Summary

Summary Development Economics & Government Policy

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Unit 4 - A global perspective

Institution
PEARSON (PEARSON)

This is a well defined summary for development economics and government policy that affect development. Contents include: - Introduction to economic development - Economic growth vs development - Common characteristics of developing countries - Measures of economic development -Factors infl...

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Uploaded on December 30, 2021
Number of pages 29
Written in 2019/2020
Type Summary

development economics
government policy
economic policym
developing economies
ledcs
medcs
government intervention

Study Level
A/AS Level
Examinator
PEARSON (PEARSON)
Subject
Economics A
Unit
Unit 4 - A global perspective

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Development Economics & Government Policy
written by Sauhaard Poudel

Contents
Introduction To Economic Development 4
What Is Economic Development? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Sen’s Definition: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Todaro’s Definition: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Economic Growth vs Development 4
Why Is Growth Good For Development? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Evaluation Of The Importance Of Growth For Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Common Characteristics Of Developing Countries 5
What Commonalities Do Developing Countries Share? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Evaluation: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Measures Of Economic Development 5
Single Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
GDP Per Capita . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Health Of People In The Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Education Of People In The Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Human Development Index (HDI): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Advantages Of Using HDI: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Disadvantages Of Using HDI: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Other Indicators: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Inequality Adjusted Human Development Index (IHDI): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Multidimensional Poverty Index (MPI): . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Factors Influencing Growth and Development 7
Economic Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1. Primary Product Dependency: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2. Volatility of Commodity Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Savings Gap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. Foreign Currency Gaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. Capital Flight . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6. Demographic Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Access To Credit And Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9. Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
10. Education And Skills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
11. Absence Of Property Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Non Economic Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12. Corruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
13. Disease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14. Poor Climate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
15. Civil War . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Measures Of Income Inequality 11
The Lorenz Curve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
The Gini Coefficient . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

The Poverty Cycle 12
The Economic Growth Poverty Cycle: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
The Economic Development Poverty Cycle: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

1

,Policies To Redistribute Income & Wealth 13
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Increased Transfer Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Minimum / Maximum Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Improving Health Care & Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

The Laffer Curve 14

Strategies & Policies That Influence Development & Growth 15
Institutional Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
1. Education . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2. Health Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3. Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5. Appropriate use of technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6. Female equality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7. Income distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Political Stability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
The benefits of political stability: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Negatives of political instability: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Quantitative Easing 17
Why is quantitative easing used? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Micro Finance 18
What Are The Benefits Of Micro Finance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
What Are The Problems With Micro Finance? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Long Run Strategies To Develop A Country 18
Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Improving Human Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Improving Capital & Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Improving Institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Trade & How It Can Help Development 19
The Benefits Of Trade: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
The Problems With Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

The Prebisch-Singer Hypothesis 20

Policies To Promote Trade & Development 21
Import Substitution (To Industrialise) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Export Promotion Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Trade Liberalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Bilateral Trade Agreements & Regional Preferential Trade Agreements . . . . . . . . . . . . . . . . . . . . . . . . 22
Diversification Of The Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

FDI & It’s Role In Development 23
Why do foreign firms invest into developing countries? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
What are the benefits of FDI? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
What are the potential costs of FDI? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Sustainable Development 24
Sustainable Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Unsustainable Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Other Strategies For Development 24
Foreign Aid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
The Lewis Model For Industrialisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

2

, Buffer Stock Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Development Of Tourism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Fair-trade Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Evaluating Different Strategies For Growth 26
Market Based Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
What are the benefits of market based strategies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
However, what are the problems with market based strategies? . . . . . . . . . . . . . . . . . . . . . . . . . 27
Interventionist Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
What are the benefits of interventionist strategies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
What are the problems with interventionist strategies? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Public Expenditure 29
Reasons for the changes in public expenditure: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

3

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