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

2. 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)

3. 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?

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

5. 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)

6. % 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.

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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? --

14. LAND Can improve QUALITY by ……………………………………………….

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

16. 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

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

18. ENTREPRENEURSHIP Definition:
___________________________________________
Needs
1) institutional support
2) training/mentoring
3) Financial and marketing systems
 micro-credit (new handout)
But also needs CRITICAL evaluation

19. Micro credit continued
But also needs CRITICAL evaluation
Which is better : micro or macro

21. 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)

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

23. Barriers to development/growth
Land
Labor
Capital and Entrepreneurship
Institutional/ External

24. Development strategies: Mind Map (thanks to Paul Elder)

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

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

27. 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

28. Development strategies
Outward-oriented
TRADE vs FDI vs AID

29. Which is more important: Aid vs FDI

30. 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)

31. 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

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

33. Making aid more effective

34. Foreign Sources of finance to ELDCs (group VI)

35. 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

36. 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)
……………….

37. 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”

38. 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)

39. 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 ??????

40. 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).

41. 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

42. 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