Development: The Basics Remember: Data response question (from a choice of two) on Paper 2 of IB Exam

Human Development Index (HDI) Development vs. Growth Growth: QUANTITATIVE – Increase in Real GDP….usually percentage increase Development: QUALITATIVE –Improvement in people’s quality of life, More subjective and need a MULTICOMPOSITE measure, Measured by Human Development Index (HDI)

HDI: 3 components Page 4 of Handout (Group III complete pages ¾) Standard of living – Real GDP or GNI/capita Health – Life expectancy Education – Mean years of schooling CONNECTION between growth and development?

CONNECTION between growth and development Is Growth sufficient for development? Is Growth necessary for development? Use ppfs and Venn diagrams

ELDCs: Economically Less Developed Countries Most in Sub-Saharan Africa, also Asia Low income  ABSOLUTE POVERTY (as well as RELATIVE POVERTY) Definition of absolute poverty = person lives below a level of income that is not enough to meet basic living needs OR below the poverty line of about $1.50/day Next slide Poor infrastructure, education, health care, human rights High population growth, unemployment, environmental damage, corruption Mostly primary products (farming, fishing, etc)

% of population in absolute poverty Extreme poverty rates have fallen significantly in China and India. In other countries, extreme poverty has increased per 2011 benchmarks compared to 2005 benchmarks.

Other categories a.k.a Developed, Rich, Industrialized EMDCs – More Developed Countries a.k.a Developed, Rich, Industrialized > $20,000 GDP/capita, Europe, US, Japan, etc. Middle income countries - $3000-$20,000 GDP/capita Mexico, China, most of S. America & Asia NICs – Newly Industrialized Countries China, India, Brazil, etc. Also BRICs Transitional – From central planning to market system, e.g. Russia, Poland

Eight Millenium Development Goals MDGs : to be achieved by 2015 Group VI has done #1) Progress New set of goals announced 17 Sustainable Development Goals (SDGs) and 169 targets See web page  Beyond a $ a day

17 Sustainable Development Goals to be applied to ALL Goal 1. End poverty in all its forms everywhere Goal 2. End hunger, achieve food security and improved nutrition and promote sustainable agriculture Goal 3. Ensure healthy lives and promote well-being for all at all ages Goal 4. Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all Goal 5. Achieve gender equality and empower all women and girls Goal 6. Ensure availability and sustainable management of water and sanitation for all

continued Goal 7. Ensure access to affordable, reliable, sustainable and modern energy for all Goal 8. Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all Goal 9. Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation Goal 10. Reduce inequality within and among countries Goal 11. Make cities and human settlements inclusive, safe, resilient and sustainable Goal 12. Ensure sustainable consumption and production patterns

continued Goal 13. Take urgent action to combat climate change and its impacts* Goal 14. Conserve and sustainably use the oceans, seas and marine resources for sustainable development Goal 15. Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss Goal 16. Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels Goal 17. Strengthen the means of implementation and revitalize the Global Partnership for Sustainable Development

Next stage Factors causing growth (sustainable and using the meaning of an increase in potential real GDP …..not just increase in real GDP) USE template  use notes on CAUSES of SUSTAINABLE GROWTH and poverty cycles + microcredit

Quantity and Quality of FOPs Increase in potential PRODUCTION caused by an increase in ………………………. of factors Increase in PRODUCTIVITY caused by an increase in ………………………. of factors What is the problem with just increasing quantity? -- ---------- -------

LAND Can improve QUALITY by ………………………………………………. -------------------------------------------------- ----------------------------------------------------

LABOR Use POVERTY CYCLE and notion of HUMAN CAPITAL for analysis Can improve QUALITY by ………………………………………………. -------------------------------------------------- ----------------------------------------------------

Cycle of Poverty or Poverty Circle: How to break it Cycle of Poverty or Poverty Circle: How to break it? (NB right hand side of diagram on Page 344 of textbook is WRONG) Low education/ skills& poor health Low productivity Low/ no growth Low income

Cycle of Poverty or Poverty Circle: How to break it? Low savings Low investments Low/ no productivity increases Low income

ENTREPRENEURSHIP Definition: ___________________________________________ Needs 1) institutional support 2) training/mentoring 3) Financial and marketing systems  micro-credit (new handout) https://www.youtube.com/watch?v=YxpTFwQx-A8&feature=related But also needs CRITICAL evaluation

Micro credit continued But also needs CRITICAL evaluation https://www.youtube.com/watch?v=XND_TFizzI0 Which is better : micro or macro http://www.ted.com/talks/sangu_delle_in_praise_of_macro_yes_macro_finance_in_africa

CAPITAL Four main types--- Increase in quantity needs…………  poverty cycle How can it be broken? Increase in quality needs…….. BUT consider Capital-Intensive vs Labor-Intensive and issue of APPROPRIATE TECHNOLOGY 1) 2) 3) 4)

How large is the problem. http://gregmankiw. blogspot

Barriers to development/growth Land Labor Capital and Entrepreneurship Institutional/ External http://gregmankiw.blogspot.jp/2010/12/200-countries-and-200-years-in-4.html

Development strategies: Mind Map (thanks to Paul Elder)

Govt. intervention/planning Inward-oriented Govt. intervention/planning vs Free market

Govt Intervention Free Market Concepts Macropolicies Micropolicies Theoretically….. Critical Evaluation Concepts Macropolicies Micropolicies Theoretically….. Critical Evaluation

Development Strategies Dual sector model Improve productivity in existing areas of specialization (usually primary sector) Use increased returns to gradually industrialize and move into service sector

Development strategies Outward-oriented TRADE vs FDI vs AID

Which is more important: Aid vs FDI

Development strategies AID : classification and types Bilateral – one country to another Multilateral – a group of countries or an international agency loaning to one country (usually via …… or ………) ODA (from governments) NGOs (non-governmental organisations)

Loans Tied ………. Loans vs Grants Grants (not a loan; just a donation). Long term (often soft or concessional) Grants (not a loan; just a donation). Often HUMANITARIAN: food, medical and emergency relief ________________________________________ A lot of aid (both loans and grants) is Tied ………. including PROJECT AID and PROGRAM AID Eg Page 2 of handout

AID : EVALUATION (pages 5,6,7) Pros Cons

Making aid more effective http://www.ted.com/talks/esther_duflo_social_experiments_to_fight_poverty

Foreign Sources of finance to ELDCs (group VI)

New Multilateral Aid (LOANS) Institution (Jan 16th 2016) The AIIB - Asian Infrastructure Investment Bank  China provides around 30% of the bank's $100 billion in capital and holds 26% of the voting rights Both the U.S. and Japan have not joined, concerned about the bank's transparency. The AIIB is headquartered in Beijing and headed by President Jin Liqun, who has been China's vice minister of finance.   Indonesia and other countries want to borrow from the AIIB. The bank will become not just the principal rival of the ADB, led by Japan, but also a key tool in China's battle with the U.S. for economic leadership in Asia But AIIB will both compete and cooperate with the World Bank and the ADB

DEBT Issues Distinguish: PUBLIC/NATIONAL DEBT vs PRIVATE DEBT owed BY owed BY ……………………………. ………………. (debtors) INTERNAL DEBT vs EXTERNAL/FOREIGN/INTERNATIONAL DEBT owed TO owed TO ……………………………. …………………………… (creditors) ……………….

EXTERNAL/FOREIGN/INTERNATIONAL DEBT owed to CREDITORS Is partly PUBLIC and partly PRIVATE Public foreign debt is due to : (i) government borrowing from multilateral organisations or foreign governments, (ii) government borrowing from foreign commercial banks, or sales of bonds to foreigners Private foreign debt is due to: (i) Foreign direct investment (usually by MNCs –multinational corporations) (ii) Foreign portfolio (financial investment) by overseas banks, finance companies etc in ELDCs stock market, private-sector companies etc ( “hot money” and risk of “capital flight”

WHY borrow? 1) to finance a ………………………. On the ………….. account of the Balance of Payments 2) to finance a ……………………….deficit and do more government spending 3) to promote industrialisation (and therefore need funds for investment into CAPITAL)

COSTS of debt Debt servicing or financing: repayment of the principal (amount of the loan) plus interest. debt service payments must be made in foreign exchange Therefore need increased exports, reduced imports Or More financing from overseas. Consider: if borrow $1000 mill at 10% compounded annually and make no repayments for the first few years; After how many years will the cost of financing the debt have DOUBLED to $2000 mill ??????

How did the huge burdens arise in the1970s and 1980s? 1) trade deficits due to higher oil prices PLUS 2) international banking system’s need to make new loans. (so banks lent to oil-importing countries the same funds that came from oil exporters, to allow the ELDCs to continue to import oil) 3) Freer “capital” markets 4) Careless lending and borrowing MEANWHILE….. lower than expected (and sometimes negative) rates of economic growth, lower growth in export earnings and higher import costs, increasing interest rates (which increase the cost of debt servicing).

Strategies to deal with debt burden (use GLOSSARY) A) …………………. fiscal (to cut govt. expenditure and /or increase taxes) etc and monetary policies to reduce imports and/or increase exports OR B) Borrow MORE OR C) Default OR DEBT RELIEF 1) Rescheduling 2) Cancelling 3) Moratorium

Evaluation of DEBT RELIEF Opportunity costs of the debt burden Large debt service payments have opportunity costs because government has fewer resources to invest in social services (health, education, etc.) and infrastructure, Advantages Disadvantages