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Revision for unit 5b - Development

'Sup all,

Thought I'd start a thread here for development revision. I'm gonna put a few questions in then people can throw down some ideas. Good way to revise I reckon...

For a kick off:
1. Examine the consequences for a developing country when it is dependent on primary products (10)

2. Examine three factors affecting the number of tourists to a developing country (15)

3. Analyse the case for and against cancellation of debt in highly indebted countries (20)

Have fun and feel free to add your own questions...

Scroll to see replies

Reply 1

MissInnocence

Does anyone actually have any unit 5 past papers? i only have the ones on the edexcel board and really need some more so i can practice - quite worried about this paper

Reply 2

Master Gee

MissInnocence

Does anyone actually have any unit 5 past papers? i only have the ones on the edexcel board and really need some more so i can practice - quite worried about this paper

Do you mean you've just got the ones off the edexcel web site or something?

I've got a few, the questions above are from June 2003 but I can give you some more to have a think about if you want.

Reply 3

G-Unit206

You can only get past papers from the edexcel site and they cost £3 each and its bit late to do that. How r u guys revising for unit 5, most of it is eveluation and applying to the question given. I'm quite worried bout the whole evaluation thing, thats wen you look at the pro's and con's and decide weather its any good right?

Reply 4

ram

Master Gee

2. Examine three factors affecting the number of tourists to a developing country (15)

Don't have time to write proper answer but will make a few points:

1) The stability/safety in the country, whether there have been wars recently.

2) The number of flights going to the country and the amount of advertising travel companies have done on that specific location.

3) The infrastructure and facilities avaliable at the holiday location - quality of hotels, things to see etc. Can make a link to FDI affecting this and whether there has been MNC interest in setting up hotels.

4) The PPP of the £ (if from UK) compared to the developing countries currency. Therefore, tourists may come to buy products more cheaply.

I would relate this to the data response, kinda hard to do without it though! lol

Reply 5

Philosophical

id agree with that, as for:
1. Examine the consequences for a developing country when it is dependent on primary products (10)
id say...
any economy dependant on primary products is at risk of shock to the harvest, this includes drought and even other sdisater such as the tsunami that affected many LDCs recently, the effect that such a shock will have is shown the the following diagram (draw cobweb diagram here)
also another factor that has to be taken into consideration is the fact that LDCs fac e worsening terms of trade, that is that primary (agricultural) products generally lower in price and manufactured goods and services increase in price, thus the LDCs must produce more in order to be able to buy foreign imports - this shows the rising gap that exists between the rich and poor countries of the world, this is a problem that has far reaching consequences that can only be overcome by either fairer trade, or by moving into manufactured goods production, this, however is a lengthy process and requires investment in infrastructure and industry; this requires money that LDCs do not have

Reply 6

Ellie4

I'd LOVE it if those qs came up! Easy paper alert :biggrin:

Reply 7

Philosophical

hmmm, i feel lyk doing an answer for the last Q, but ill make this short, i gotta sleep! LOL. big revision day tomorrow :-(
so...

3. Analyse the case for and against cancellation of debt in highly indebted countries (20)

ok, firstly FOR cancellation of debt:

-worsening terms of trade lead to indebted coutries having to pay large amounts of money, which they find harder and harder to earn

-debt repayments are taking money away from where it is badly nbeede,d for example, only a few million dollars extra could cut infant mortality rates in LDCs by a massive amount, this in turn would increase the workforce and have positive economic effects in the future - thus is the opportunity cost of debt.

-debt gives the indebted a feeling of ownership - because some countries are in debt they feel like they have accountability in all activities t the organisation that indebted tham. they feel owned, and this has adverse effects in all economic areas, for example investment will be low because of firms' low confidence.

-when there is interest charged on loans (such as those given out by the IBRD) then if the amount money borrowed is substantial, the interest will be large. in effect, the country may only be able to pay back the interest on a yearly basis; this will ensure the country is endebted for a very long time.

now AGAINST cancellation of debt:

-the countries that borrowed the debt have repayments so that they will continue to invest in the country economically - this means they should work on generating GDP. if there are no repayments to be made, there is less of an incentive to generate GDP, and as such beneficial investment may not take place.

-the countires that lent the money will lose out, they may have lent the money as an investment (with interest added) so if the debt is cancelled then they wil lose thier investment, this can have adverse effects on those countries.

-if countries holding debt have it cancelled, they may look towards taking out further loans, in the hope that they may too be cancelled. this can lead to complacency and a waste of resources in that country.

as EXTRA EVALUATION:

-the money that was given in aid or the loan may have been spent on white elephant projects, in this case cancellation of that debt may seem like a total waste of resources, the world (reasonably) stresses that someone must be held accountable.

-the problems associated with corrupt governments must be fixed before the debt can be forgiven - there is no use in forgiving debt that has been stolen by corrupt leaders - they should be held accountable and debt should not be forgiven until the coutries sees a change in leadership.

-other economic problems such as lack of infrastructure and primary good dependancies must be relieved before the debt can be forgiven. this is because when the debt is forgiven the country must be in a position to strengthen and sustain its economy in order not to become indebted again quickly.

SUMMING UP:

-debt forgiveness is, on the whole, a good idea. there are problem associated with that that have been discussed, but recently approximately $22 million of third world debt has been forgiven (mostly centred around sub-saharan africa). this reflects the relity of the situation - debt forgiveness is a good thing, but not in every case (there are more countries that are eligible for debt forgiveness, but many more countries have no hope of their debt being cancelled, possibly with reason)

wow...so much for making it short, eh?
goodnight everyone!
hope this is helpful ;-)

Reply 8

tangsiuje

Philosophical

Since this is one of my favourite topics :p:

, I just can't stop myself from adding a few points to Philosophical's discussion here:

1. IMHO, there should be a distinction between fairer trade and freer trade. Fair trade makes me think about commodity agreements and cartel-like organisations (of which most have eventually failed anyway), whilst free trade makes me think about EU/US abolishing wicked agricultural subsidies. I guess both might help LDCs... :confused:

2. Primary products not only include agricultural goods, but also minerals, gold, precious stones, and even oil (although that case is a bit special). Speculation on these products might bring about demand-side shocks (due to short term inelasticities of demand and supply --> the loss of revenue will be great...). In addition, the effective demand will be affected by the trade cycle in MDCs.

3. Miniturisation and development of synthetic substitutes. For instance, if commodity prices rise (eg some LDCs forming a commodity agreement), alternative materials will be developed.

4. I don't quite agree that EITHER fairer/freer trade OR switching to secondary sector production could relieve poverty. In the long run, there must almost certainly be a combination of the two :confused:

There is a development model (can't remember the name... :wink:

) dealing with finding an existing sector within the economy that could develop FIRST (eg textile industries) and generate income to boost development of OTHER sectors. As Philosophical pointed out, relying on primary commodities is "inherently" bad, due to the long term income inelasticity of demand. Thus, moving into secondary/tertiary sector production is essential for development in the long run. (China's manufacturing industries is a perfect example of this. Saudi Arabia is an interesting case: oil--as a primary product--constitute a fair part of GDP, but unless oil revenues are used for investment and development of other sectors of the economy, growth cannot be sustained in the long term.)

Reply 9

-mb-

Other important points about primary product dependency:

- it only allows slow growth due to low income-elesticity of demand for primary products in the developed countries that buys most of the output

- also, the primary product market in general is more competitive and often consumers (MNCs etc.) have monopsony buying-power, while producers are many small individuals with little market power. This is why price rises for manufactures are usually not passed on to the producers of the raw materials, so they're stuck in poverty

- finally asymmetric information and poor education means price fluctuations (very harmful to producers close to absolute poverty) are common due to the "cobweb" effect (or "hog cycles" or whatever you call it)

as well as all the other points about declining terms of trade (Prebisch-Singer hypothesis) and vulnerability to shocks.

Sorry if anyone has already said any of those.

Reply 10

Ellie4

How would you evaluate measures of economic development? I assume it means things like literacy, GDP per capita, life expectancy etc, but for 10 marks, how wold you evaluate these measures? =)

Reply 11

Nellz

Ellie4

How would you evaluate measures of economic development? I assume it means things like literacy, GDP per capita, life expectancy etc, but for 10 marks, how wold you evaluate these measures? =)

You would probably give the advantages and disadvantages of each and then say what was the most important as a measure of development and why in the conclusion. For a 10 mark I would chose 3 measures just to be on the safe side, and off the top of my head I'd use GNP/capita, HDI, and the birth rate

Reply 12

Ellie4

Nellz

So stuff like GNP/capita doesn't show distribution of income?
And HDI doesn't show differences between different demographic groups/gender etc?
How would you evaluate BR?

Reply 13

Nellz

Ellie4

So stuff like GNP/capita doesn't show distribution of income?
And HDI doesn't show differences between different demographic groups/gender etc?
How would you evaluate BR?

Also within HDI I might evaluate the different indicators used to calcualte it.

The birth rate might not be accurate because of people not reporting births as there is often little healthcare in LDC's so it could be far greater, than reported. Additionally there are factors that influence the birth rate such as political interference, high child death rates, lack of contraception etc that influence this which you can't see from birth rate figures. The reason why I chose it is that it's definitely not that an important measure on its own, and makes evaluation a lot easier.

I'm off to the library now to do some last minute cramming for tomorrow. Speak to you soon, and happy revision :smile:

Reply 14

Ellie4

Anyone got any notes on the impact of/evaluation of SAPs? I have all the policies, but need more to evaluate some of them =)

Reply 15

ram

Also with birth rates, they often lag behind the current economic situation and hence wouldn't be as accurate as say the % living under a $ a day.

Reply 16

sumitk87

ram

Also with birth rates, they often lag behind the current economic situation and hence wouldn't be as accurate as say the % living under a $ a day.

gd point, 3 evaluation marks

Reply 17

-mb-

Ellie4

Anyone got any notes on the impact of/evaluation of SAPs? I have all the policies, but need more to evaluate some of them =)

Looking at the "Adjustment" part.

The aim is macroeconomic stability, which is good for investment, BUT
the focus being on inflation means that they demand fiscal "discipline" and high interest rates.
- This policy conflicts with the objective, at least in the short run. High interest rates make existing debt more expensive, and discourage further borrowing to invest. They do encourage saving, but this will not help if most cannot afford to save, or institutions do not exist or are not trusted.
- Fiscal discipline also causes considerable short run hardship as health and education provision is reduced, which can have some longer term impact, such as on skills, while reduced infrastructure spending can also have a negative effect on investment. Tax rises again harm investment.

Currency revaluation improves competitveness, but makes existing imports more expensive, which can again hurt the poorest.

Someone else can do structural changes.

Reply 18

Ellie4

-mb-

Thanks - that's great =)
I can evaluate the structural policies pretty well, so don't worry about that!

Um, I was doing policies to encourage economic growth, and mentioned encouraging free trade/abolition of protectionism and encouraging FDI. For a third could I do investment in human capital, or can you think of a better one? Thankies!

Reply 19

-mb-

I would have thought investment in human capital is a good one to evaluate, since it worked so well for the 'Asian Tigers', but you could contrast this with the ability of sub-Saharan African nations to do the same (i.e. they can't!) esp. with the AIDS pandemic.

Alternatively you could stick to the Harrod Domar model, and having discussed investment human capital, which would improve the capital-output ratio, you could discuss how to raise saving, which goes back to the different effect on interest rates as opposed to investment, as well as issues about insitutions.

Really, trying to think of Developing Country Government policy to induce growth highlights just how powerless they are! All my notes say are: monetary policy, fiscal policy (tax breaks etc. for FDI as you mentioned), and savings institutions or compulsory saving.