calculate because governments tend to collect the statistics used in the data
  • There are some issues with the figures: health takes no notice of the quality of life that people enjoy and education doesn't take into account the quality and success of education
  • There is no consideration for the equality of income
  • There are other factors which affect development, for example freedom from corruption or the environment
• HDI is only an indicator and not a precise measure, so should not be expected to be perfect
• Inequality-adjusted Human Development Index (IHDI)


  An adjustment of HDI which includes a fourth indicator of development: inequality
• Multidimensional Poverty Index (MPI)


  Measures the percentage of the population that is multidimensional poor, using data for health, education and standard of living
• Genuine Progress Indicator


  Calculated from 26 different indicators grouped into three main categories: economic, environmental and social
• Figures like changes in electricity production or the numbers with a mobile phone per thousand of the population can show development levels, and are easier to calculate than indexes
• Primary product dependency


  A large amount of most developing country's economic activity is based on a primary product, which causes issues
• Issues with primary product dependency

  • Natural disasters can wipe out production
  • They are often non-renewable
  • They tend to have a low-income elasticity of demand
  • The Prebisch Singer Hypothesis suggests the long run price of primary goods declines in proportion to manufactured goods
  • The Dutch disease can occur, causing a reduction in competitiveness of the economy
• Volatility of commodity prices

  Primary products tend to have inelastic demand and supply curves, leading to huge fluctuations in price
• Savings gap


  The difference between actual savings and the level of savings needed to achieve a higher growth rate
• Foreign currency gap


  When exports from a developing country are too low compared to imports to finance the purchase of investment or other goods from overseas required for faster economic growth
• Capital flight


  Large amounts of money taken out of the country, rather than being left there for people to borrow and invest
• Demographic factors


  Developing countries tend to have higher population growth, which limits development
• Debt


  Developing countries suffer from high levels of interest repayment, sometimes even higher than the loans and aid they receive from developed countries
• Access to credit and banking


  Developing countries have limited access to credit and banking compared to developed countries
• Infrastructure


  Low levels of infrastructure make it hard for businesses to trade and set up within the country
• Education/skills


  Poor education within these countries means that workers are low skilled, with low levels of productivity
• Absence of property rights

  A lack of rights mean that individuals and businesses cannot use the law to protect their assets, leading to reduced investment
• Non-economic factors


  Corruption, diseases, poor climate and geography, civil wars
• Trade liberalisation


  Removing trade barriers to allow for export-led growth
• Promotion of FDI


  Investment by one private sector company in one country into another private sector company
• Countries with poor climates and geographical terrain

  • May suffer from natural disasters and it may be difficult for farmers or to set up businesses
• Countries suffering from civil wars

  • Causes high levels of poverty and destroys infrastructure, making it very difficult for the country to rebuild even after the war has ended
• Export-led growth


  1. Removing trade barriers

  2. Domestic industries either close or are forced to become as efficient as other world producers

  3. Resources will be allocated to their best use where the country has a comparative advantage
• FDI


  Investment by one private sector company in one country into another private sector company in another
• FDI


  • Firms undertake FDI because production costs are lower in developing countries and because it enables them access to a new market
  • It is different from a loan because if the investment fails, it is the company who has to deal with it and the country does not owe money to foreigners
• FDI


  • Involves the transfer of knowledge from one country to another, with the company bringing production and management techniques and training for staff which will benefit the country as a whole
  • Creates jobs and leads to the effect of the multiplier
  • Labour productivity tends to increase and wages are often higher
  • It is a source of investment and can help to fill the savings gap
• FDI


  • There is usually a repatriation of profits and developing countries may find the company exploits them, by offering lower wages and poorer conditions than they would in a developed country
  • The country will also lose some sovereignty and become dependent on another firm
  • Local competition may find it hard to set up and compete and the best jobs often go to imported labour, leaving only low skilled jobs for locals
  • Environmental damage and exploitation of natural resources and tend to become problems
• FDI


  • India has benefited greatly from FDI. The Make In India initiative liberalised FDI policy and led to a 48% increase in FDI in a range of sectors, including pharmaceuticals, manufacturing and railways
  • Samsung's investment in Vietnam has been crucial. Many local firms are now a part of their supply chain and other businesses have set up around their factories, for example hotels and restaurants
• Subsidies


  Placed on essential items within a country, such as food or fuel, or target agriculture and industry in an attempt to increase output and investment
• Subsidies


  • They are often poorly targeted since subsidies on basic goods like rice will benefit everyone in the country, not just the poor
  • Subsidies to farmers and producers tend to lead to inefficiency and if they are given a large amount over a long period of time, the subsidy becomes ineffective in increasing development
  • They represent a large amount of government spending, incurring an opportunity cost and often leading to high levels of debt
  • They can also cause problems in terms of corruption and criminality
• Removing subsidies


  Can be very politically unpopular and some governments have even been thrown out because of attempting to do this
• Removing subsidies


  • Venezuela has placed subsides on almost all goods due to high inflation and low wages, but this is still not enough and demand is still higher than supply
• Floating exchange rate systems


  Market forces determine the currency, the country does not have to worry about their gold and foreign currency reserves and the government does not intervene
• Floating exchange rate systems


  • The currency can be volatile which makes it difficult for exporters/importers to make decisions about the future and can cause large changes in macroeconomic variables, including economic growth
• Microfinance schemes


  Aim to give poor and near-poor households permanent access to a range of financial services, including loans, savings, insurance and fund transfers
• Microfinance schemes


  • They take little or no collateral and use group lending, pre-loan saving requirements and an implicit guarantee of access to future loans if present loans are repaid fully and promptly
  • They tend to target groups who would be less likely to otherwise receive loans, for example women
• South Africa has shown the problems that can occur with microfinance schemes