DEVELOPMENT

ECONOMIC DEVELOPMENT

economic development: rises in standard of living and well-being of a population,

particularly in economically less developed countries, such as Angola

- involved increasing income levels, reducing poverty and increasing provision and aces to
basic goods/services, sanitation, education and health care services

SOURCES OF ECONOMIC QUANTITY QUALITY

GROWTH

natural factors increasing land available (eg. fertilisation, better planing of

human capital factors
physical capital / technological
capital
institutional factors
Singapore)
encouraging population growth
e ected by savings, domestic
investment, government
involvement and foreign
investment
land usage, improved
agricultural methods, building
upwards (Hong Kong)
improving education, health
care or re-training (Signapore)
improved mining techniques,
improved extraction of primary
products
adequate banking system,
structured legal system,
education system

- Anything that will increase the quantity and or quality of a factor of production can lead to
potential growth

capital widening: increase in capital and increase in labour (ratio remains unchanged) /
total production will rip but productivity will remain unchanged

capital deepening: increase in capital and for each labour (ratio changed) / technological
improvements with improvements in labour productivity

ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT

economic growth: the increase in real GDP produced by an economy over a period of time
Economic growth Economic development Issue

Higher incomes higer GDP per capita

some groups may not be t
distribution of the income
from this
higher income = higher
standard of living
Improved economic indicators - average life expectancy
quality of the schooling is not
of welfare - average years of schooling
de ned
- literacy rates

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 Economic growth Economic development Issue

higher government revenues provision of essential services tax collection system may not
(health care, education and be e cient
infrastructure)
Growth in GDP:
gain from increase in GDP creation of inequality (rich get
Inequality richer and poor get poorer)
Economic growth:
- pollution

Negative externalities / lack of - Income rise: drive more, travel more (planes), imported goods

sustainability - increase in demand for energy (factories, power plants)

A ect of negative externalities in developing countries:

- access to clean water is more uncertain

- tropical diseases may spread further north

- droughts are more frequent and intense

- ooding are more frequent and intense

- food production will su er

- rising sea levels

COMMON CHARACTERISTICS OF DEVELOPING COUNTRIES:

CHARACTERISTICS HOW

Low standards of living - low incomes

- inequality

- poor health

- inadequate education

- poor housing

- malnutrition
Low levels of productivity output per person is low

low education standards / low health within

workers / lack of access to technology
High rates of population growth lead to high dependency burdens

High/rising levels of unemployment and unemployment: 10-20%

underemployement
Substantial dependence on agricultural over dependence on primary exports

production / primary production deteriorating TOT

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 CHARACTERISTICS
Dominance, dependence and vulnerability
DIVERSITY AMONG DEVELOPING COUNTRIES
CHARACTERISTICS
Resource endowment
Historical background
positive: Hong Kong
Geographical and demographic
Size: China to indonesia
factors
Land locked: Austria
Ethnic and religious breakdown
homogeneous: Jamaica
Structure of industry
Bangladesh
Per capita income levels
Politcal structure
(in order)
- Indonesia
- Brunei
- Myanmar
- China
INTERNATIONAL DEVELOPMENT GOALS
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HOW
- dominated by developed countries because
of economic or political power
- dependent on them for trade, access to aid,
technology and investment
- harmed by the decisions of developing
countries
HOW EXAMPLE
varies in human capital and Angola and oil
physical capital Bangladesh and labour
- length thy were colonised for
- whether it had to be fought negative: Vietnam
for
- set political, cultural and
economic di erences
- Near the sea for trade
- Land locked
- size of the country
wide range of ethnic and heterogeneous: Rwanda
religious diversity
- indicate politcal unrest
- depend of primary products
- depend on manufactured
products
not all developing countries malaysia
have low per capita income
levels
- democracies
- monarchies
- military rule
- single party states
- theocracies
- transitional - Iran
- Somalia
MEASURING DEVELOPMENT

relative poverty: they do not reach a speci c level of income - depends on the speci ed
level of income set in each country

absolute poverty: amount a person needs to have in order to live. It is the level of income
that a person needs to have in order to live

The basic that is su cient to buy: clothing, food, and shelter

- measured with the PPP exchange rate

- if people are below this, they are considered to be in extreme poverty

Poverty cycle

MEASURING DEVELOPMENT:

Financial measures:

1) GDP per capita

2) GNI per capita

If a country has a large amount of FDI then its GDP > GNI

- they include pro ts that may have been repatried

If a country is involved in FDI’s then GDP < GNI

measuring through PPP GDP per capita/GNI per capita

PPP: calculated by comparing prices of identical goods in di erent countries

- means that countries get to compare their growth

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Health measures:

1) Life expectancy at birth:

average number of years that a person is expected to life from the time they were born

2) Infant mortality rates:

number of deaths of babies under the age of one per though live births in a given year

Education measures:

1) Adult literacy rate:

proportion of the adult population, aged 15 or over, which are literate, expressed of the
whole adult population for a country

- literate if he or she can understand, read and write a short statement relating to his/her
daily life

2) Net enrolment ratio in primary education:

Ratio of the number of children of primary school age who are enrolled in a primary school,
to the total number of children who are of primary school age

COMPOSITE INDICATORS

Combine a number of single indicators with weighting, to give a single, combined gure

Human development index: composite index that brings together 3 variables. Living a
long and heathy life; improved education; decent living standard.

Living a long and healthy life: life expectancy at birth / on assumption that people who live
longer have bene ted from good health

Education: adult literacy rate / measure of primary secondary and tertiary school enrolment

Standard of living: ability to meet basic needs / measured by GDP per capita, converted to
PPP US$

value between 0-1

higher values = higher development

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 - before HDI, GDP per capita was used to measure development

- assuming that higher national income with directly into higher level of development

OTHER INDICATORS OF DEVELOPMENT

HDI is an average index that can mask inequalities in a country

- inequalities in rural and urban areas

- inequalities in men and women

- di erent between ethnic groups

Gender-related development index (GDI):

same indicators as HDI but takes into account the inequalities between men and women

- inequalities between men and women will result in a GDI gure that is lower than it’s HDI

- GDI is essentially the HDI adjusted for inequality between men and women

Gender empowerment measure (GEM): the extent to which which are able to actively
participate in economic and political life
- number of women in leadership

- number of women in managerial jobs

- number of women in parliamentary positions

- number of women in technical/professional jobs

* examines their participation in the labour force / their share of national income

values ranging from 0-1:

high value = higher level of empowerment for women

low value in comparison to its GDI value: access to basic needs, education, health is not
being translated into greater opportunities and participation for women

Human poverty index (HPI): Level of deprivation and poverty experienced in a country

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 THE GENUINE PROGRESS INDICATOR

genuine progress indicator: measure whether a country’s growth (an increase in the
output of goods and services) has led to an improvement in the welfare of the people

GDP gures: adds a measure of non-monetary bene ts such as the bene ts of household
work, parenting and volunteer work

economic growth: generates many costs / indicator of genuine progress needs to

deduct costs rather than add them to GDP

Including estimates of:

- environmental costs: air, water, noise pollution / loss of farm land, wetlands, forests /
resource depletion / ozone depletion / pollution abatement

GDP ≠ rising welfare

- welfare economist and environmental economist are constantly looking for ways to
measure the consequences of growth so that so that developed and developing
countries can aim for growth that is sustainable

DOMESTIC FACTORS AND ECONOMIC DEVELOPMENT

domestic factors act as sources of economic development and barriers to development (if
lacking in the economy)

INSTITUTIONAL FACTORS AFFECTING DEVELOPMENT

WHAT AIM HOW

EDUCATION 1) improve the role of women education improves the well

correlation between women education and being of population /
child survival rates / fertility rates
providing external bene ts

2) improvement of levels of health

- leading to a more e cient
Improved education = improved levels of work force

health in society
- people can communicate
better

- women can communicate better / aware - discussion social change

of the hazards that face them and of the - changing attitudes may
opportunities that exist
achieve developmental
aims
- able to read about STD’s / poor sanitary
habits / poor dietary habits

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WHAT AIM HOW

HEALTH CARE - training doctors / nurses

greater health care = greater
- building of hospitals and clinics
educational opportunities =
- provision of public health service
improved economic
- improved access to safe water and development

sanitation

- widespread availability of immunisations

- assumed that countries
- fall in infant mortality
that spend a higher
- increase in life expectancy
proportion of GDP on
- decrease in material mortality healthcare = higher life
expectancy

INFRASTRUCTURE infrastructure: the essential facilities better roads = better public

and services such as roads, airports,
sewage treatment, water facilities, and
other utilities that are essential for
transport allowing children to
go to school / adults to get to
the market and goods get to
potential buyers

economic growth”

developed radio / TV network

= possible for people to
participate in larger
communities

availability of gas and

electricity = important for
households for activities such
as cooking and food
preservation

sewage treatment = improves

the population

improvement in infrastructure
= improve well being of
people

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 WHAT AIM HOW

POLITICAL Lack of corruption

political stability attract FDI
STABILITY AND and aid // more likely that
LACK OF corruption: the dishonest exploitation of domestic savings and pro ts
CORRUPTION power for personal gain
stay in the country

- increased FDI more likely

Tends to be prevalent where
to contribute to increased
1) governments are not accountable to the growth rather than
people
development

- increased aid = increased

2) government spend large amounts on
development

large scale capital investment projects

3) o cial accounting practices are not well - political stability: citizen are
controlled
more likely to have an input
in running the country

4) government o cials are not well paid

- all leads to higher
5) political elections are not well standards of the population

controlled / non existent / no democracy

Political instability =
6) legal structures are week

uncertainty

7) lack of freedom of speech

- leads to high level of
poverty / low standards of
living for the majority of the
Forms of corruption

population

(bribery, extortion fraud, patronage, - attracting foreign

in uence peddling and nepotism)
investment / aid = less
- corruption is likely to hinder growth and likely

- in extreme cases = war

development

1) electoral corruption: the wishes of the Leads to: loss of life, damage
people are not heeded
to infrastructure, loss of
- will put government in place that has not investment

been voted by the majority

2) reduces the e ectiveness of the legal

system

- people can buy their way out of trouble

3) unfair allocation of resources

- to the highest bidder / not the more

e cient = market failure and resources
are being misallocated

4) brides increase the cost of businesses

- lead to high prices

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 WHAT AIM HOW

5) corruption reduces trust in economy

- countries nd it harder to attract foreign

investment

6) increases risks of contacts not being

honoured

- deterrent to investment (internal and

external)

7) divert public investment

- into capital projects where where bride

are more likely / in not important areas
(reducing government quality for the
people)

8) o cials turn a blind eye to regulations

- regarding construction or the environment

/ damaging e ect on individuals

- monetary gains from corruption are often

moved out of the country / capital ight
and it reduces the capital available for
internal investment

9) paying small breed to reduce economic

well being
LEGAL SYSTEM An honest and fully functioning legal system
if a person can’t guarantee
that property, then there is no
where this is the case / no way to create incentive to improve that
and enforce contracts / no way to uphold property

property rights

basket of legal rights:

this would lead to a loss and
1) right to own assets (land or buildings)
the investment would be
2) right to establish the use of our assets wasted

(adding to the building / owner may want

to add sanitation
no enforceable property right
3) right to bene t from our assets (renting = investment and growth will
out land)
be reduced and economic
4) right to sell assets
growth may be limited
5) right to exclude others from using or
taking our assets

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 WHAT AIM HOW

FINANCIAL developed and independent nancial nancial markets: the

SYSTEM / CREDIT / institutions are essential, if economic growth institutions where lending and
MICRO FINANCE and development is to be achieved
borrowing is carried out
saving is necessary to make funds available
for investment / investment is necessary for developing countries have
economic growth
two:

o cial : tends to be
- saving is di cult in high level of poverty dominated by foreign
(especially if there is no where to save / commercial banks

they are untrustworthy or weak)

uno cial : not legally
- people tend to buy assets instead of controlled (lend money at very
saving
high interest rates - those
whoa re desperate are poor
borrow from here)

micro- nance: the provision of nancial

services, such as small loans, savings nancial services are
necessary if low-income
account, insurance and even cheque books

people are able to manage

- provision of small loans to people who their assets to then invest in
don't have access to traditional sources
things that will lead to
- given to poor people to start up small- economic development

scale businesses (roadside kiosk, bicycle

repair)
developing countries:
- loans give protection against unexpected impossible to gain access to
occurrences and seasonal problems / traditional banking

help gain regular income (escape from - lack savings

poverty)
- di cult to start a business

Women tend to be the main

recipients of micro credit:
better credit risk, more
responsible, will translate to
children (economic
development is enhanced)

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 WHAT AIM HOW

TAXATION tax revenue provides governments with the di cult for governments to
means to nance necessary public services earn tax revenue from
(education, health and improve the developing countries

infrastructure) 1) tax exemptions and

ine cient or corruption in
administration

2) corporate tax revenues

tend to be low (little
corporate activity) // the
government o ered tax
incentives to encourage
domestic corporate
activity and attract FDI

3) comes from export,

import and excise duties
(relatively easy to collect) /
however it is only possible
if the country is involved
in trade

4) di culty with
administration of tax
(ine ciency, lack of
information or corruption)

5) Size of the informal

market / lower tax
revenues // di cult to
promote growth and
achieve development
objectives / workers are
unprotected in the
informal market and
productivity is low
USE OF appropriate for use with existing factor production:

APPROPRIATE endowment (production and consumption) urged to modernize and

TECHNOLOGY industrialize output

- leads to a surplus of
labour / appropriate
technology = makes use of
the abundant supply

consumption:

(well)

- eliminates the daily time

wasting

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WHAT AIM HOW

EMPOWERMENT achieves economic development

externalities

OF WOMEN 1) well being of their families

improving welfare of women (greater improve (health of kids /
education / improved social standing) = more improved about
economic development hygiene and diet)

2) education of children
improves (women pass
education on to kids / see
education as important)

3) quality of workforce
improves (due to cycle)

4) increase income of
women = increase health
= increase income in men

5) more control over

contraception / marry later
/ smaller families =
decrease rate of
population growth
INCOME aim to decrease gap between rich and poor high income inequality =
DISTRIBUTION barrier to growth and
development

1) low levels of saving = low

investment

2) rich dominate politics

(thus more in in their
favour)

3) rich dominating = moving

funds out of the country

OBSTACLES TO EDUACATION

- Education requires funding (which is not enough in su cient quantities)

- within a country: large disparity in the provision of education / urban and rural areas

- family economic conditions that prevent children from attending school (need to work
on farm)

- usually children from poor households/families where the mothers received no education

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 INTERNATIONAL TRADE AND ECONOMIC DEVELOPMENT

INTERNATIONAL BARRIERS TO DEVELOPMENT

FACTORS HOW

overspecialisation developing countries are dependent on primary

commodities (for a signi cant share of their
export revenues)

- rising commodity prices = bene cial /

increasing economic growth / revenues could
nance education, health and infrastructure

- setting a positive cycle in terms of

development

- commodity price fall = deteriorating TOT

- current account de cit = increase

- di cult for countries to nance current

expenditure / necessary imports

- if country is depends on narrow range of

exports: face great vulnerability and
uncertainty
- vulnerable to other forces = natural disasters

price volatility of primary products price elasticity of demand for commodities /

price elasticity of supply for commodities =
inelastic

- inelastic demand and supply: any change in

the D or S for resources = large price
uctuations

- price volatility = very di cult for producers

and governments to plan ahead

- investment companies / growth on

government planning for education, health
care and infrastructure thus development

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 FACTORS HOW

inability to access international markets protectionism measures by developed countries

against exports of developing countries from
utilising their comparative advantage and
exporting to developed countries

- developing countries are limited in their ability

to earn foreign exchange

- protectionism damges developing countries

- dumping also occurs

- developing country producers are deprived of

the ability to earn a living / provide for families
a ord schooling

tarred escalation: rate of tari s on goods rise

the more the goods are processed

importing country protects its processing and

manufacturing industries by putting a lower
tari s on imports of raw materials / high tari s
on processed and nished products

- tari escalation creates issue: access to

markets / little incentive to diversify away
from producing raw materials

- successful : reducing imports of more

processed goods / packaging and marketing

developing countries should diversify by

investing in the processing stage / tari
escalation takes away the potential bene ts

- widely used in agriculture

- non convertible currencies

- trade is less likely to occur

- traders take a risk dealing with non

convertible

- non convertible : over valued at their o cial,

pegged exchange rate

LONG TERM CHANGES IN TOT

changes in the prices of exports and imports have an e ect on the ability of developing
countries to trade internationally

- Commodity price falling: export revenues fall / ability to buy imports falls

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 TRADE STRATEGIES FOR ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT

STRATEGY HOW CONDITIONS ADVANTAGE DISADVANTAGE

import import - government needs - protects jobs in - only protect

substitution
substitution: to adopt policy of the domestic jobs in the
developing country organising the market (foreign short run

selection of goods rms re - long run :

(mexico) should produces to produce prevented from growth may be
goods domestically competing)
lower in the
domestically rather (labour intensive , - protects local economy / lack
than import them
low skilled culture and of growth may
manufactured social habits lead to lack of
goods)
but practicing job creation

- the domestic - subsides are made isolation from - country doesn’t

industries can available to foreign enjoy bene ts
growth (so will encourage in uence
to be gained by
economy) / be domestic industries
- protects the comparative
more - government economy from advantage and
competitive
implements a the power / bad specialisation /
- gaining from protectionist in uence of importing from
economies of symstem multinational e cient
scale
corporations foreigners

- ine ciency in
domestic
industries /
competition is
not present to
encourage
research and
development

- lead to high
levels of
in ation /
domestic
aggregate
supply
constraints

- other countries
-> protectionist

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 STRATEGY HOW CONDITIONS ADVANTAGE DISADVANTAGE

Export export promotion: liberalised trade: DIFFERENCES in - leads to

promotion growth is achieve open up domestic using export of protectionism /
by concentrating markets to foreign primary products against
competition / gain as engine for manufactured
on increasing access to foreign growth
products

exports and export markets

- ARGUE that
revenue, as the 1) countries cannot
leading factor in liberalised capital depend on complete
AD
ow: reduce export of against low
restrictions on foreign primary wage imports //
direct investment
products in unfair

order to gain - prices increase

concentrates on oating change rate
export as a result of
producing revenue // tari s /
investment in export lead removing
products it has
provision of growth is not comparative
comparative infrastructure: enable likely if export advantage

advantage on trade to take place

= commodity
- tari escalation
2) export growth reduced ability
deregulation and (manufactured of developing
minimal government exports) = countrys to
intervention countries export
which have processed
been e ective
goods //
- had forcing them to
comparative export primary
advantage
products

- based on low - not all

cost labour
assumptions
- have become are met

labour intensive
- countries
- improvement of attempt to start
education was by attracting
essential for MNC // they
this may become
too powerful =
problems

- may increase
income
inequalities

- economic
growth in the
cost of
economic
development

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 STRATEGY HOW CONDITIONS ADVANTAGE DISADVANTAGE

Trade trade - scal discipline - - anti

liberisation liberalisation: (balanced budgets)
globalisation
- redirects spending movement

removal of trade
priorities
- MNC access to
barriers that block - lower marginal tax cheap labour in
the free trade of rates
developing
goods between - interest rate countries /
countries
liberalisation
produce
- competitive inexpensive
exchange rate
things / sold for
- trade liberalisation
high prices
- would increase - liberalisation of FDI
world trade
in ows

- privatisation

- enable - deregulation

developing - secure property

countries to rights
concentrate on
production of
goods which
they have
comparative
advantage
Bilateral and Bilateral and reducing tari s more agreements
regional regional that re more
preferential preferential trade greater the ability
trade of developing
agreements:
agreements countries to
countries in a trade . gain and
trading bloc are develop
given preferential
access to
products from
other member
countries
Diversi catio Diversi cation: - protect - tari escalation
n replace the themselves exists

from volatile - need for high

production of one
economy
quali ed work
primary export - increase export force to
with the revenue
produce more
production of - stabilise sophisticated
manufactured employment
products

goods
- increase use of -
technology /
increase
demand for
high skilled
worker

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DEVELOPMENT STRATEGIES

FAIR TRADE ORGANISATIONS

In developing countries: small scale workers are unable to make a living income / low world
prices for primary products / high pro ts for middlemen / tari escalation / poor working
condition = life is di cult

fair trade: attempts to ensure that producers of food (and some non-food), products in
developing countries receive a fair deal when they are selling products / aims to help small
farmers

products can be certi ed as fair trade if they meet the standards of FLO

- ensured that the producers are paid a fair price

Qualify for fair trade:

1) product must reach the trader as directly as possible with fe intermediaries

2) product must be purchased for fair-trade minimum price / guaranteed price that covers
production costs and provides a living income / coving costs of sustainable production

3) producer receives a minimum premium if the product is organic

4) trader must be committed to a long-term contract / gives security to the producer

5) producer has access to credit from the trader / up to 60% of the purchase price

6) products must come from plantations that are managed democratically / bene t from
internationally recognised employment standards (trade unions)

7) producer uses sustainable farming to produce the good

8) trader pays a fair trade minimum to the producer / producer uses these funds to aid the
local community

example: bananas, co ee, fresh fruit, sugar, tear, cotton, sports balls

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 FOREIGN DIRECT INVESTMENT AND ECONOMIC DEVELOPMENT

FDI: long term investment by private multinational corporations in countries overseas / building new
plants or expand their existing facilities

MNC ATTRACTED TO DEVELOPING COUNTRIES:

- countries are rich is natural resources (oil) / MNC have the technology and expertise to
extract such resources

- some developing countries represent huge and growing markets / if they re located
directly in the market, they have much better access to the large number of potential
consumers / growing income, demand rises and MNC wish to satisfy the demand

- costs of labour is much lower than in developed countries / low cots of production = fries
sell their nal products for lower prices and make higher pro ts

- government regulations are less severe than in developed countries // makes it easier for
countries to set up +reduce costs of production

- developing countries o er tax concessions to attract foreign direct investment

ADVANTAGES WITH FDI

WHAT HOW

it is necessary for growth: savings FDI helps ll that gap

provide employment in the country
greater access to research, technology,
development and marketing expertise
increase employment and earning
host government gains tax revenue from the
pro ts of the MNC
inject foreign capital
improve the infrastructure of the economy
(physical and nancial)
provide more choices and lower prices
more e cient allocation of world resources
may also provide education and training /
improving skill level of the work force + marginal
capabilities
this enhances their industrialisation
multiplier e ect on the economy / stimulating
growth
can be used to gain more growth by
investment / to improve public health services
when they guy over existing companies, they
inject foreign capital and increase AD
they may act as an encouragement for the
government
able to provide essential goods that are not
available domestically
along with liberalised trade

example: China

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 DISADVANTAGES WITH FDI

WHAT HOW

don’t employ domestically they bring their own management team / using
the inexpensive low skilled workers for domestic
production / providing no training or education

- limiting ability of host country to acquire new

technologies
MNC have too much power - due to size

- gain large tax advantages / subsides

- reducing potential government income

- exert too much in uence on the policy

decision taken institutions
practice transfers pricing they sell goods from one division of the
company to another division of the company in
another country

- take advantaged of di erent tax rates on

corporate pro ts

- developing countries with low tax rates

encourage MNC to invest / loose tax revenue

situate themselves in countries where they are to reduce their private costs

legalisation on pollution is not e ective - damages the environment

- labour law is weak / non existent

- allows exploration of local workers

enter a country to extract particular resources
capital intensive production methods to make
us of abundant natural resources
MNC buy domestic rms
the they strip the resources and leave / unrest
as host country’s see the pro ts being sent out
of the country
not improve the levels of employment
the owner of the rms being bought are paid in
shares

- the actual money will never be used in the

developing country’s economy
repatriate pro ts send their pro ts outside the country

- exploitation

- child labour

There are likely develop a set of policies to show that they are acting responsibly and
ethically

- policy outlines the commitment to support humans rights, employee right and
environmental protection

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 AID, DEBT AND ECONOMIC DEVELOPMENT

(foreign) aid: any assistance that is given to a country that would not have been provided through
normal market forces

WHY WOULD AID BE PROVIDED?

- help people who have experience war / natural disaster

- help developing countries achieve economic development

- strength political / strategic alliances

- ll the savings gap that exist in developing economies / encourage investment

- improve the quality of the human resources in a developing country

- improve levels of technology

- fund speci c development projects

TYPES OF AID

o cial development aid: aid that is organised by a goverment or an o cial government agency of
a donor country

uno cial aid: organised by non governmental organisations

HUMANITARIAN AID

humanitarian aid: aid that is given to alleviate short-term su ering, which may be caused by natural
disasters / takes the form of grant aid

grant aid: short term aid provided as a gift and does not have to be repaid

forms of grant aid:

food aid: the provision of food from donor countries / money to pay for food (including
money for transport, storage and distribution

medical aid: the provision of medical services and provisions from donor countries / money
to facilitate medical services

emergency aid: the provision of emergency supplies, including temporary shelters, tenets,
clothing, fuel, heating and lighting

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 DEVELOPMENT AID

development aid: aid that is given to alleviate poverty in the long run and improve the welfare of
individuals / often referred to a o cial development assistance (ODA)

- aid provided by government on concessional terms / yet sometimes they are also gifts

may be provided by individual countries or through multilateral organisations (UN)

grant aid: short term aid provided as a gift and does not have to be repaid

O cial development assistance

ows to developing countries and multilateral institutions provided but o cial agencies, including
state and local governments, or by their executive agencies, each transaction of which meets the
following tests:

- it is administered with the promotion of the economic development and welfare of

developing countries as it’s main objective

- concessional in character and contains a grant element of at least 25%

TYPES OF DEVELOPMENT AID

Long term loas: loans that are repayable by the developing country over a period of 10 to
20 years

- known as concessional or soft loans (repayable in foreign currency or local currency)

- developing countries prefer loans that are repayable in their own currency / since they do
not have to used their valuable and scare foreign currency

- they have low exchange rates of interest

- repayable over a longer period of time

- come via o cial and non-o cial aid

Tied aid: grants or loans that are given to a developing country / the only condition that the
funds are used to buy goods from the donor country

project aid: money given for a speci c project in the country / given in the form of grant aid
and requires no repayment

- projects that improve infrastructure

- main supplier of project aid = world bank

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 technical assistance aid: sometimes included in project aid

1) raise the level of technology by bringing foreign technology and technician who can
instruct its use

2) raise the quality of humans capital by the provision of training facilities and expert
guidance

3) foreign scholarships are be provided so that managers and technicians can study
abroad

commodity aid: given by countries to increase productivity in developing economies

- provides funds to purchase commodities including consumer items, intermediate inputs

and industrial raw materials

2 classi cations of o cial aid:

bilateral aid: aid that is given directly from one country to another

multilateral aid: aid that is given by rich countries to international aid agencies (world bank)

CONCERN ABOUT AID

humanitarian aid: necessary and important contribution at times of short-term su ering,

much research suggest that there is no correlation between levels of aid given to a
developing country and the growth of GDP // there are number of concern with aid as a
means of reducing poverty

CONCERN WHY

government does haven’t have the welfare of aid is received and it goes to a small sector of
majority of population at heart the population

in corruption: aid leave the country as soon as it

aid is given for political reason
tied aid is not as e ect as untied aid
come sin the country
not given by need base / developed countries
tend to give aid to those countries that are of
political or economic interest to them
- developing country is not able to nd least
expensive good so they have to buy from the
donor country

- doesn’t create employment / extra output

- tied said is politically motivated

when short-term provision of food is needed, may force down domestic prices and make
long-term provision of large quantities of goods matters worse for domestic famers
= bad

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CONCERN WHY

dependency on aid = little incentive to innovate people develop a welfare mentality / feel like aid
will always be there for them

aid is focused on the modern sector, may cause a greater gap in incomes and living
industrialisation standards between those in the traditional
agricultural sector
aid is available only if a country agree to adopt a other countries want a free market (liberalisation,
certain economic policy deregulation, privatisation ate promote
economic growth)

policies an in the interest of the developed

country and the multinational cooperation are
not in the best interest of the developing
countries
aid weariness beginning to think that problems in their own
(developed) economies are more important than
others / reducing ow of aid

Non government organisations

the priority of NGO’s is to promote economic development, humanitarian ideals, and

sustainable development

- provide emergency relief or provide long term development assistance

example: Oxfam, Amnesty international

Main activities

1) plan and implement speci cally targeted projects in developing countries

2) act as lobbyist to try to in uence public policy in areas

- poverty reduction

- workers rights

- human rights

they work directly in the eld: can develop a much deeper understanding of the issues and
challenges facing the poor (than o cial donors can) / work in area that o cial aid cannot
reach and work with groups that might be isolated from the o cial aid

- done through programmes, projects and microcredit schemes

- focusing on women particularly

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INDETEDNESS

STRUCTURAL ADJUSTMENT POLICIES:

- encourage trade liberalisation by lifting restrictions on imports and exports

- encouraging the exports of primary agricultural commodities

- devaluing the currency

- encouraging FDI

- privatisation of nationalised industries

- reducing government expenditure in order to ensure that government budgets were

balanced

- austerity measures, which reduced social expenditures

- charing for basic services (education and health)

- removing subsides and price controls

- improving governance, process by which decisions are taken and policies are
implemented, and reducing levels of corruption

RESPONSIBILITY OF THE IMF:

- promoting international monetary cooperation

- facilitating the expansion and balanced growth of international trade

- promoting exchange stability

- assisting in the establishment of a multilateral system of payments

- making its resources available to members experiencing balance of payments di culties

STRUCTURAL ADJUSTMENTS POLICIES (SAP)

- helped control in ation

- improving the workings of the internal markets in the economy

- lowering government budget de cits reducing public ownership

- reforming exchange rate policies

- reduction in government-provided services (education and health care)

- increasing unemployment

- falll in real wage levels

- increased prices of essential products

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Leading to short term costs of:

-malnutrition

-dealing school attendance rates

-increasing infant mortality

Debt relief will release money

-allowing government to nance nance development

objectives

Odious debt: legal term that refers to debt that is incurred by a regime an dis then used for
purposes that do not serve the interest of the people

Heavily Indebted Poor Countries (HIPC)

highest levels of poverty / undergoing international debt relief programs to reduce their
external debts

- the program is conditional; upon the government being abel to achieve a certain criteria

- committing to policy reduction through policy changes / demonstrating a good track

record

CONDITIONS

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PROGRAMS:

- Boosting social spending

- reducing debt service

- improving public debt management

BALANCE BETWEEN MARKETS AND INTERVENTIONS

MARKET-LED vs INTERVENTIONIST GROWTH STRATEGIES

Market-led strategies: policies that are designed to minimise the role of the government and to
maximise the free operation of supply and demand in the markets

export-led growth, growth though FDI, privatisation of national industries, deregulation and structural
adjustment policies and poverty reduction strategy papers / free market polices, new classical
policies or neo-liberal policies

Interventionist strategies: policies involving an active role by the government and manipulation of
the workings of the markets in the economy to work more e ciently

import substitution, protectionist trade policies, exchange rate intervention, regulations,

nationalisation of industries and government involvement in export markets to promote certain
industries and their products

strength MO how
allow for allocative e ciency market-determined prices working as
asignals and incentives

- markets co-ordinate the independent

decisions of consumers, rms and
resource

- allowing social surplus

pursuit of self interest gives rise to
incentives for hard work, risk taking,
innovation and investment
policies encourage competition
promote free market foruces
leads to higher level of output and higher
standards of living / achieving economic
growth
work by freeing market forces and making
markets more competitive and intend to
result in greater e cient in production,
lower prices and improved allocation of
resource
allowing allocation of resource to improve

incentive-related policies: adjustments to

various types of taxes (intended to work by
improving the incentives to work)

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 strength MO how
Trade liberalisation
The elimination of trade barriers and the
opening up of countries to free trade has
the e ect of making markets much larger
than they would be with trade barriers.

- increases competition
freely oating exchange rate aspect of price mechanism (market
determined

- e ectively carry out the signalling and

incentive function of prices
Liberalised capital ows
Attracts MNC

allow domestic residents to purchase any

amount of foreign exchange without
restrictions, whether for imports, or for
travel or investment abroad, etc.

weakness MO how
market failure • negative environmental externalities
(of production and consumption) and
the problems of common access
resources

• insu cient provision of merit goods

(goods with positive consumption
externalities) including education,
health care and infrastructure, such
as sanitation, clean water supplies,
road and transport systems,
irrigation, power supplies, etc.

• failure to provide public goods

• abuse of monopoly power

• information asymmetries

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 weakness MO
co-ordination failure
weak or missing market institutions
how
leads to underdevelopment traps: Co-
ordination failures arise when two or more
activities that must begin simultaneously fail
to do so, even though decision-makers
make economic decisions that are in their
best self-interest.
A markets need an institutional and legal
environment that is often missing in less
developed countries

In the absence of these conditions, markets

are highly imperfect in their functions and
fail to function e ectively.

development of dual economies Dual economies may persist even as a

country grows and develops. They are the
outcome of market forces that do not work
to the bene t of all or most people in a
country because of the presence of market
failures such as weak market institutions or
co-ordination failures, because of the
geographical isolation of many groups of
people, the persistence or growth of great
income inequalities and extreme poverty, or
government policies that support one
sector of the economy at the expense of
another. 


income inequalities The loss of protection of workers resulting

insu cient credit for the poor
from labour-market reforms, and increases
in unemployment resulting from some
policies to increase competition, including
trade liberalisation which often involves the
closure of rms, often result in increases in
income inequalities.
Poor people do not have access to credit

- not allow them to invest in other

possibilities

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 weakness MO how
e ects on economic growth and Capital liberalisation, if undertaken before
development countries have developed the necessary
institutions, may lead

to capital ight, reduced ability to conduct
monetary policy in accordance with
domestic priorities, and even nancial crisis

The withdrawal of government from

provision of merit goods that often comes
with market liberalisation has negative
e ects on economic and human
development.

These processes have the e ect of

increasing inequalities between rich and
poor countries, as well as between higher
income and lower income groups within
countries.

strength IP how
correcting market failure - correct environmental externalities

- provide public goods / merit goods

- assist in coordination failures

- contribute to the development of market

institutions to operate more e ectively
investment in human capital leads to economic development and growth

- forms industrial polices

provision of infrastructure correct market failures

- brand range or goods

- encoring economic growth

- increasing productivity
provision of a stable macro environment - 5 stable macro goals

- reasonable currency budget

provision of a social safety net
redistributing income
government transfers of cash or good to
vulnerable groups / ensure that these
groups do not fall below a socially
acceptable minimum
income redistricbution

industrial policies include support for small nd medium sized

businesses

- government support through technology

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 weakness IP how
excessive bureaucracy administrative structure of an organisation
involving rule that determine how the
organisation functions

- government fall into the issue of ‘too

many rules’ // reason towards
privatisation

- improves e ciency
poor planning distribution and price of good

- requires technical knowledge and

expertise
corruption associated with lower growth and poorer
development prospects / categories of
corruption

WHY IS GOOD GOVERNANCE IMPORTANT?

governance: manner in which power is exercised in the management of a country economic and
social resource for development

The 6 principles of good governance:

1) Participation: extent the stakeholder a ected by policies are involved in making decisions

2) Fairness: extent to rules apply too everyone in society equally

3) Decency: extent the formation and implementation of rules does not harm or humiliate anyone

4) Accountability: extent to which political gures are responsible to society for their actions/
statements

5) Transparency: extent to which decisions made by government are clear and open

6) E ciency: extent to which scare resources are used without waste, delays or corruption

Good governance increases investment and economic growth.

Balance between market and interventionist for economic growth and development

Trade justice: developing countries are trading on a fair basis with developed countries

Debt relief: release funds that may have been invested in physical and human capital

Free working domestic markets: only once the market has achieved a competitive size and have
su cient support in terms of infrastructure, quality of labour, technological expertise

Political stability: good governance and elimination of corruption

Targeted aid: leads to pro-poor growth so that the aid is given is directed at policies that will
encourage economic growth / fall in poverty

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