Economic Growth Chapter 9
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Questions and Answers

When was the International Centre for Settlement of Investment Disputes (ICSID) established?

1966

What is the main objective of the International Monetary Fund (IMF)?

To promote international monetary cooperation and provide policy advice.

Which of the following are roles of the IMF? (Select all that apply)

  • Promote exchange rate stability (correct)
  • Establish new countries
  • Accelerate the growth of international trade (correct)
  • Provide funds to lessen short-term disequilibrium in the Balance of Payment (correct)

    • The IMF is mainly focused on developing countries.

    <p>False</p> Signup and view all the answers

    What does the African Development Bank (AfDB) aim to achieve?

    <p>Impact the economic and social progress of regional members.</p> Signup and view all the answers

    The ADF was established in _____ to contribute to poverty reduction.

    <p>1972</p> Signup and view all the answers

    What is the main aim of the Nigerian Trust Fund (NTF)?

    <p>To assist the development efforts of low-income regional member countries.</p> Signup and view all the answers

    Which organization was established at the Bretton Woods conference in 1945?

    <p>International Monetary Fund</p> Signup and view all the answers

    What are the primary sources of funding for the AfDB?

    <p>Ordinary resources</p> Signup and view all the answers

    What is the primary focus of the International Financial Institutions (IFIs)?

    <p>All of the above</p> Signup and view all the answers

    What classification does the World Bank use to categorize economies?

    <p>Low-Income, Lower-Middle Income, Upper-Middle Income, High-Income</p> Signup and view all the answers

    The World Bank aims to end extreme poverty and accelerate economic ___ in developing countries.

    <p>prosperity</p> Signup and view all the answers

    High birth rates in developing countries significantly contribute to increased dependency burdens.

    <p>True</p> Signup and view all the answers

    What does IDA stand for?

    <p>International Development Association</p> Signup and view all the answers

    Match the following World Bank institutions with their primary role:

    <p>IBRD = Provides long-term loans for economic reconstruction IDA = Provides interest-free loans to poor countries IFC = Finances private sector investment MIGA = Offers political risk insurance</p> Signup and view all the answers

    Developing countries experience high levels of productivity compared to developed countries.

    <p>False</p> Signup and view all the answers

    What constitutes approximately 14% of the GNP in developing nations?

    <p>Agriculture</p> Signup and view all the answers

    Which of the following is NOT a characteristic of developing countries?

    <p>High levels of living</p> Signup and view all the answers

    What major issues do developing countries often face?

    <p>Chronic absolute poverty, high unemployment, income disparity</p> Signup and view all the answers

    Economic growth may not be accompanied by improvements in ___ standards.

    <p>living</p> Signup and view all the answers

    What is economic growth?

    <p>A steady process that results in a consistent improvement of an economy's ability to produce goods and services.</p> Signup and view all the answers

    What is the difference between economic growth and development?

    <p>Economic growth refers to an increase in output, while development involves improvements in welfare, reducing poverty and inequality.</p> Signup and view all the answers

    Which of the following is NOT a characteristic of development?

    <p>Increase in national income</p> Signup and view all the answers

    According to the Brundtland Commission, how is sustainable development defined?

    <p>The ability of the present generation to meet their needs without compromising the ability of future generations to meet their own needs.</p> Signup and view all the answers

    Which model states that economic growth is determined by the National savings ratio and the National capital output ratio?

    <p>Harrod-Domar Growth Model</p> Signup and view all the answers

    All developing countries have predominantly agrarian economies.

    <p>False</p> Signup and view all the answers

    What does the classical theory of growth assign as responsible for fostering growth?

    <p>The rate of investment.</p> Signup and view all the answers

    Match the following theories of growth with their primary focuses:

    <p>Classical Theory = Rate of investment Marxian Theory = Labour surplus values Schumpeterian Theory = Innovation and entrepreneurship Harrod-Domar Model = Savings and investment</p> Signup and view all the answers

    What critical components are important for understanding the structural diversity of developing economies?

    <p>Size, historical background, resource endowment, ethnic composition, public/private sectors, industrial structure, external dependence, political structure.</p> Signup and view all the answers

    Study Notes

    Introduction to Economic Growth

    • Economic growth is a major macroeconomic goal for developing societies and involves a steady improvement in the economy's capacity to produce goods and services over time.
    • Growth leads to an increase in national income and is meaningful only if it improves societal well-being.
    • Population growth must be lower than the growth rate of Gross Domestic Product (GDP) for economic growth to positively affect well-being.

    Economic Growth vs Development

    • Economic growth is defined as a long-term increase in productive capacity, focusing on volume output but neglecting equitable distribution.
    • Development involves reducing poverty, inequality, and unemployment while promoting welfare improvements, particularly for low-income populations.
    • Development embodies qualitative measures such as improved government services, job opportunities, fair income distribution, individual freedom, and stability.
    • According to the 1991 Human Development Report, development should involve:
      • Investment in education, health, and nutrition.
      • Full participation in development planning and implementation.
      • Development that meets all people's needs and creates opportunities for everyone.

    Sustainable Development

    • Defined by the Brundtland Commission (1987) as the ability of present generations to meet their needs without compromising future generations' ability to meet theirs.
    • Supported by three pillars: economic growth, social well-being, and environmental preservation.
    • Focuses on the productivity of accumulated human and physical capital and preserving natural capital during development projects.

    Theories of Economic Growth and Development

    • Classical Theory of Growth:
      • Associates growth rates with rates of investment, with classical economists emphasizing self-limiting growth due to diminishing returns on labor and capital.
    • Marxian Theory:
      • Interprets growth as a transformation driven by labor surplus value and advocates for accumulation by the capitalist class as crucial for economic growth.
    • Schumpeterian Theory:
      • Proposes that economic growth arises from innovation and entrepreneurship, with a focus on disruptions in a competitive economy.
    • Harrod-Domar Growth Model:
      • Suggests that national savings and capital-output ratios determine growth rates, emphasizing the need for higher investments to foster growth.

    Structural Diversity of Developing Economies

    • Key components affecting structural diversity include:
      • Country size, population, and income level dictate economic potential.
      • Historical colonial background shapes economic and political structures.
      • Availability of physical and human resources influences growth capacity.
      • Ethnic and religious diversity can lead to internal conflict and instability.
      • The balance between public and private sectors varies among regions.
      • Industrial structure predominantly favors the agricultural sector in many developing countries.
      • External dependence influences development and growth processes.

    Characteristics of Developing Countries

    • Classified by per capita income; the World Bank categorizes economies into Low-Income, Lower-Middle Income, Upper-Middle Income, and High-Income groups.
    • Developing countries often face specific challenges, such as excessive debt and aspiration towards industrialization.
    • Economic policies can be undermined by the conflicting interests of elites, leading to issues with governance.### Socioeconomic Challenges in Developing Countries
    • Common goals for developing nations include reducing poverty, fair income distribution, and decreasing unemployment.
    • Goals also encompass providing education, healthcare, housing, and food to all citizens, alongside fostering economic growth and social cohesion.

    Characteristics of Developing Nations

    • Widespread absolute poverty is prevalent, with significant disparities in income distribution.
    • High unemployment and underemployment rates persist, along with stagnating agricultural productivity.
    • Urban-rural living standards and opportunity imbalances are noticeable, alongside educational and healthcare deficiencies.

    Low Levels of Living

    • A large portion of populations in developing nations experience extremely low living standards, marked by poverty, substandard housing, and inadequate healthcare.
    • Indicators include high infant mortality rates, low life expectancy, and low work expectancy contributing to a sense of hopelessness.

    Low Productivity

    • Labor productivity in developing countries is considerably low compared to developed nations.
    • Economic principles, such as diminishing marginal productivity, explain the declines in marginal product when increasing labor is applied to fixed capital and land.
    • Increased productivity relies on generating domestic savings and foreign investments to improve physical capital and human skills.

    Population Growth and Dependency

    • Developing countries exhibit high birth rates (30-40 per 1,000), contrasting with lower rates in developed nations.
    • Death rates are also significant but are improving due to better healthcare, resulting in a population growth rate of approximately 1.6% annually.

    Agricultural Dependence

    • Over 65% of populations in developing countries live in rural areas, with agriculture contributing about 14% to GNP compared to only 3% in developed countries.
    • Primary products dominate exports, with many developing nations relying heavily on basic food, cash crops, and raw materials.

    Dependence on External Relations

    • There exists a stark North-South divide where developing nations lack economic and political power, leading to widespread poverty and inequality.
    • Developed nations often control international trade, influencing technology transfer, foreign aid, and investment terms unfavorable to developing countries.

    Infrastructure Deficiencies

    • Infrastructural facilities such as roads, healthcare centers, and communication systems are often inadequate or poorly maintained in developing nations.
    • These deficiencies hinder economic development and quality of life improvements.

    Investment Challenges

    • Low levels of inward investments characterize developing nations, often driven by ulterior motives from foreign investments focused on resource extraction.

    Economic Growth Without Development

    • Economic growth does not always translate to improved living standards; wealth may remain concentrated among a small elite.
    • Corruption, environmental degradation, increased congestion, non-consumable production, and military spending can negatively affect overall welfare despite rising GDP.

    International Financial Institutions (IFIs)

    • IFIs aim to support investments in developing countries to reduce poverty and promote sustainable development.
    • Multilateral institutions like the World Bank Group and the IMF provide loans, grants, and policy support to foster growth.

    World Bank Group

    • Established post-World War II to assist in economic reconstruction and poverty alleviation.
    • It comprises several institutions including IBRD and IDA, focusing on project financing and technical assistance.

    International Bank for Reconstruction and Development (IBRD)

    • Functions as the largest development bank, providing long-term capital for economic reconstruction and development in middle and low-income countries.

    International Development Association (IDA)

    • Offers interest-free loans and grants to the world’s poorest countries, aiming to increase productivity and living standards.

    International Finance Corporation (IFC)

    • Promotes private investment in developing economies, mobilizes capital, and fosters private sector growth.

    Multilateral Investment Guarantee Agency (MIGA)

    • Provides political risk insurance to promote foreign investment in developing countries, safeguarding investors against non-commercial risks.

    International Centre for Settlement of Investment Disputes (ICSID)

    • Facilitates resolution of disputes between foreign investors and developing countries, promoting a stable investment environment.

    International Monetary Fund (IMF)

    • Established alongside the World Bank to ensure financial stability and provide policy advice to members.
    • Aims to promote international monetary cooperation and balance economic growth across member countries.

    Impact on Nigeria

    • The World Bank and IMF have played significant roles in Nigeria, aiding in economic strategies and reforms necessary for developmental progress.### International Financial Institutions (IFIs)
    • IFIs aim to reduce poverty and improve living conditions through partnerships and financial cooperation.
    • Comprises multilateral institutions like the International Monetary Fund (IMF) and the World Bank, along with regional financial institutions.

    Role of World Bank and IMF

    • World Bank assists development banks with loans and technical support.
    • IMF promotes fair international financial practices among member nations.
    • Developing countries, such as Nigeria, had no representation at the Bretton Woods Conference, leading to a focus on developed nations.
    • Strictures on IMF loans often disadvantage developing nations, leading to blanket conditions rather than tailored support.

    African Development Bank (AfDB)

    • Established on October 1, 1964, and operational since July 1, 1966.
    • Focuses on economic and social progress of member nations.
    • Key responsibilities include financing investment projects, mobilizing resources, promoting public and private investment in Africa, and providing technical assistance.
    • Funding sources:
      • Ordinary resources: Includes authorized capital shares, loan repayments, and income from investments.
      • Special resources: Includes funds for emergency assistance and relief efforts.

    African Development Fund (ADF)

    • Established in 1972, fully operational at a later date.
    • Functions as AfDB’s concessional window aimed at poverty alleviation in low-income African countries.
    • Focuses on promoting economic growth and technical capacity building.
    • Funds are replenished every three years, primarily from donor contributions.

    Nigerian Trust Fund (NTF)

    • Formed in 1976 by an agreement between AfDB and the Nigerian government.
    • Aims to support development in low-income regional member countries needing concessional financing.
    • Resources obtained through co-financing operations with AfDB and ADF as well as independent funding.
    • Emphasizes project-based financing rather than funding entire countries.

    Conclusion

    • Nigeria has significantly benefited from IFI activities, enhancing infrastructural development and capacity building initiatives.
    • IFIs play a crucial role in economic growth, despite challenges faced by developing nations in accessing tailored financial assistance.

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    Description

    Explore the principles of economic growth as discussed in Chapter 9. This chapter delves into how consistent improvements in production capabilities can enhance the well-being of a nation's citizens and increase national income. Understanding these concepts is essential for studying macroeconomic goals in developing societies.

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