IB Chapter 3 - National Differences in Economic Development

Vocabulary practice flashcards covering national differences in economic development, HDI metrics, political economy factors, and business risks from Professor Bailey's lecture notes.

Drivers of Economic Growth

Democratic forms of government, market-based economic reforms, and legal systems that enforce property rights.

Democratic Forms of Government

Enhances political stability and transparency.

Market-Based Economic Reforms

Encourages competition, efficiency, and resource allocation based on supply and demand.

Legal Systems That Enforce Property Rights

Provides the necessary security for investment, innovation, and long-term business commitment.

Gross Domestic Product (GDP)

Measures the total market value of all finished goods and services produced within a country's borders.

Limitation of GDP

Standard GDP metrics fail to account for significant international differences in the cost of living, which can make comparisons of true living standards inaccurate.

Purchasing Power Parity (PPP)

An adjustment to GDP per capita that neutralizes cost-of-living differences, allowing a more direct comparison of living standards across countries.

Capabilities Approach

A view that development is defined by the capabilities and opportunities people enjoy, requiring the removal of poverty, tyranny, and social deprivation through health and education investment.

Human Development Index (HDI)

A UN metric inspired by Amartya Sen that measures quality of life through health, education, and standard of living.

HDI - Health

Dimension of HDI measured through life expectancy at birth.

HDI - Education

Dimension of HDI measured through educational attainment.

HDI - Standard of Living

Dimension of HDI measured through income.

Low Human Development

Classification for countries with an HDI below $0.55$.

Medium Human Development

Classification for countries with an HDI from $0.55$ to $0.699$.

High Human Development

Classification for countries with an HDI from $0.700$ to $0.799$.

Very High Human Development

Classification for countries with an HDI above $0.80$.

Economic Progress Begets Democracy

The concept linking economic advances to a prosperous middle class that pushes for democratic reforms.

The Spread of Democracy

Driven by the failure of totalitarian regimes to deliver economic progress, new information and communication technologies, and economic advances that created a prosperous middle class.

New Information and Communication Technologies

Reduced the state's ability to control access to uncensored information and created new conduits for the spread of democratic ideals.

The Spread of Market-Based Systems

A shift from centrally planned economies toward market-based economies through deregulation, privatization, and legal systems that safeguard property rights.

Deregulation

One of the key changes involved in the shift from centrally planned economies to market-based systems.

Privatization

One of the key changes involved in the shift from centrally planned economies to market-based systems.

Higher Economic Growth

Associated with democratic regimes, market-based economic policies, strong property-rights protection, and favorable demographic trends.

First-Mover Advantage

Advantages enjoyed by early entrants into a market.

Late-Mover Disadvantage

Disadvantages suffered by firms that enter a market later.

Costs - Managerial Implications

Can arise from the political system, economic development level, and legal system, including bribery, weak supporting infrastructure, and local laws and regulations.

Political Risk

The likelihood that political forces will cause drastic changes that adversely affect a business's profit and other goals.

Economic Risk

The likelihood that economic mismanagement will adversely affect a business's profit and other goals.

Legal Risk

The likelihood that a trading partner will opportunistically break a contract or expropriate property rights.

National Differences in Economic Development

Chapter 3 focuses on differences across countries in economic development and the factors that influence growth, living standards, and business opportunities

Political Economy and Economic Progress

The lecture connects economic progress with innovation and entrepreneurship in a market economy, totalitarian regimes, the idea that economic progress can lead to democracy, and factors such as geography, education, and population growth rate

Innovation and Entrepreneurship in a Market Economy

Presented in the lecture as an important part of political economy and economic progress

Benefits - Managerial Implications

Depend on market size and the current and future purchasing power of consumers. The lecture also notesfirst-mover advantages for early entrants and late-mover disadvantages for late entrants.