Emerging and Developing Economies

• What is the aim of development?

  - To create an enabling environment for people to enjoy long, healthy and creative lives
• What is the HDI

  Human development index
• What are the 3 equal weights within the HDI

  - Education, Health and Real GNI at PPP
• What is the index value of HDI going to be between

  0 and 1
• A Higher HDI value means

  A higher level of development
• What are some strengths of the HDI measure of development

  - It combines the effect of increased growth and other life quality indicators

  - relatively easy to calculate

  - not solely financial based

  - good standard indicator

  - can help influence policies
• What are some limitations of the HDI

  - It doesn't take into account inequality, poverty or other measures of deprivation

  - Its hard to put a value to some of the factors that influence it

  - It is only an indicator, and not a precise measure, so shouldn't be expected to be perfect

  - uses secondary data to calculate
• What is the IHDI

  Inequality-adjusted HDI

  - adjusted for inequalities in the distribution of achievements in each of the 3 dimensions of HDI
• IHDI = HDI when.

  When there is no inequality
• IHDI is lower than HDI when..

  inequality rises
• What is MPI

  Multidimensional Poverty Index

  - Reports and complements money based measures by considering multiple deprivations and how they overlap

  - uses the same 3 dimensions as HDI

  - shows the number of people who are multi dimensionally poor
• What is :) of MPI

  - It can be deconstructed by region, ethnicity or other factors, which makes it useful for policy makers
• What is the GPI

  Genuine progress indicator

  - attempts to measure the environmental impact and social costs of economic production and consumption in a country, and whether its a negative or positive factor in overall health and wellbeing

  - Balances GDP against external costs
• What are examples of high income economies

  Western Europe, the USA, Canada
• Where are low income economies disproportionately found

  Africa
• What are developed countries

  High income countries with a high qualityb of life
• What are first world countries

  Rich, developed and high income countries
• How can primary product dependency impact growth and development

  - If natural disasters wipe them out, or if they run out due to their non renewable nature, the country will suffer

  - Plus they tend to have a low YED, which means that when incomes rise, demand for primary products doesn't tend to rise, unlike manufactured goods
• What is the Prebisch Singer Hypothesis?

  - suggests that in the long run, the price of primary goods declines in proportion to manufactured goods
• Primary product dependency eval

  - In recent years, there has been a rise in the price of some key commodities e.g food, and a fall in the price of some manufactured goods die to the expansion of production to countries like China

  - Plus not all primary products have a low YED e.g diamonds
• Primary product dependency Application (Saudi, Ghana)

  - Saudi Arabia used their ppd on oil to grow

  - Ghana suffered due to their ppd on gold, cocoa and oil, which made up 75% f their total exports. This lead to them having to ask the IMF for a loan in 2014 due to thier unsustainable BOP deficit
• How does volatility in commodity prices influence growth and development?

  - primary products tend to have inelastic demand and supply, which can lead to huge price fluctuations in response to relatively small changes in demand and supply

  - this means that a producer and a countries income is constantly changing and difficult to forecast

  - this can deter fdi, long term investment, and can lead to poverty and price instability

  - It can also cause overinvestment when the commodity price rises, causing long run risk when the price falls again
• Volatility in commodity prices application (Ukraine)

  - World commodity food prices rose nearly 40% two years before Russia invaded Ukraine, and the war has pushed it further
• How does the level of savings and investment influence growth and development

  - Developing countries have lower incomes, and this save less, which leads to less money for banks to lend, which in turn lowers investment via borrowing
• What is a savings gap


  - the difference between actual savings and the level of savings needed to achieve a higher growth rate
• Savings Gap application

  - Africa's saving rate is around 17% of GDP compared to 31% on average for middle income countries
• Harrod Domer model eval

  - Ignores labour productivity, technological innovation and the level of corruption

  - some countries have experiences rapid growth rates despite a lack of savings e.g Thailand

  - Investment may be wasted, so it may not lead to econ growth
• What does the harrod domer model suggest


  - inadequate savings lead to low investment

  - concludes that economic growth depend son the amount of labour an capital, and investment is crucial to improve capital

  - Investment requires savings
• How does a foreign currency gap influence growth and development

  - a shortage of foreign currency can be due to relatively low export earnings, or world oil prices rising meaning import value rises
• Foreign Currency gap application (Ethiopia)

  - 2008, public debt was around 60% of GDP (most in foreign currency), so they may not have ha enough foreign currency to repay their debt
• How does Capital flight influence growth and development


  - If the money had remained in domestic banks, then credit could be created by these banks for consumers and businesses to spend
• What is capital flight


  - when owners of extra income that count be saved domestically and used for investment withdraw their money from the country in search of higher returns abroad
• Why does Capital Flight occur

  - Due to a lack of confidence in the countries stability, to hide it from government authorities or for profit repatriation
• In which country did capital flight cause an economic crisis, and when?

  Argentina, 2001
• How do demographic factors influence growth and development

  - many developing and emerging economies have high birth rates and death rates , which leads to high dependency rates

  - this high population growth limits development as the economy needs to grow proportionate to the population to maintain living standards

  - An increase in dependents places strain on the education system, and leads to youth employment
• Demographic factors Application


  - by 2050, the population of Africa is expected to double, which complicates efforts to reduce hunger
• How does access to credit and banking influence growth and development

  - If individuals cannot access credit and banking services, they they may not be able to secure loans to start businesses

  - this limits the scope for growth

  - And the lack of funds for investment results in an inability to save for the future
• How does infrastructure influence growth and development


  - inadequate infrastructure means that firms will find it difficult and costly to trade

  - also a deterrent to FDI
• Infrastructure eval

  - However the development of infrastructure can be expensive and tends to conflict with environmental goals
• Infrastructure Application (India)


  - India suffers with poor infrastructure

  - abt 50% of their roads are not paved

  - Power outages in 2012