9708 · 11.5
Relationship between countries at different levels of development flashcards
Revision flashcards for Cambridge 9708 Relationship between countries at different levels of development (syllabus 11.5). Flip, recall, then mark a real past-paper question.
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Prebisch–Singer hypothesis?
Terms of trade for primary product exporters tend to deteriorate over time vs manufactured goods — LICs trade at disadvantage.
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Tied vs untied aid?
Tied aid must be spent on donor-country goods/services — less effective. Untied aid gives recipient flexibility.
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Benefits of FDI for LICs?
Capital, technology transfer, employment, export earnings, tax revenue — may shift LRAS right.
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Costs of FDI?
Profit repatriation, environmental damage, exploitation, dependency, crowding out domestic firms.
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Debt burden problem?
High external debt → large debt service payments → diverts spending from health/education/infrastructure.
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Fair trade and microfinance?
Fair trade: guaranteed minimum price to producers. Microfinance: small loans to entrepreneurs — both aim to reduce poverty but effectiveness debated.
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What is the Prebisch-Singer hypothesis?
The theory that, over the long run, the price of primary goods (exported by developing countries) declines relative to the price of manufactured goods (exported by developed countries), leading to a worsening of the terms of trade for developing economies.
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Define 'tied aid'.
Foreign aid that the recipient country is required to spend on goods and services from the donor country or a specified group of countries, which can limit its effectiveness and benefit the donor's firms.
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What is 'profit repatriation'?
The process whereby a multinational corporation (MNC) sends the profits earned in a foreign (host) country back to its home country. This is recorded as a debit on the investment income component of the host country's current account.
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Explain 'Dependency Theory' in the context of international relationships.
A structuralist theory suggesting that the global economic system is structured such that developed 'core' countries exploit developing 'periphery' countries, perpetuating their underdevelopment through mechanisms like unequal trade, FDI, and debt.
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What is a 'debt trap'?
A situation where a country is forced to take on new debt simply to service its existing debt obligations, leading to a cycle of increasing indebtedness and economic stagnation, with little fiscal space for development spending.