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Developmental Economics (Strategies for developing countries…

- - - - Commodity prices decrease --> revenues decrease because developed countries mostly export primary commodities --> imports decrease
    - - Subsidies and tariffs
      - Tariff escalation: the tax placed is heavier on produced goods and lighter on the primary products --> easier for developing countries to export their primary products. However, raw materials are cheaper than produced products and so they are unable to earn high revenues
      - Non-convertible currencies: some countries do not have a tradable currency, so it is not recognised. Therefore, the currency can't be converted and the country cannot export goods
        
        For example: the Chilean peso and the Brazilian real
    - - Commodities are relatively inelastic
        
        Supply and demand are both relatively inelastic. If supply decreases, the price will increase drastically, and if supply increases, the price will decrease drastically. Demand is inelastic and so demand will respond much to a change in price.
        
        Difficult to plan ahead because firms do not want to invest plus government planning fluctuates
    - - If a country is dependent on a narrow range of exports, they are more vulnerable to external changes in the economic/business environment. A lack of resources and capital, or having no comparative advantage can cause this.
  - - - Public sectors too large --> bureaucracy --> over staffing --> inefficiency
      - Nationalised industries inefficient --> loss-making and hidden unemployment
      - Excessive government spending --> large budget deficits --> increased borrowing --> increasing money supply --> inflation
    - - Infrastructure unlikely to be created and developed countries do not have sufficient infrastructure to adopt free-market approach --> necessary government intervention
      - Not all products are liberalised --> hard to compete due to protectionist policies
- - - - Disadvantages
        
        situate themselves in countries where legislation on pollution is not effective
        
        They sell goods and services from on div of the company to another div of another country
        
        MNCs have too much power because of their size, gain large tax advantages, reducing potential government income
        
        Bring own management teams and hire inexpensive low skilled workers for basic production, providing no education or training
        
        Extract particular resources
        
        Capital intensive production methods to make use of abundant resources
      - Advantages -
        
        Necessary condition for growth is increased savings and developing countries tend to suffer from a savings gap
        
        FDI fills gap and provides way out of poverty cycle
        
        Provide employment, education and training. Improve the skill levels of the work force and also the managerial capacitiy
        
        Allow developing countries greater access to research and development, technology and marketing expertise
        
        enhance industrialisation
        
        Increased employment may have a multiplier effect on the host economy, stimulating growth
        
        Host government gain tax revenue, then be used to gain more growht by investing in infrastructure or to improve public services such as health and education
        
        If MNC buy existing companies in developing countries, then they are injecting foreign capital and increasing the aggregate demand
        
        Provide more choice and lower prices and provide essential goods that are not available domestically
        
        More efficient allocation of world resources
- - - - Output Method: Sum of all goods and services of economy
      - Income Method: Sum of all incomes earned in economy
      - Expenditure Method: Sum of all expenditures in an economy
        = Consumption + Investment + Government Expenditure + Net Exports
- - - - Life expectancy at birth
      - Infant mortality rate
    - - How different goods are more expensive in some countries than others, so even if a country is receiving a higher GNI their standard of living may not be as high due to a higher cost of living.
    - - Net enrolment ratio in primary education
      - Adult Literacy Rates
    - - GNI per capita
      - GDP per capita