What does standard of living mean?
Usually refers to the material wellbeing of a person; in other words, it is a measure of income
What does economic development mean?
Economics development refers to the improvement in the overall standard of living and quality of life of the population
What is GNI (gross national income)?
GDP plus net incomes from abroad
Advantages of HDI
-Provides more information than GNI figures alone; health and education is also taken into account
-is fairly simple to calculate and uses statistics that most governments collect
-HDI uses quantitative indicators and does not rely on qualitative data that might be needed for calculating measures like GPI
What does relative poverty mean?
In the UK, this means the percentage of the population living on less than 60% of median income. The definition varies from country to country.
What does absolute poverty mean?
The UN defines this as a “condition characterised by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information”
The threshold for absolute poverty line set by the world bank and the UN is $3.00 a day
808 million people were estimated to live below this line in 2025
What is the human development index?
Summary measure calculated by the United Nations. The index is based on three indicators of economic development:
-Health (measured by life expectancy at birth)
-Education (mean years of schooling of adults aged 25 and over, and the expected years of schooling that current 5-year-olds can expect over their lifetime)
-GNI per capita at PPP
All three indicators have equal weighting. HDI scores are between 0 and 1. The higher the score, the greater the level of human development
What are some HDI related measures?
1.Inequality-adjusted HDI(IHDI):this takes into account income inequality. Higher inequality brings down HDI scores
2.Gender development index(GDI):this calculates the HDI for men and women separately and then takes a ratio. The close the value is to 1 the lower the gender inequality
3.Gender inequality index(GII):takes into account women’s reproductive health, empowerment of women and labour force participation by gender
4.Multidimensional Poverty index (MPI): It uses a broader range of indicators for the three HDI categories. For example, for health, also include nutrition. Standard of living also include access to electricity
5. Genuine progress indicator(GPI): More comprehensive measure of economic development than HDI or MPI.It also takes into account sustainability - is there enough resources to sustain the same production and consumption for future generations
What are the disadvantages of the HDI?
1.Overall HDI figures mask disparities within and across countries.The number of years of education does not indicate quality of education. A longer life expectancy does not necessarily mean a healthier life
2.HDI figures do not look at negative externalities of growth and do not take into account many indicator of development that are used by MPI and GPI
3.Measure such as GPI can be more useful for longer term planning because it takes into account sustainability
What does the primary sector mean?
Extraction of raw materials and the growing of food
What does the secondary or manufacturing sector mean?
Raw materials are transformed into goods. For example, food processing, steel production,automotive industry, construction
What does the tertiary or service sector mean?
This is to do with reatil, leisure and hospitality, banking and financial services, transportation, IT and so on
What is the quaternary or knowledge sector?
Part of the tertiary sector which is to do with the intellectual aspect of the economy. Focus on innovation and improving the quality of services through education, training, R&D.
What is the quinary sector?
This is where the highest level of decision making in an economy happens; this includes government (legislation) bodies, public services, non profits, universities and so on
What are the benefits of a transition from primary to secondary/tertiary sector?
1.Subsistence (Growing of own food) likely to be low productivity, due to poor irrigation (water) systems, limited physical capital and a large number of people relative to land
2.Jobs in secondary and tertiary sectors require higher skills and are higher-paid
however:
-there may be no job security, poor working conditions, no benefits such as pensions
-the informal sector in urban areas may be unregulated/illegal/use child labour
3. Economics growth becomes more sable because the primary sectors can be adversely affected by changed in weather conditions and by diseases (crop illnesses). More volatility in price of agricultural products on the international market
4.There is a great value added element in the secondary and tertiary sectors which leads to higher real GDP, and potentially increased export revenue and decreased import expenditure
What are some factors that influence development ?
1.Economic growth
2.greater provision of education
3.better infrastructure
4.technological progress
5.increased international trade and FDI
6.remittances and foreign aid
7.access to credit and banking
8.political and institutional factors
How influential are savings for economic growth ?
Increase in national savings -> higher investment -> higher capital stock -> rise in real GDP (GNI) -> higher factor incomes -> increase in national savings (REPEAT)
What are some difficulties in closing the savings gap ?
-higher savings is unlikely to be turned into higher investment if the economy lacks efficient financials systems to bring borrowers and lenders together
-higher Investment will not generate economic growth if the economy lacks human capital and adequate infrastructure (for example buying expensive medical equipment, but no trained doctors to use them or no electricity)
-there may be capital flight, whereby residents prefer to send their savings abroad due to potential higher yields or residents deem them more secure, or due to tax evasion
-foreign aid can be squandered through corruption, and foreign debt can build up rapidly and interest payments become unsustainable
What are some ways of closing the savings gap?
1)FDI
2) remittances
3) microfinance
What does micro financing mean?
Microfinance 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 often really small and there is no requirement for collateral or credit history
What are the advantages of micro-financing (MF)?
-In the absence of MF, borrowers may have to rely on moneylenders/ loan sharks who charge high interest rates, low income households may get stuck in a cycle of debt and poverty
-MF can help smooth consumption: especially important for agricultural industries where significant supply shocks (price of the commodity or poor harvest) can cause shocks in income
-MF encourages entrepreneurship among women who may be able to start businesses, recusing gender based inequality
-MFIs (micro financing institutions) can also come with a social aspect to them. Such as educating women about nutrition, vaccinations etc. this is likely to raise the health standard of those on low income households
-Aside from providing micro loans, MFIs can also provide micro insurance. MFIs can act as a way to bring borrower and lenders together in rural areas
What are the disadvantages of microfinancing?
-some MFI have encouraged borrower to take on too many loans or they charge them very high rates of interest. The risk of default has grown and borrower find themselves in debt
-rather than repeatedly taking small loans, low income individuals may benefit from a steady stream of income from formal employment
-rural productivity needs to be raised (for example, greater use of capital in agriculture, increased irrigation) in order to raise rural per capita incomes in the long run
- in cases of extreme poverty, direct aid to low income individuals may be more effective than micro loans
Some potential evaluation points for the use of micro financing to close the savings gap
-Effectiveness depends on how the loan is used- consumption or investment
-depends on whether new businesses displace existing businesses
-for start up businesses financing may not be enough. It may also require subsidies for them to succeed
-depends on whether the environment is conductive to starting businesses (easy access to permits, licences, corporation tax), this could allow businesses to move away from the reliance on microfinance
-some MFIs can charge extortionate interest rates (due to asymmetric information), other MFIs have diverted to a profit incentive rather than a social one
Some possible counter analysis of microfinancing
-Most microfinance loans are used to fund consumption and buy necessities. As a result, borrower do not generate the income required to pay off the loan and end up taking out more loans to pay off debt from previous ones (for example, South Africa where 94% of consumption comes from micro financing)
- new businesses may experience a lack of consumer demand as the consumers are likely to be low income households, and they tend to buy necessity goods
-new businesses end up displacing older ones, yielding no net increase in income or employment
-if the business fails, this can lead to borrowers being further driven into poverty
-
1.093
-
2.4 Inflation35
-
2.5 Balance Of Payments25
-
2.3 Unemployment37
-
3.1 Fiscal Policy46
-
Monetary Policy24
-
Inflation5
-
Suuply Side Policy19
-
Phillips Curve7
-
4.1 And 4.3 International Trade11
-
4.4 Trade Policies: Protectionism21
-
4.2 Exchange Rates35
-
4.3 Globalisation18
-
4.4 Economic Integration21
-
2.2 And 5.2 Development29
-
2.7 Income Distribution33
-
Facts12
-
5.1 Money And Interest Rates14
-
2.1 Economic Growth36
-
5.2 The Financial Sector8
-
5.3 Financial Regulation13
