CHAPTER 11 -​ make decisions about resource

allocation, often aimed at achieving

Market Failure long-term development goals.
-​ The situation in which the market Project appraisal
fails to allocate resources efficiently -​ evaluation of a project's potential to
or equitably, leading to meet its goals, considering factors
inefficiencies. like costs, benefits, risks, and
Government Failure expected outcomes
-​ When intervention leads to Shadow prices (accounting prices)
inefficient resource allocation due to -​ Prices that reflect the true
corruption, bureaucracy, or unmet opportunity cost of a good or service
social needs. Nongovernmental organization
Path Dependency -​ NGOs are organizations that operate
-​ Past decisions shape future choices, independently from government
leading institutions to stick to control, typically focusing on social,
established patterns, even if humanitarian, and development
inefficient goals.
Rent seeking Voluntary failure
-​ increase one's share of wealth -​ When NGOs or civil society
without creating new wealth organizations fail to meet their
Corruption objectives
-​ abuse of power for personal gain, Economic infrastructure
particularly in the context of -​ foundational systems necessary for
government economic activity, such as roads,
Political will electricity…
-​ determination of political leaders to Social profit
implement reforms or policies -​ The broader, non-financial benefits
Planning process of development projects, such as
-​ series of steps that governments or improved education, healthcare, and
organizations take to develop and social equity.
implement policies
Economic planning
CHAPTER 12 -​ responsiveness of the quantity of a
commodity demanded to changes in
Globalization the customer's income
-​ increasing integration of national Price elasticity of demand
economies into expanding -​ responsiveness of the quantity of a
international markets. commodity demanded to a change in
Trade protectionism its price
-​ Involves developed countries Export earnings
imposing tariffs on imports from -​ Wide fluctuations in
developing countries. developing-country earning on
Primary products commodity exports resulting from
-​ Products derived from all extractive low price
occupations - farming, lumbering, Prebisch-singer hypothesis
fishing, mining, quarrying, -​ argument that the commodity terms
foodstuffs, and raw materials. of trade for primary-product exports
Export dependence of developing countries
-​ country's reliance on exports as the Barter transactions
major source of financing for -​ trading of goods
developed activities. Comparative advantages
Current account -​ Production of a commodity at a
-​ portion of the country's balance of lower opportunity cost
payments that reflects the market Specialisation
value of the country's "visible" and -​ Concentration of resources in the
"invisible" exports and imports. production
Capital account Absolute advantages
-​ portion of a country's balance of -​ Production of a commodity with the
payments that shows the volume of same amount of real resources
private foreign investment Factor endowment trade theory
Free trade -​ neoclassical model of free trade,
-​ importation and exportation of which postulates that countries tend
goods without any barriers to specialise in the production
Income elastic of demand
North- south trade theory -​ Attempts by producers to
-​ unequal exchange between the distinguish their product
North developed countries and the Growth poles
South -​ Regions that are more economically
Vent for surplus theory of international and socially advanced than others
trade Industrial policy
-​ contention that opening world -​ Deliberate effort by governments to
markets to developing countries guide the market
through international trade Tariff
Synthetic substitute -​ fixed-percentage tax on the value of
-​ Commodities that are artificially an imported commodity
produced but can be substituted Gains from trade
Product cycle -​ increase in output and consumption
-​ the progressive replacement of resulting from specialisation in
more-developed countries by production and free trade with
less-developed countries others
Returns to scale Balance trade
-​ How much output expands when all -​ the value of a country's exports and
inputs are proportionately increased. the value of its imports are equal.
Monopolistic market control Enclave economies
-​ situation in which the output of an -​ developing countries in which the
industry is controlled by a single remaining areas have experienced
producer far less progress.
Oligopolistic market control Foreign exchange earnings
-​ situation in which a small number of -​ sum total of all foreign currency
rival but not necessarily competing receipts less expenditures
firms dominate an industry. Outward-looking development policies
Increasing returns -​ Policies that encourage exports,
-​ disproportionate increase in output often through the free movement of
that results from a change in the capital, workers, enterprises,
scale of production. Inward-looking development policies
Product differentiation -​ Policies that stress economic
self-reliance on the part of
 developing countries, including -​ An official exchange rate set at a
domestic development of technology level higher than its real or shadow
Import substitution value.
-​ A deliberate effort to replace Nontariff trade barrier
consumer imports by promoting the -​ A barrier to free trade that takes a
emergence and expansion of form other than a tariff, such as
domestic industries. quotas or (possibly arbitrary)
Export promotion sanitary requirements
-​ Governmental efforts to expand the Nominal rate of protection
volume of a country's exports -​ An ad valorem percentage tariff
International commodity agreement levied on imports. Effective rate of
-​ formal agreement by sellers protection
internationally to coordinate supply Effective rate of protection
to maintain price stability. -​ The degree of protection on value
Multifibre Arrangement added as opposed to the final price
(MFA of an imported product
-​ A set of non tariff quotas established Value added
by developed countries on imports of -​ Amount of a product's final value
cotton, wool that is added at each stage of
Infant industry production.
-​ A newly established industry, usually Exchange control
protected by a tariff barrier -​ A governmental policy designed to
Official exchange rate restrict the outflow of domestic
-​ Rate at which the central bank will currency and prevent a worsened
buy and sell the domestic currency balance-of-payments
in terms of a foreign currency Dual exchange rate (parallel exchange rate)
Free-market exchange rate -​ Foreign-exchange-rate system with a
-​ Rate determined solely by highly overvalued and legally fixed
international supply and demand for rate
domestic currency Devaluation
Overvalued exchange rate -​ A lowering of the official exchange
rate between one country's currency
and all other currencies.
Depreciation (of currency) Industrialisation strategy approach
-​ The decline over time in the value or -​ A school of thought in trade and
price development that emphasises the
Flexible exchange rate importance of overcoming market
-​ The exchange value of a national failures
currency that is free to move up and Economic integration
down -​ The merging to various degrees of
Managed float the economies and economic
-​ A fluctuating exchange rate policies
Wage-price spiral Economic union
-​ A vicious cycle in which higher -​ The full integration of two or more
consumer prices (e.g., as a result of economies into a single economic
devaluation) cause workers to entity.
demand higher wages,
Undervalued exchange rate
-​ An official exchange rate set at a
level lower than its real or shadow
value.
Trade optimists
-​ Theorists who believe in the benefits
of free trade
Trade pessimists
-​ Theorists who argue that without
tariff protection or quantitative
restrictions on trade
New protectionism
-​ The erection of various nontariff
trade barriers
Trade liberalisation
-​ Removal of obstacles to free trade,
such as quotas, nominal and
effective rates
CHAPTER 13 Corruption and Its Impact on
Development

Market Failure and Justification for ●​ Corruption undermines economic

Government Intervention efficiency, deters investment, and
weakens institutions.
●​ Market failure happens when free
●​ Misuse of public funds and bribery
markets do not allocate resources
create unfair business conditions,
efficiently, resulting in issues like
slowing down development
negative externalities,
progress.
under-provision of public goods,
and monopolies. The Role of International Organizations
●​ Government intervention is in Economic Policy
necessary to correct these
●​ Organizations like the IMF, World
inefficiencies through regulation,
Bank, and UNDP offer financial
taxation, and public services.
aid, policy advice, and technical
The Role of the State in Economic support to developing nations.
Development
Payment Deficits
●​ The state drives development by
●​ Occurs when a country spends more
promoting industrialization,
on international transactions than it
infrastructure, and macroeconomic
earns
stability.

Managing Payment Deficits

Government Failure and Policy
Challenges ●​ Boost Exports: Support domestic
industries to increase foreign
●​ Government failure occurs when
earnings.
excessive state control leads to
●​ Reduce Imports: Encourage local
inefficiency, rent-seeking, and
production and use tariffs to limit
corruption.
foreign goods.
●​ State-Owned Enterprises (SOEs) in
●​ Currency Devaluation: Lower
Africa and Latin America struggled
currency value to make exports
with political interference and poor
more competitive.
management, causing stagnation.
CHAPTER 14 ●​ Can lead to monopolies.

The International Flow of Financial Private Portfolio Investment

Resources
Portfolio investments involve buying stocks,
Types of International Financial Resources: bonds, or other assets in foreign markets.

●​ Foreign Direct Investment (FDI) Benefits:

●​ Portfolio Investments
●​ Increases liquidity
●​ Remittances from Migrant Workers
●​ Helps companies raise capital
●​ Official Development Assistance
●​ Diversifies investor risk
(ODA)

Risks:
Impact:

●​ High volatility can cause instability

●​ Influences national economic
●​ May lead to capital flight during
policies
downturns.
●​ Affects exchange rates and
inflation
●​ Can lead to financial dependency.

Private Foreign Direct Investment (FDI)

FDI happens when a company sets up

operations in another country.

Advantages:

●​ Boosts growth
●​ Creates jobs
●​ Introduces technology and skills

Challenges:

●​ Exploits local resources

●​ Limits local benefits through profit
repatriation