4.3 Flashcards

Name the three dimensions of the Human Development Index (HDI)

Health, education and living standards.

How is health measured in the HDI?

By life expectancy at birth.

How is education measured in the HDI?

By mean years of schooling and expected years of schooling.

How are living standards measured in the HDI?

By GNI per capita at purchasing power parity.

How are the three HDI dimensions combined?

They are combined into a single index between 0 and 1.

What is an advantage of HDI?

It is more holistic than GDP per capita because it includes health and education as well as income.

What is another advantage of HDI?

It is useful for comparing levels of development between countries and over time.

What is a limitation of HDI?

It is an average, so it can hide inequality within a country.

What is another limitation of HDI?

Some aspects of development are hard to measure accurately, so HDI may not show the full picture.

Name other indicators of development

Access to clean water, number of mobile phones, access to internet, energy consumption, and the proportion of people working in agriculture.

Multidimensional Poverty Index (MPI)

A measure of development that looks at both the proportion of people in poverty and the intensity of their deprivation.

Inequality-Adjusted Human Development Index (IHDI)

The HDI adjusted for inequality within a country.

What does it mean if a country’s IHDI is much lower than its HDI?

It means inequality is reducing the country’s effective level of development.

Name the economic factors influencing growth and development

Primary product dependency, volatility of commodity prices, savings gap, foreign currency gap, capital flight, demographic factors, debt, access to credit and banking, infrastructure, education and skills, and absence of property rights.

Name the non-economic factors influencing growth and development

Corruption, poor governance, war, political instability and geography.

Primary product dependency

When a country relies heavily on exporting primary products for income and foreign exchange earnings.

Why can primary product dependency limit development?

Export earnings become unstable because primary product prices are volatile, which reduces confidence and investment.

Volatility of commodity prices

Large changes in commodity prices caused by small changes in supply or demand.

Why can volatile commodity prices limit development?

They make export revenues unstable, so firms and governments may find it harder to plan and invest.

Savings gap

When domestic savings are too low to finance the investment needed for economic growth.

Harrod-Domar model

Low incomes lead to low savings, which leads to low investment, which keeps growth low and incomes low.

Foreign currency gap

When a country lacks enough foreign currency to pay for essential imports such as raw materials, capital goods and medicines.

Why can a foreign currency gap limit development?

Without enough foreign currency, a country cannot import the goods needed for production and long-run growth.

Capital flight

The movement of money and assets out of a country because of economic or political uncertainty.

Why does capital flight limit development?

It reduces domestic investment and can weaken the exchange rate, making imports more expensive.

Demographic factors

Population factors such as rapid population growth, a high dependency ratio or an ageing population.

Why can demographic factors limit development?

They can put pressure on schools, hospitals and infrastructure, reducing GDP per capita and slowing development.

Debt

Money owed by a country, especially to foreign lenders.

Why can high debt limit development?

High interest repayments create an opportunity cost because less money can be spent on health, education and infrastructure.

Access to credit and banking

The ability of households and firms to use financial services such as savings accounts and loans.

Why does poor access to credit and banking limit development?

People and firms cannot easily borrow to invest in businesses, training, health or equipment.

Infrastructure

The basic systems a country needs, such as transport, energy, water and communications.

Why can poor infrastructure limit development?

It raises costs, lowers productivity and discourages investment.

Education and skills

The level of human capital in the workforce.

Why can poor education and skills limit development?

Low human capital reduces labour productivity, wages, output and long-run growth.

Absence of property rights

When people and firms do not have secure legal ownership of land, homes or assets.

Why can an absence of property rights limit development?

People are less willing and less able to invest if their assets are insecure or cannot be used as collateral.

Property rights

Legal rights over property that allow owners to protect and use their assets.

Dead capital

Assets that are owned informally and cannot easily be used as collateral for loans.

Collateral

An asset used as security for a loan.

Corruption

The abuse of power for private gain.

Why does corruption limit development?

It diverts resources away from productive uses such as health, education and infrastructure.

Poor governance

Weak institutions, weak decision making and poor enforcement of laws.

Why does poor governance limit development?

It creates uncertainty, discourages investment and means public money is used less effectively.

War

Armed conflict within or between countries.

Why does war limit development?

It destroys infrastructure and human capital, reduces investment and shifts the PPF inwards.

Political instability

Frequent political uncertainty, unrest or changes in government.

Why does political instability limit development?

It discourages domestic investment and foreign direct investment because firms face more risk.

Geography

Physical characteristics such as being landlocked, mountainous or having a difficult climate.

Why can geography limit development?

It can raise transport costs, reduce trade and make infrastructure harder and more expensive to build.

Primary product

A good made from raw materials.

Why are primary products often associated with unstable prices?

Demand and supply are often price inelastic in the short run, so small changes can cause large price movements.

Prebisch-Singer hypothesis

The idea that over time the terms of trade may worsen for countries specialising in primary products.

Why can the Prebisch-Singer hypothesis help explain underdevelopment?

If export prices rise more slowly than import prices, countries earn relatively less from exports and struggle to buy capital goods needed for development.

Name the market-oriented strategies influencing growth and development

Trade liberalisation, promotion of FDI, removal of government subsidies, floating exchange rate systems, microfinance schemes and privatisation.

Name the interventionist strategies influencing growth and development

Development of human capital, protectionism, managed exchange rates, infrastructure development, promoting joint ventures with global companies and buffer stock schemes.

Name the additional strategies influencing growth and development

Industrialisation, development of tourism, development of primary industries, Fairtrade schemes, aid and debt relief.

Name the international institutions and NGOs involved in development

World Bank, International Monetary Fund and NGOs.

Trade liberalisation

The reduction or removal of trade barriers such as tariffs, quotas and regulations.

How can trade liberalisation promote development?

It increases access to larger markets, encourages competition and can raise efficiency, exports and growth.

Promotion of FDI

Policies designed to attract investment from foreign firms.

How can FDI promote development?

FDI can bring capital, jobs, technology, management skills and export capacity.

Removal of government subsidies

Reducing subsidies so prices better reflect market conditions.

How can removing government subsidies promote development?

It can reduce distortions and encourage resources to move to more efficient industries.

Floating exchange rate system

An exchange rate system where the currency is determined by market forces.

How can a floating exchange rate promote development?

It allows the currency to adjust automatically and can improve competitiveness after a depreciation.

Microfinance schemes

Small loans and financial services for people and firms with little access to normal banking.

How can microfinance schemes promote development?

They can increase entrepreneurship, investment and incomes for poorer households.

Privatisation

The transfer of state-owned businesses to the private sector.

How can privatisation promote development?

It may improve efficiency, productivity and investment if private firms have stronger incentives.

Development of human capital

Investment in education, training and healthcare.

How can development of human capital promote development?

It raises productivity, employability, incomes and long-run growth.

Protectionism

The use of measures such as tariffs and quotas to protect domestic industries from foreign competition.

How can protectionism promote development?

It may protect infant industries until they achieve economies of scale.

Managed exchange rates

When the government or central bank intervenes to influence the value of the currency.

How can managed exchange rates promote development?

Keeping the currency competitively valued can support exports, output and employment.

Infrastructure development

Investment in transport, energy, water and communication systems.

How can infrastructure development promote development?

It lowers business costs, raises productivity and makes investment more attractive.

Promoting joint ventures with global companies

Encouraging domestic firms to partner with multinational firms.

How can joint ventures with global companies promote development?

They can increase technology transfer, skills development and access to global markets.

Buffer stock schemes

Government buying when prices are low and selling when prices are high to reduce commodity price volatility.

How can buffer stock schemes promote development?

They stabilise producer incomes and export earnings, reducing uncertainty and supporting investment.

Industrialisation

The shift of an economy from agriculture towards manufacturing.

How can industrialisation promote development?

Manufacturing often has higher productivity, more value added and more scope for export growth than primary production.

Lewis model

A model where surplus labour moves from low-productivity agriculture to higher-productivity industry.

Development of tourism

Policies to expand the tourism sector.

How can tourism promote development?

It can create jobs, earn foreign currency and stimulate local businesses through multiplier effects.

Development of primary industries

Policies to expand sectors such as agriculture, mining or fishing.

How can developing primary industries promote development?

It can raise export earnings and employment, especially where a country has a natural comparative advantage.

Fairtrade schemes

Schemes that guarantee producers a fairer and more stable price.

How can Fairtrade schemes promote development?

They can raise incomes and reduce vulnerability for primary producers.

Aid

Financial or other support given by one country or organisation to another.

How can aid promote development?

Aid can fund health, education, infrastructure and emergency relief.

Debt relief

The cancellation or reduction of debt repayments.

How can debt relief promote development?

It frees government funds for spending on development rather than debt interest.

World Bank

An international institution that provides loans and support for development projects.

International Monetary Fund (IMF)

An international institution that provides loans to countries with balance of payments problems, often with conditions attached.

Non-Governmental Organisations (NGOs)

Organisations that support development, often through targeted local projects.