Development Economics - Wikispaces - IB-Economics-TGS

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Transcript Development Economics - Wikispaces - IB-Economics-TGS

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IB Economics

Development Economics Section 5

2 Overview of Development Economics 5.1 Sources of Economics Growth and/or Development 5.2 Consequences of Growth 5.3 Barriers to Economics Growth and/or development 5.4 Growth and Development Strategies 5.5 Evaluation of Growth the Development Strategies

3 Economic growth entails an increase in a country's total output of goods and services.

Economic development entails a higher standard of living.

Economic Growth and Economic Development

4 Commons Characteristics of Developing Economies

Common Characteristics of Developing Economies 5 Low Per Capita Income • Poverty cycle • High degree of income inequality • Widespread absolute poverty High Population Growth • Large population or high growth rates • High dependency ratios High Unemployment and Underemployment • High unemployment especially season unemployment • High underemployment Over Dependence on Primary Sector • Large rural sector • Primary commodities basis of exports • Commodity concentration • Vulnerability to fluctuating commodity prices

6 1 0,8 0,6 0,4 0,2 0

Low incomes, Low Life Expectancy & Low Education

0,963 0,7 0,34 Norway Chad World Averagge HDI

Common Characteristics of Developing Economics

Percentage Population Growth

7 2,5 2 1,5 1 0,5 0 Norway Chad World Common Characteristics of Developing Economics: Overpopulation

8 25% 20% 15% 10% 5% 0%

Investment Spending as Percentage of GDP

Norway Chad World Common Characteristics of Developing Countries: Low Investment

9 Common Characteristics of Developing Economics

Development Economics

Section 5.1

Sources of Economics Growth and/or development 10

11 Human Capital Natural Factors Physical Capital Political & Institutional Factors

12 Growth in the Quantity and Quality of Labor Natural Resources Technological Progress Institutional Framework Economic Growth and Development

Development Economics

Section 5.3

Consequences of Growth 13

14 Higher incomes Higher government revenue Improved welfare Greater inequality Negative Externalities

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Types of Growth to Avoid

Jobless Growth Ruthless Growth Futureless Growth Voiceless Growth

Development Economics

Section 5.2

Barriers to Growth 16

Low Incomes 17 Low Investments Low Savings

18 Social & Cultural Barriers Institutional & Political Barriers Economic Growth & Development Financial Barriers International Trade Barriers

19 Political instability & Corruption Poverty & social conflict Low growth & taxation revenue Low levels of Foreign Direct Investment (FDI)

Development Economics

Section 5.4

Growth and Development Strategies 20

Growth Models Growth and Development Strategies 21

Growth Models & Growth and Development Strategies

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Harrod-Domar Growth Model

Increased Savings Increased incomes Increased Investment Increased output Larger capital stock

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Challenges for Developing Economies

Harrod-Domar Growth Model Increased Savings Increased incomes Increased Investment 1.

Very low propensity to save 2.

High levels of consumption 3.

Capital flight Increased output Larger capital stock

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Challenges for Developing Economies

Increasing output may be hampered by:  poorly skilled workforce and a brain drain  poor management skills  Low levels of Research and Development Harrod-Domar Growth Model Increased Savings Increased incomes Increased Investment Increased output Larger capital stock

25 Structural Change and Dual Sector Model • Surplus Labor Agricultural Sector Expanding Manufacturing Sector • Capital growth as profits invested

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Challenges for Developing Economies

Structural Change and the Two Sector Model • Surplus Labor Agricultural Sector Expanding Manufacturing Sector • Capital growth as profits invested   Capital flight instead of investment  Technology replaces labor and spare capacity in the agricultural sector not utilized Model assumes steady labor costs but wages may rise lowering profits and further investment

Export-led Outward-looking Growth Strategies 27 Focus on production of goods with comparative advantage exists Higher incomes Growth in both domestic and exports markets

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Necessary Conditions for Export-led Growth Strategies

 Liberalized trade and capital flows     Floating exchange rate Investment in infrastructure Deregulation Export-led Growth Strategies Focus on production of goods with comparative advantage exists Higher incomes Growth in both domestic and exports markets

Import Substitution Growth Strategies 29 Focus on producing good domestically Provide Subsidies Impose tariffs and quotas on imported goods

30 Advantages of Export-led Strategies Disadvantages of Export-led Strategies

31 Advantages of Import Substitution Strategies Disadvantages of Import Substitution Strategies

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Growth Strategies Commercial Loans • Direct Foreign Investment • Long-term investment by MNCs

33 Advantages of FDI Fills domestic savings gap Multiplier effect Revenue for government Provides employment and training Disadvantages of FDI MNCs may provide their own labor May exploit the environment May exploit domestic labor May expatriate profits and avoid taxes

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Development Strategies

Microcredit • Capital to small scale business projects Fair Trade • FairTrade bodies allow farmers and small businesses to use an internationally recognized logo that certain standards of fairness are met

Development Economics

Section 5.5

Evaluation of Growth and Development Strategies 35

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Aid

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Aid

Types of Aid Humanitarian Development Food, medicine emergency relief Improve human resources, technology and fund specific projects

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Classifying Aid

 Bilateral and Multilateral Commodity Aid Long Term loans Technical Assistance Aid Tied Aid Project Aid

39 Advantages of Aid Disadvantages of Aid

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Market-led Versus Interventionist Growth Strategies

Market-led Strategies

Establish Free Markets • Export-led growth • FDI • privatization

Interventionist Strategies

Active Government manipulation of markets • Import Substitution • protectionism • nationalization • exchange rate manipulation

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A New Consensus about Growth and Development

Trade Justic e Debt Relief Free markets Political stability Effectiv e targeted aid

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Resources

Gapminder is an excellent resource that present statistics in an attention grabbing way.

A provocative article by New Internationalist . John McMurty argues that free markets are often presented as the sole solution to poverty and human development when the global market is inefficient and life-destructive.

Mailer, M. H. & Nelson, J. A., (2007)

Introducing Economics: A Critical Guide for Teaching

, M.E. Sharp Armonk.

Jeffry Sachs author of

The End of Poverty: Economic Possibilities for Our Time

presents his views in a lecture at Columbia University.

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Resources

The Girl Effect

explain how the quantity and quality of labor can be improved by focusing on girls.

 PBS also provided a lesson plan based on “Global Women and Poverty” .

 This video exposes Nike to criticisms of exploitation.

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Suggested Activities

1.

Students undertake in-depth research of an undeveloped economy of their choice. They present information to the class using the section headings as a way of organizing their information.

2.

Student convince others of the worth of a microcredit loans which is extended through the Kiva organization. See details here.

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Assessment

As a major section of the course and one that so well fits IB Learner Profile, Section 5 is a popular choice for examiners devising questions to test your understanding of the course. Only Section 1 and 5 are identical for both SL and HL students.

Development Economics can be asked in conjunction with questions about Macroeconomics and International Trade. It is also a popular topic of data response questions.

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Typical Questions

Questions that ask you to explore the relationship between growth and development: 1 Evaluate the view that economic growth will lead to economic development and associated 2 3 improvements in welfare.

Explain the differences between economic growth and economic development.

Explain what is meant by sustainable development.

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Typical Questions

Questions that focus on barriers to growth and development: 4 5 Explain the main barriers to development.

Explain how overdependence on primary products may act as a barrier to economic development .

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Typical Questions

Questions that ask you to evaluate developmental strategies.

6 Evaluate the view that interventionist strategies are more effective than market orientated 7 8 strategies.

Evaluate the effectiveness of aid in achieving economic growth and development Evaluate the role of MNCs and FDI in achieving economic growth and development.

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Typical Questions

9 10 11 Explain the difference between inward looking growth strategies and outward looking growth strategies.

Evaluate the strategies that can be used to achieve economic development Explain how an increase in the quantity and quality of a nation's factors of production can promote economic development.

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Typical Questions

⑫ Explain the role of fair trade organizations and micro credit schemes in promoting economic development.

⑬ Evaluate the role of MNCs in economic growth and development.

⑭ Evaluate trade and aid as means of achieving economic growth and development.

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Typical Questions

Questions that focus on how development is measured: ⑮ Explain how development might be measured.

Questions that link to other sections of the course.

⑯ Evaluate the impact of globalization on the economic development of developing countries.

⑰ Evaluate the role of the World Bank and the IMF in economic growth and development.

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Diagrams

Section 5 does not have a great number of associated diagrams.

However you should know the following: 1.

PPCs curves that can distinguish between growth and development.

2.

3.

Poverty Cycle.

Macroeconomic and International Trade diagrams as they relate to development issues.