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development - Economics HL Notes...

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Economics HL Notes Graeme ([email protected]) [ 1 ] Section 5: Development Economics Contents Distinction between Growth and Development ................................................................................. 3 Characteristics of Economic Growth .................................................................................................. 3 Indicators of Development ................................................................................................................ 3 Sources of economic growth and/or development ............................................................................ 4 Natural factors: the quantity and/or quality of land or raw materials ............................................. 4 Human factors: the quantity and/or quality of human resources ................................................... 5 Physical capital and technological factors: the quantity and/or quality of physical capital .............. 5 Institutional factors that contribute to development ..................................................................... 6 Consequences of growth ................................................................................................................... 7 Negative Externalities .................................................................................................................... 7 Income distribution ....................................................................................................................... 7 Sustainability ................................................................................................................................. 7 Barriers to economic growth and/or development ............................................................................ 8 Poverty Cycle ................................................................................................................................. 8 Institutional and political factors .................................................................................................... 8 International trade barriers ......................................................................................................... 10 International financial barriers ..................................................................................................... 11 Other Barriers .............................................................................................................................. 12 Growth and development strategies ............................................................................................... 13 Harrod-Domar growth model ...................................................................................................... 13 Structural change / Lewis dual sector model ................................................................................ 13 Types of Aid ................................................................................................................................. 14 Foreign Investment (MCNs/ TNCs) ............................................................................................... 15 Open, outward-oriented vs. Closed, inward-oriented .................................................................. 16 Investment .................................................................................................................................. 17
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Economics HL Notes Graeme ([email protected]) [ 2 ] Commercial loans ........................................................................................................................ 17 Fair trade organisations ............................................................................................................... 18 Micro-credit schemes .................................................................................................................. 18 Sustainable development ............................................................................................................ 18 Evaluation of growth and development strategies ........................................................................... 19 Foreign Aid .................................................................................................................................. 19 TRADE ......................................................................................................................................... 20 Market-led and interventionist strategies .................................................................................... 21 The Role of International Financial Institutions ................................................................................ 22
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Economics HL Notes Graeme ([email protected]) [ 3 ] Distinction between Growth and Development Growth is not the same as development. Growth, measured in terms of an increase in GDP is a quantitative measure. Real GDP per capita figures are an inadequate means of making comparisons both within countries and between countries. Limitations of GDP as a measure to compare welfare between countries: The 'shadow' economy often means that GDP calculations are an underestimation of actual GDP. In Nigeria it is estimated that the 'shadow' economy represents 77% of GDP. Regional variations exist within countries. Externalities are not accounted for. New products and improvements in quality are not accounted for. Some countries have more leisure time for similar levels of GDP. Currencies in one country may not have the same purchasing power as in another country and so a common currency ($) may be used to make comparisons. Even with a common currency not all goods are traded, products are regionally differentiated, there are local taxes and currencies fluctuate. Development is a qualitative measure of an improvement in the quality of life. An economy can grow without developing. Characteristics of Economic Growth Variations in long run growth rates Given compound growth rates, small differences in annual growth rates can open up wide gaps in growth and income between countries. Poor countries find it easier to achieve high growth rates than rich countries as they are growing from comparatively low levels of income. Growth also needs to take into account changes in population (GDP per capita).
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