2.2 Development

Question 1

What is standard of living?

Answer 1

Refers to the material wellbeing of a person -> a measure of income

Question 2

What is economic development?

Answer 2

Refers to the improvement in the overall standard of living and quality of life of the population -> income, quality of goods and services, social and environmental progress, personal freedoms

Question 3

How is HDI calculated?

Answer 3

• Health (life expectancy)
• Education (mean/expected) years of schooling
• GNI per capita at PPP

Question 4

What are some measures of development other than HDI?

Answer 4

• Inequality adjusted HDI (IHDI)
• Gender development index (GDI)
• Gender inequality index (GII) -> takes into account empowerment of women
• Multidimensional poverty index (MPI) -> uses a broader range of indicators than HDI (eg. safe drinking water)
• Genuine progress indicator (GPI) -> calculated from 26 indicators and takes into account sustainability

Question 5

What are the benefits of transition from primary to secondary/tertiary sectors

Answer 5

• Jobs in secondary and tertiary sectors require higher skills and are higher-paid
• Economic growth becomes more stable because the primary sector can be adversely impacted by changes in weather conditions and diseases
• There is a greater value added element in the secondary and tertiary sectors which leads to higher real GDP

Question 6

What are the 3 methods of closing the savings gap?

Answer 6

• FDI
• Remittances
• Microfinance

Question 7

What is foreign direct investment (FDI)

Answer 7

The purchase of physical capital in another country

Question 8

What is FDI influenced by?

Answer 8

• Cost/quality of labour
• Availability of natural resources
• Quality of infrastructure
• Corporation tax rates
• Economic/political volatility
• Real exchange rates

Question 9

What are remittances?

Answer 9

Money sent by foreign workers to family members in their home countries (usually sent via an electronic payment system)

-> in 2023 around $669 billion in remittances was sent to low and middle income countries

Question 10

What is microfinance?

Answer 10

A type of banking service that is provided to unemployed or low-income individuals or groups who otherwise would have no access to financial services

Question 11

What are the advantages of microfinance?

Answer 11

• Can reduce a cycle of debt and poverty that may occur with high interest rates
• Encourages entrepreneurship among women who may be able to start small businesses
• MF sometimes has a ‘social action’ aspect to them such as educating about nutrition, sanitation etc. -> likely to improve health
• MFIs also take micro-deposits thus they can bring borrowers and lenders together (plugs savings gap)

Question 12

What are the disadvantages of microfinance?

Answer 12

• Some MFIs have encouraged borrowers to take too many loans or they charge very high rates of interest -> higher risk of default with borrowers finding themselves in debt
• Rather than repeatedly taking small loans, poor people may benefit more from a steady stream of income from formal employment
• Rural productivity needs to be raised in order to raise rural per capita incomes in the long-run
• In cases of extreme poverty, direct aid to poor people may be more effective