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ECONOMICS THEME 4 - TOPIC 4.3 - EMERGING AND DEVELOPING ECONOMIES - Coggle…
ECONOMICS THEME 4 - TOPIC 4.3 - EMERGING AND DEVELOPING ECONOMIES
4.3.1 Measures of development
HDI
composite index based on
health
(as measured by life expectancy at birth),
education
and
income
(measured by real GNI per capita at purchasing power parity)
Pros - it takes 3 factors into account and it's relatively easy to calculate
Cons - No notice of quality of life or education, no consideration of equality of income and doesn't factor corruption
IHDI
- inequality adjusted HDI
Multidimensional Poverty Index (MPI)
% of population that is multidimensional poor. Uses data from health, education and standard of living but uses a broader range of indicators within these categories
The genuine progress indicator
From 26 indicators on economic, environmental and social, aims to look at economic sustainability
4.3.2 Factors influencing growth and development
Economic factors
Primary product dependency
Includes agriculture, mining, etc... and a large amount of developing economies is based on a primary product
Often non-renewable and can be wiped out easily leaving the country to suffer
tend to have a low YED (inelastic)
The Dutch disease issue occurs when a country becomes a significant commodity producer quickly which increases demand for the currency. As a result of this, the value goes up, making exports more expensive and this reduces competitiveness elsewhere
Volatility of commodity prices
Primary products have inelastic demand and supply curves so small changes result in huge price fluctuations, making planning and investment hard
Savings gap
A savings gap is the difference between actual savings and the level of savings needed to achieve a higher growth rate
developing countries save less as they have lower incomes which reduces investment and consumption
Foreign currency gap
when exports from a developing country are to low compared to imports to finance the purchase of investment or other goods required for faster economic growth
Capital flight
large amounts of money taken out of the country e.g due to lack of stability which means there is less for borrowing and investment
demographic factors
developing countries have higher population growth which leads to higher strain on infrastructure and requires more economic growth
Debt
developing countries attained loans in the 1970's and 80's and now they suffer from interest repayments back to developed countries
Access to credit and banking
Developing countries have limited access meaning they can't access funds for investment and they struggle to save
Infrastructure
Low levels make it hard for businesses to trade and setup. However, developing infrastructure has environmental impacts
Education/Skills
Poor education within these countries leads to low productivity
Absence of property rights
Property rights are where individuals are allowed to own and decide what happens to certain resources. A lack of these leads to reduced investment
Non-economic factors
Many developing countries deal with high levels of corruption where leaders benefit themselves and not the economy
Diseases in the country have a negative impact on growth
Poor climates or geographical elements
Civil wars e.g Syria and Iraq
4.3.3 Strategies influencing growth and development
Market-orientated strategies
Trade liberalisation
Countries can aim for export led growth where domestic industries will be forced to innovate and find comparative advantage
Promotion of FDI
FDI is investment by one private sector company in one country into another private sector in another
Usually undertaken to keep costs low and if it fails the company deals with it, not the country
It will create jobs, transfer knowledge and it's a source of investment to help fill the savings gap
However, there is usually a repatriation of profits, countries can become too dependant and the environment can be damaged
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Microfinance schemes
These schemes aim to give lower income households access to a range of financial services
However, the finance provided can be spent poorly and the users have no way of paying them back due to unemployment
Privatisation
This can end corruption in state owned firms as well as encouraging innovation through competition
Interventionist strategies
Development of human capital
This will improve productivity, overcome primary product dependency and improve quality of life
Managed exchange rates
Can make a lower exchange rare for certain imports which will increase price. But they often fail to work
infrastructure development
Promoting Joint ventures with global companies
- as this helps keep profits generated in the country
Buffer stock schemes
- where government imposes min and max price for goods, buys up stocks when there's excess supply and sells off when theres excess demand
Other strategies
Industrialisation
The Lewis model suggests workers will move to urban areas for higher wages and that savings and investment can be achieved through rural to urban migration. However, technology removes need for labour
Tourism
Provides funds, attracts investment, creates jobs, multiplier effect. However, it's classed an an import so impacts BOP and it's seasonal
Developing primary industries
e.g Saudi Arabia with oil
Fairtrade schemes
Aid
and NGO's (non-profit organsiations)
Debt relief