2.2 Development

Question 1

What is economic development ?

Answer 1

• Economic development refers to an improvement in both the standard of living and the quality of life of the population

Question 2

What are some examples of income classification currently ?

Answer 2

Question 3

What are the components of HDI ?

Answer 3

The index is based on 3 indicators of economic development:
* Health - life expectancy at birth
* Education - mean years of schooling of adults aged 25 + or expected years of schooling for 5-year olds
* Income - GNI per Capita at PPP

• each factor is given equal weighting and a geometric mean is calculated to obtain a score between 0 and 1

Question 4

What are somee HDI related measures of development ?

Answer 4

• IHDI inequality-adjusted HDI - takes into account inequality, higher inequality decreases IHDI
• GDI gender development index - takes HDI for men and woman and takes a ratio. The closer to 1 the lower the gender inequality

Question 5

What are some other measures of development ?

Answer 5

• multidimensional poverty index (MPI) - this measures the percentage of the population in multidimensional poverty, it uses a broader range of indicators for the 3 aspects of HDI e.g standard of living includes access to electricity and health includes nutrition
• Genuine progress indicators (GPI) - a more comprehensive measure of economic development than HDI, includes 26 different indicators, grouped into economic, social and environmental

Question 6

What are the advantages of HDI as a measure of development ?

Answer 6

• provides more information than GNI data alone, health and education indicators can show how successful the government is at providing merit goods
• simple to calculate and uses common data that most governments collect, whilst GPI uses many indicators
• HDI relies on quantitive indicators instead of qualitative indicators

Question 7

What are the disadvantages of HDI as a measure of development ?

Answer 7

• overall HDI figures mask disparities within and across countries
• the number of schooling years doesn’t necessarily mean a higher quality of education
• high life expectancy doesn’t necessarily indicate a healthier life
• GPI may be better for long-term planning as it takes into account sustainability

Question 8

What are the different sectors in an economy ?

Answer 8

• primary sector - extraction of raw materials and growing of food e.g agriculture, fishing, mining
• secondary sector - raw materials are transformed into finished goods e.g construction, steel production
• tertiary sector - deals with service based industries e.g retail, leisure, banking, IT
• quaternary sector - intellectual part of the economy, focus on innovation and improving quality of services

Question 9

What are the benefits of transitioning from primary to secondary and tertiary sectors ?

Answer 9

• jobs in secondary and tertiary sectors tend to be higher paid and higher skill
• switching to tertiary and secondary sectors means the economy is more stable, since agriculture can be adversely affected by weather conditions and diseases as well as volatility in the prices of agricultural products on the international market
• there is also greater value in G/S produced in secondary and tertiary sectors which may lead to a higher real GDP
• potentially higher export revenue and lower import revenue

Question 10

What are the factors which influence development ?

Answer 10

• Economic growth
• Greater provision of education
• better infrastructure
• technological progress
• increased international trade and FDI
• Remittances and foreign aid
• Access to credit and banking

Question 11

What is the savings gap + link to Harrod-Domar model ?

Answer 11

• when a countries level of domestic saving is too low to finance investment - if national income were to increase the savings gap would decrease
• economic growth requires greater saving or a lower capital-output ratio, since higher savings leads to greater investment

Question 12

What are the problems with closing the savings gap and increasing economic growth ?

Answer 12

• higher saving may not be turned into higher Investment If the economy lacks an efficient financial system to bring borrowers and lenders together
• higher investment will not generate economic growth if the economy lacks human capital or adequate infrastructure e.g medical equipment with no doctors
• capital flight where residents in the domestic economy decide to save elsewhere since it is deemed more secure or yields a higher rate of return
• foreign aid may not go those who need it due to corruption

Question 13

What is FDI and what does it depend on ?

Answer 13

https://www.tutor2u.net/economics/reference/exam-technique-potential-benefits-of-fdi-for-developing-countries?srsltid=AfmBOoqUVl2xy7CYTJqvWU7nRM_AOZJykLgCGzM_3R_Ewm-csIIwrwbf

• FDI is usually the purchase of physical capital in another country e.g Toyota factory in the UK
• FDI is often driven by low labour costs and availability of natural resources also potentially the quality of the workforce.

Question 14

What are remittances ?

Answer 14

• Money sent by foreign workers to family members in their home country - usually through electronic payment systems
• in 2023 top remittances: India ($125billion), Mexico ($67 billion), China ($50 billion)

Question 15

What are the 3 ways to close the savings gap ?

Answer 15

1) FDI
2) Remittances
3) Micro finance

Question 16

What is Microfinance ?

Answer 16

• Micro finance is 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
• the loans are typically very small and no requirement for collateral or credit history