Essay 11: Economic development, developed and developing countries

1. M/J 2018 P43

Economic development can only be achieved by economic growth and this depends solely on
higher levels of government investment.
To what extent would you agree with this statement? (miaaaaa, beccaaaa, jo) [20]

KU Economic development - improvements in the quality of life and standard of

living in a country

Econ growth - increases in the real gdp and aggregate production of a country
potential EG - increases in the productive capacity of output
Actual EG - EG in the short run by utilizing existing resources

AN 1 Econ development can only be achieved by EG:

Agree (explain how EG can help to achieve ED)

- Increase in RGDP → Increase in employment of resources → Lower
unemployment of labour → increase Y to purchase GnS and basic
needs → Higher standard of living
- Increase in RGDP (potential EG) → Better innovation and state of
technology → Higher quality and quantity of GnS for the general
population
- Increase in trade → Higher availability of choices → increase
consumer sovereignty
- High EG → higher tax revenue → more funds for provision of PG and
MG → improve SOL and ED
- Increase G → increase AD → multiplier effect (U fall, reduce poverty)

Disagree (EG does not guarantee ED)

- increase in RGDP → increase in Y (unequal distribution of Y) → no

reduction in poverty or general living standards
- High EG → more negative externalities / environmental damaged →
affect health → reduce SOL
- Higher EG → resource depletion → unsustainable EG
- high EG but most of the resources are used to produce military goods /
non- productive o/p

ED can be achieved with other ways

- improve education (SS-side) → increase skill set → increase job opp
→ increase Y → increase ability to buy better quality GnS → increase
standard of living
- SS side spending for Improvement in healthcare → Higher life
expectancy → Higher ED

AN 2 This depends solely on higher levels of government investment

Agree
 - Higher government investment → More funds available (govt has
stronger financial ability than the private sector) to develop technology
and innovate → better state of technology → improve quality of
resources → economic growth → higher national income → higher
personal income → improve standard of living (economic
development)
- Crowding in (gov investment can boost aggregate demand and national
income. Multiplier effect whether private sector growth is stimulated
- High tax revenue → increase funds to spend on investment
-

Disagree (EG can be due to other factor)

- Consumption-led growth: increase C → increase AD → increase EG
- Export-led growth: increase X → increase AD (eg Singapore)
- Foreign direct investment

EV 1. Econ development can only be achieved by EG.

- cause of EG
- State of economy (potential for economic growth)
- How the increase in RGDP is utilised by the economy (no
market failure)

2. This depends solely on high govt investment

- govt financial ability (budget)
- Concentration ratio of the private sector (potential for crowding
in effect)

depends on:
1) types of econ system:
Planned econ: govt intervention is important to promote eG
market /mixed econ: consumption or export-led growth

2) EG means ED?
- income distribution even or uneven?
- time factor: actual or potential / sustainable EG?
- how high tax revenue is utilise?

3) resource management / negative externalities

Con To conclude, the provided statements are debatable. Economic development

can only be achieved by factors other than economic growth such as
education. Depending on the case to case basis of each country, economic
growth and development may be influenced by government investment but it
would need to take into account the proportion of the private and foreign
sector influencing economic growth.
2. June 2011 P41
The main way a developing country could become a developed country is for government
policy to concentrate on the protection of domestic industry and investment in
infrastructure.
Do you agree that this is the best policy? [20]

Savior adriana ;) Tristan Harkishen

KU Developing country - PIE TUE

● The population of developing countries are high
● The income inequality is high
● Employment is high in the primary & secondary sectors
Developed country -
● The employment is high in tertiary sector
● Urbanisation is low
● There is greater structure in a developed economy (tertiary)

AN Yes, its the best policy (advantages)

INVESTMENT IN INFRASTRUCTURE:
- Investment in infrastructure -> increase mobility of GnS + workers
→ reduces transportation costs -> lower COP for firms -> increase AS
-> potential economic growth

- Investment in infrastructure -> increase geographical mobility of labor

-> increase job opportunities -> lower unemployment -> more incomes
-> consumption increases -> AD rise

PROTECTING DOMESTIC INDUSTRIES:

- Protection of domestic firms -> P imports rise -> consumers switch to
domestic goods -> net exports rise -> AD rises -> stimulates EG

why protectionism:
1) protect infant industry → has potential to growth and contribute to EG
in the future + create job opportunities
2) Reduce the risk of over- reliance on imported goods
3) correct CAD and prevent high national debts
4) higher tax revenue from tariff if the PED m < 1

Why infrastructure:
5) improve mobility of GnS + labour → reduce transportation costs +
frictional U which is due to geographical immobility
6) attract more FDI / local firms + crowding in effect→ increase NY +
reduce poverty
7) better edu and health care → improve efficiency, productivity and
promote potential EG
AN 2 No, it is not the best policy (disadvantages)

PROTECTING DOMESTIC INDUSTRIES:

1. Focusing on the protection of domestic industries can hinder foreign
direct investments (FDI)
→ Less capital inflow (of technology) → (increased capital inflow is
able to establish business operations, allowing increased rate of econ
growth)
→ Protectionist policies (such as tariffs & quotas) restricts the access
to the domestic market to foreign firms, reducing the attractiveness of
the country for FDI

2. Increased dependency for protection

- Can limit access to foreign technology or practices that are essential
for innovation and to increase competition, hindering development of
these industries (that relies on advanced technology).
- When firms rely on gov support instead of the market force, they dont
feel the need to compete based on quality and won’t feel the need to
improve their products

3. Less competition (high tariffs/import quotas) → makes it costly for

foreign firms to compete within domestic markets (+ Domestic
consumers have less variety of goods & services) → reduce SOL

INVESTMENT IN INFRASTRUCTURE:
1. Environmental impacts → a new highway to increase mobility of labor
force could increase congestion and pollution

2. Government borrowing —> increase debt & interest rate —> fall in
aggregate demand

3. Crowding out effect: increased government spending by borrowing →

reduced private sector spending → hinders development of private
sectors, job opportunities and innovation → No economic
development

4. Possibility of economic loss due to sunk costs if the project does not
yield the expected benefits

● Possible problems of protectionism: unable to achieve a developed

status
a) Remain infant forever → lead to inefficiency + dependency
issue
b) Retaliation by other countries → affect political relationship
(possible trade wars)
 c) Distort the function of P mechanism → resource allocative
inefficient → NY low
d) Limited choices + low quality domestic goods

e) developing countries often benefit from participation in global

trade and regional integration initiatives (trading blocs such as
ASEAN, EU) . While protecting domestic industries may be
necessary in certain circumstances, it's essential to consider
the implications for international trade agreements and
regional cooperation efforts.

● Trade-offs and Priorities:

While focusing on industrial protection and infrastructure investment
can yield benefits, policymakers must also consider trade-offs and
competing priorities. For example, excessive protectionism can
hinder export-oriented industries and limit access to foreign
markets, while inadequate infrastructure investment can constrain
economic growth and development.

● Investment in infrastructure might lead to budget deficit + crowding

out effect if the govt finance the budget deficit by borrowing or
selling bonds → AD falls and slow down EG

● Uncertainty and time lag issue

EV Depends on:
Government financial ability
- If poor government will take loan increasing national debt (could u
further elaborate x)
Time lag in investments
- Takes time for investments for infrastructure to develop (delays
benefits that infrastructure investments are intended to serve)

How other countries react to protectionist policies (tariffs, quotas)

- Other countries could retaliate back by implementing their own tariffs
and quotas on the country’s export and further reduce the country’s
access to foreign markets

Whether protectionism and infrastructure investment can enable a developing country

to become a developed country, depends on

1) Time factor:
SR : protectionism might only be effective in the SR - give time for sunrise
industries to grow and be able to compete with well-established foreign
industries BUT not effective in the LR

LR: infrastructure investment only take place in the LR

 2) Govt financial ability
- Finance export subsidies + infrastructure investment : what to invest?
Where and how much to invest? (CBA)

3) Ability of domestic industry

Con - other policies : SS side policy

- mncs can create job opportunities

3. May 2018 P41

‘Both developed and developing economies can experience high levels of unemployment,
high rates of inflation and large current account deficits. Therefore there is now no real
difference between these two types of economy’.
How far would you agree with the view that this statement is misleading? [20]
(mia & jo)

KU Developed economies: tertiary sector, lower urbanisation, low population

growth, high migration rate into the country
Developing economies: high population growth, primary and secondary
sectors, high income inequality, lower years of schooling, X primary goods, M
finished goods
Unemployment: people who are able and willing to work
Inflation: sustained increase in general price level over a period of time
Current account deficit: Current account is a component of BOP when debits
> credits. CA has exports minus imports of goods and services, primary and
secondary income

AN 1 No difference between developed & developing economies (not that

misleading)
- Both suffer the same problems: High unemployment, Inflation and
CAD
- CAD because high government spending to influence aggregate
demand regardless of current economic situation
- High unemployment due to no full employment of resources and spare
capacity
- Inflation: low income shifting from primary to secondary sector, more
economic growth + income, higher AD, demand pull inflation
- In high income, consumers have more money, very high demand for
limited resources leading to demand pull inflation

similar:( in terms of the econ issues but differences in causes - link to

developed and developing countries)

CAD:
Developed countries : CAD due to high import of finished GnS
Developing countries : CAD due to high import of capital goods,
manufactured goods , inputs
 Inflation:
Developed countries: imported inflation / demand pull
Developing countries : import expensive raw material

Unemployment:
Developed countries: friction / cyclical U / seasonal U - service industries
Developing countries: cyclical U, seasonal U - primary sector , structural
U

AN 2 There’s difference between developed & developing economies (super

misleading)
- Literally state the definitions and say that eg population growth is a
difference
- Size/magnitude of the levels of unemployment, inflation and current
account deficits (eg demand pull inflation won't be as bad in low
income countries because they have less income to spend)
- Unemployment in
- developing countries have structural U (mismatched skills),
seasonal U (due to focus on primary sector, agricultural market
will be affected)
- Developed countries have frictional (in between jobs)
-

EV - Magnitude of differences for how big the problem is in each country

- Type of unemployment
- State of economy and effects on living standards
- Cause of current account deficit and position of trade for the country
(do they suffer or not? is the government debt sustainable like japan
who has the 200% gdp to debt ratio thing)

Con In our opinion, the statement is way more misleading than it is conclusive.
There are many situational factors to take into account that draws a difference
line between these two types of low and high income economies.

4. Oct 2017 P41

‘The measurement of living standards is problematic. It is never certain that people in one
country are better off than those in another. The classification of countries into developing
and developed is, therefore, never clear.’
Do you agree with this argument? [20]

Embar, Daneil, xinyan

KU Living standard -
Developing country - lower income per head, reliance on more imported
products, a larger primary sector and lower productivity (e.g. Malaysia, China,
India)
 Developed country - high income per head, range of well established
economic institutions, advanced technological infrastructure and a strong
tertiary sector (e.g. Singapore, UK, Japan)

AN 1 Measure of living standard is problematic (yes) :

1) Limitation of MEW
- Difficult and expensive to measure the value of non-marketed
GnS
- Hard to place monetary value on environmental damage and
leisure hour

2) Limitations of HDI
- Cannot be used to improve short-term improvements (e.g. life
expectancy take time to improve)
- Only show index, but not telling which area improves
-

3) GNI
- May understate true change in output - does not take into
account shadow economies, tax evasion & illegal activities
- Only include marketed goods and services, does not take into
account quality of life and welfare

AN 2 ‘Never certain that people in one country are better off than those in another”

- Country may have higher GDP but also have high Gini coefficient -
large income inequality, wealth is not distributed evenly, not everyone
in the country is better off
- Individual with higher income may have less leisure hours and is less
happy in general, individuals with developing countries with lower
income might be better off because they have more leisure hours
- Higher income country but might have greater negative externalities
and more pollution, environment may not be as good as developing
countries

AN 3 Classification of countries is not clear

● The value of GDP does not show the full breakdown of welfare or
wellbeing of the country, hence it couldnt determine whether the
country is developed or developing
○ Same value of GDP does not indicate the development of
economy
● Some countries may focus on primary good production instead of
secondary and tertiary, but their GDP might be higher than the
countries that is operating in the tertiary sector
○ For example, Brazil’s GDP in 2022 is 1.92 trillion but it is a
developing economy. However, Belgium’s GDP in 2022 is
$578.6 billion.
○ This shows that higher GDP does not indicate that a country is
more developed compared to another
 EV ● Depends on the accuracy of the data that was collected
● Time factor - in the long run, figures will change and vary over time
● Whether the government would only use 1 instrument or multiple
instrument

Con In conclusion, the government should use multiple measurements of SOL to

determine whether their standard of living is better off than another country,
hence they could combine all the different instruments in order to make the
measurements less problematic.

5. Oct 2015 (P41)

‘People in developed countries suffer from pollution and overcrowding. However, people in
developing countries suffer from malnutrition and poverty.’
Discuss whether it is correct to distinguish between developed and developing countries in
this way and consider how living standards can be compared between the two types of
countries. [20]
Daniel, Ryan, Pushp
KU Developing country: Country with low economic development
Characteristics: Geographical immobility, higher U, low RGDP per capita,
high output in primary

Developed country: A developed nation is defined as a country with high

industrial and economic development.
Characteristics: High HDI, High RGDP, low mortality, low pop growth rate

HDI: The Human Development Index (HDI) measures each country's social
and economic development by focusing on: mean years of schooling, life
expectancy at birth, and gross national income (GNI) per capita.

RGDP per capita: GDP per capita is a measurement of the total economic
output of a country divided by the number of people and adjusted for inflation.

Absolute + relative poverty:

AN 1 Discuss whether it is correct to distinguish between developed and developing

countries based off malnutrition and poverty

Yes correct
- Developed countries have a lower poverty rate compared to
developing countries
- Developed economies: High RGDP per capita
- Developing economies: Lower RGDP per capita
- A country can be classified as developed or developing based off
RGDP per head. Higher poverty in a country would be shown through
real GDP per head being lower
- Furthermore, malnutrition would very likely be a form of absolute
poverty (no money to purchase basic necessities) which shows low
RGDP per head
 No wrong
- There are many more factors which can be used to measure the
development of a country besides poverty which helps to provide a
more accurate level of whether a country is developed or developing
- HDI: Considers healthcare and education level
- MEW: Considers external factors such as value of unpaid work
- Additionally developing countries have other characteristics beyond
poverty (PIETUE)
- High population
- Income inequality
- High urbanisation
- Employment in primary sector
- Developed countries
- Employment in tertiary sector
- High income per head
- Poverty rate could be higher as well in more developed economies if
there is high income inequality (relative poverty)

AN 2 Consider how living standards can be compared between the two types of
countries
RGDP per capita:
- Adv
- Can compare the average levels of wealth i.e standard of living

- Disadv
- Doesn’t take into account inequality (income and regional)
- Doesn’t consider other factors such as health care or education

HDI:
- Adv
- Takes into account a wider range of factors i.e healthcare,
education and GNI per capita

- Disadv
- Uses the average of all three categories, a country can be lower
in one category but still have a higher HDI value if its other
categories are high

- harder to collect data

EV

Con
6. Nov 2010 (xuan, cb, nana)
Some economies are said to be developing while others are developed. Explain the difference
between the two and discuss whether the problems of a developing economy would be solved
if it achieves developed status. [20]

KU ● Developing economy: high population growth rate, high income

inequality, export primary goods, import finished goods, high
urbanisation, high unemployment (e.g malaysia & india)
● Developed economy: high income per capita, low unemployment,
strong tertiary structure (e.g canada & japan)

AN 1 difference between developing and developed economies

- PIETUE

AN 2 yes, problems would be solved (problem - and how it can be solved)

1. inadequate healthcare - developed countries have more advanced

technology & innovation (+ more comprehensive medical education),
leading to better & more effective treatments, improving overall health
of the population + standard of living

2. access to quality education - developed countries have better access to

quality education & higher education opportunities, leading to higher
literacy rates & a more skilled workforce, which can open up more job
opportunities, reducing unemployment, increasing income, reducing
income inequality

3. underdeveloped infrastructure - developed countries have improved

infrastructure (including transportation networks & communication
systems), which can improve job mobility & increase economic
productivity, resulting in improved quality of life

4. poverty - developed countries have stronger welfare programs &

unemployment benefits + more opportunities for economic growth
which can lift people out of poverty

AN 3 no, problems wouldn’t be solved (problem - why it can’t be solved)

1. environmental sustainability - developed countries usually produce

more goods, hence number of factories increases, which can still cause
issues of deforestation, carbon emissions, pollutions to happen (or
even worsen)

2. income inequality - developed countries may have lower levels of

income inequality compared to developing countries, but it never
 reaches equilibrium, there will still be disparities in wealth distribution

3. social issues (mental health disorders) - developed countries may have

a better healthcare system overall but the focus being placed on
physical health, access to mental health professionals may still be
limited due to the lack of awareness, the stigma surrounding mental
health may still prevail, preventing individuals from seeing help

4. scarcity - developed countries have higher levels of resource

consumption, which can lead to resource depletion as the increased
demand for resources places extra pressure on finite supplies, hence
scarcity would still exist regardless of the change in status

EV depends on:
1. Time factor
2. How resources are utilised (for improved healthcare or military goods)
3. Improvements in physical health only or is mental health awareness
equally raised as well

Con in conclusion,