Development and sustainability

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Development

Poverty: when income is below the level that would allow someone to enjoy some agreed minimum standard of living. WB defines 'extreme poverty' as living on less than US$1/day and moderate poverty as less US$2/day at PPP.

Economic development: the process of improvign people's economic well-being and quality of life.

Human development index: a measure that, recognising the limitations of GDP/capita as a measure, combines outcomes that might be valued in the development process: life expectancy at birth; adult literacy rate; % of relevant population enrolled in primary, sector, tertiary education; and GDP/capita in US$ at PPP.

  • High human development: where HDI is 0.8 and above.
  • Medium human development: where HDI is between 0.5 and 0.8.
  • Low human development: where the HDI is less than 0.5.

Index of Sustainable Economic Welfare: an index, first constructed in 1989 by Herman E. Daly and John B. Cobb that adds to national expenditure things that raise the quality of life and deducts things that reduce well-being to produce a 'Genuine Progress Indicator' measure.

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Globalisation

Globalisation: the processes that have resulted in the ever-closer links between the world's economies.

Factors promoting globalisaion:

  • A reduction in protection in the world economy
  • A reduction in international capital movement restrictions
  • Developments in IT and falling communication costs
  • A fall in real transport costs
  • Liberalisation of domestic markets

Foreign direct investment: the establishment of branches and productive processes abroad, or the purchase of foreign firms; investment made by a MNC in a country other than where its operations originate.

MNCs: firms that produce goods/services in more than one country.

Benefits of globalisation: higher living standards; enjoyment of global brands; spreading best practice and technology transfer; improved medical supplies (could increase life expectancy).

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FDI

Benefits of FDI:

  • Injection into the circular flow of income
  • FDI is a credit item on the balance of payments - long term they could set up exporting firm
  • Increase in tax revenue for the government
  • Improved productivity - pressure on local suppliers to improve
  • Technology transfer

Costs of FDI:

  • Employment created may be only short-term
  • MNCs may invest in labour saving technology
  • Net effects on the balance of payments less than anticipated- repatriated profits/wages
  • Taxes received by government may be less than expected - due to fewer than expected jobs
  • Productivity and technology gains may be limited depending on type of FDI
  • Environmental costs
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Global organisations

WTO agreements:

  • Tariff cuts
  • More binding tariffs - commitment by members not to increase tariffs by more than they agreed
  • Agriculture - remove almost all non-tarff  import restrictions on agriculture

IMF: a global organisation that aims to promote international monetary co-operation and international trade.

World Bank: a global organisation that provides development funding.Made up of:

  • International Bank for Reconstruction Development (IBRD)
  • International Development Association (IDA)
  • Multilateral Investment Guarantee Agency (MIGA)
  • International Centre for Settlement of Investment Disputes (ICSID)

IBRD and IDA provide low/no interest loans/grants for countries that do not have access to international credit markets. Loans cover areas such as: health &education; agriculture & rural development; envivronmental; protection; infrastructure; goverance.

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