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Summary A* A-level Edexcel economics A 4.3 emerging and developing economies revision notes £24.99
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Summary A* A-level Edexcel economics A 4.3 emerging and developing economies revision notes

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  • January 30, 2022
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4.3 Emerging and developing economies
Economic development- process of improving individual well-being, quality of life including improvements in SOL,
alleviating poverty, improving health and education, and increasing freedom and economic choice

Economic growth- measures the rate of change in a country’s output, it’s an expansion in the productive potential
capacity, an increase in real GDP

Emerging economy- a lower to middle income country that’s progressing toward becoming more advanced, rapid growth,
urbanisation and industrialisation

GDP - total value of an economy is domestic output of goods and services

§ GNI- broadly same as GDP except includes country owns in overseas investments and minuses what foreigners earn in
country and send back home. GNI is affected by profit on businesses overseas. remittances sent home migrant workers
§ HDI- most widely use measure for communicating are countries development status Broadmarsh of development
captures not only level of per capita income incorporate health, life expectancy in education
§ GPI- attempt to measure where they a country is gross, increase production of goods, expanding services have actually
resulted in improvement of welfare of people

LEDCs- countries that have been classified by UN as least developed in terms of low GDP per capita with human assets and
high degree of economic vulnerability

Primary product dependency- dependence as measured as a share of GDP, total export or employment on the
extraction/cultivation of primary commodity such as copper an oil

Savings gap- Savings are needed to finance capital investment. In many smaller lower income countries, high levels of
extreme poverty = difficult to generate sufficient savings to provide the funds needed to fund investment projects. This
increases reliance on aid or borrowing from overseas.

Harrod-Domar model- Aggregate output (GDP) proportional to stock or physical capital. Investment is assumed
proportional to output implying also proportional to cap stock - some function of output= invested adding to capital stock

Savings surplus- the excess of aggregate savings over domestic investment, where investment is in fixed capital and
inventories by both the public and the private sectors.

Foreign currency gap- currency outflows persistently exceed currency inflows, persistent c.a deficit

Capital flight- rapid movements of large sums of money out of a country. Owners of liquid assets move them to other
countries perceived to be safe haven’t or offering better returns

Infrastructure- transport links, communictn networks, sewage, energy plants/ facilities essential 4 functioning of country

Debt relief- cancellation, rescheduling, refinancing of nations external debt

Property rights- Rights to ownership or an asset such as land or ideas (IP) rights

Primary sector- industry involved in production of raw materials including agriculture

Brain drain- movement of highly skilled or professional people from their own country to another country where they earn
more money

Corruption- abuse of entrusted power for private gain, key cause of govt failure

,Market based development policies- policies designed to promote development by minimising the role of govt and
maximising the free operation of markets

Trade liberalisation- involves the removal of trade barriers, tariffs and quotas, promoting free trade

FDI: acquisition of a controlling interest in productive operations abroad by businesses resident in home economy.

Floating exchange rate - currency’s value is purely market determined and the Bank of England does not seek to
intervene through buying and selling currencies in order to influence the pound’s value.

Microfinance- form or credit service offered to low- income individuals not traditionally serviced by formal banking
sector

Privatisation- when state run businesses are sold to the private sector

Interventionist development policies- policies designed to promote development by actively encouraging the role of
govt in the economy

Human capital- skills, experience, attitudes, aptitudes

Managed exchange rates-

Protectionism- Tarff and non-tariff restrictions on imports to protect domestic producers

Infrastructure- The transport links, communications networks, sewage sunders, energy plants and other facilities
essential for functioning of country

Joint venture- Agreement between 2 or more companies to cooperate on a particular project or a business that serves
the mutual interests.

Buffer stock- seek to stabilise market price of agricultural products by buying up supplies of product when harvests are
plentiful and selling stocks when supplies are low

Import substitution- replacement of imports by domestic production, protected using tariffs

Lewis Model- Lewis put forward a development model of a dualistic economy consisting of rural agricultural and urban
manu sectors- model of structural change- outlines development from traditional economy to industrialised one

Resource efficiency- Achieving more with less producing more goods and services with lower environmental footprint

Fairtrade- Trade between companies in developed countries and producers in developing countries in which fair prices
are paid to producers

Debt forgiveness- cancelling by a creditor of a debt to a country or company

Debt relief- cancellation, rescheduling, refinancing of nations external debt

Accelerator effect- where planned capital investment is linked positively to past and expected growth of consumer
demand

Aid- overseas development assistance from one country to another- humanitarian assistance, technical expertise/
project aid

Bilateral Aid- aid that flows from one country to another

Tied aid - aid with conditions attached, economic or political reforms or commitment to buy goods from donor country
Multilateral aid is when countries give aid to an international organisation who distributes it to other countries.
International Monetary Fund- Intergovtal organizaton that oversees the global financial system by following the
macroeconomic policies of its member countries, in particular those with an impact on exchange rate and BOP

NGOs – private non-profit making bodies which are active in development work

,Growth and development pros:

Specialising in production and export of primary commodities oil, gas, copper net exports increase- AD increases=
economic growth. Developing countries - abundance of primary resources- in high demand from advanced economies
in west & emerging markets. Developing countries – exploit a comparative advantage in primary commodities – OC
advantage over other countries- using revenues generated from these sales to purchase capital imports.

Consequently:

§ Income growth: GNI/capita in developing countries will rise, basic life sustaining goods and services more
affordable, lifting people out of absolute poverty. Job prospects in economy will improve – increase in demand –
encourage domestic firms – Increase output- increasing demand for labour- reducing U/E,= economic
development -rising incomes and potentially an improvement in income distributing indicated by Gini coefficient
tending towards 0
§ Profits for firms- relying on primary commodities for growth/ development- increasing rev/ profits for domestic
firms in developing economies. Prices of primary comm -been increasing, driven by high demand from emerging
markets like china. Firms can afford tech -reduce environmental pollution/ resource depletion= sustainable econ
growth and development as capital stock increases.
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§ Fiscal dividend- exporting and depending on rev from primary commod= fiscal div for gov resulting from higher
econ growth. Developing countries- increase in net exports allows incomes, output nd expenditure to rise-
increasing receipts from income tax, VAT/corp tax. Rev= hypothecation into health, education, literacy rates, life
expectancy levels, 2 areas of develop Michael Todaro features at the most sig development factors. Gov-
infrastructure – roads, bridges- decreasing transport costs- increase efficiency – achieving sustainable dev-
businesses access markets, families access to hospitals and schools

Growth and development cons:

§ Income inequality- gains from commercial exploitation of rich natural resources – kept by power elites in
societies, millions of those who live above resource endowment see little significant improvement in SOL –
where per capita incomes haven’t increase in line with GDP at all. Power elites – increase wealth and incomes,
those stuck in agricultural sector – still living in relative and absolute poverty- in poverty trap. Income inequality
dealt with fiscal policy – policies unlikely to succeed in corruption ridden developing economies. Income
inequality= worse, SOL fall, natural resources are further depleted. Unsustainable econ growth

§ Negative externalities- primary commodities – rapid depletion of natural resources, neg ext- excessive air
pollution, deforestation, resource degradation. Natural resources are exhaustible- risking developing countries
being converted from being resource rich- to poor. When this does happen- export earnings- decline rapidly as
export sector is responsive for a high proportion of tax rev- severely deteriorate public finances cutting off one
major area of development, gov spending on infrastructure develop – improvement of healthcare and education
system

Depleting natural resources and other examples – neg externalities ignored but producers following their own
interest. Over production= misallocation of resources and a deadweight loss of welfare, over extraction – reducing
economic welfare= burden of future generation- constraint on L/T sustainable development

§ Government corruption- gov officials use tax money for inefficient purposed such as political oppression,
pocketing money themselves in hidden intnl bank accounts. Key development outcomes will not be promoted at
all with a divide between elite and worsening of poverty, huge gov failure= misallocation of resources.
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§ Inflation- uncontrolled and unbalanced economic growth from demand side can trigger high rates of DPI. More
pressure is exerted on existing FOP- increasing price of them and thus COP for business- pass these onto
consumers via higher prices. Poverty can persist as purchasing power of individuals increases if incomes do not
rise in line with inflation, reducing ability to improve material and non-material SOL

,Growth and development evaluation

§ Growth should be sustainable- future gen benefit from /experience the same econ growth as current gen. E.g.,
growth without excessive inflationary pressures, significant environ costs and growth with the risk of resource
depletion. Effective environmental policy should be enacted and persistent increases in LRAS through supply side
policies should be pursued to reduce the risks of inflation conflicts and promote diversification into more value-
added manufacturing sector JHJDKSDNBHJDNDBD JKNDMLSMN DM,L;MKLNDSKL;AKMNSD
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§ For developing countries to achieve true sustainable development via these policies, must be movement towards
better and more efficient governance. Includes transparency and accountability to taxpayers – more effective
public spending esp on infrastructure and public services such as health and education. Developing countries have
high levels of gov fragility High levels of gov corruption and thus gov failure = econ growth = hindered

§ Role of government = pivotal. S/T whilst demand and success FROM export of primary commodities, gov must
ensure tax system in robust, corruption free so full tax rev can be collected = promote development - reduce
inequalities may arise from increased growth. Countries that export natural resources experienced faster growth
than other economies however HDI does not back this; implying gov promotion of development = ineffective

§ Gov must act to ensure C.A gains form specialising in primary commodity extraction can be L/T by taxing firms
over extracting and risking L/T development. Promote export diversification, sole reliance on export of primary
commodities disappear. Subsidising enterprises that produce desired goods and promoting training schemes to
provide workers with skills – work in other area, more mobile. L/T solution - promote sust development = a
reliance on international trade is still viable, potential to transform a developing economy from unsustainable
dependence on export of primary commodities to experiencing L/T gains from continual growth and development

Measures of development:

Single measures (GDP/capital) pros:

§ GDP/ capital useful to evaluate SOL. A rise in GDP/ capital = rise in SOL- clear indicator of economic prosperity.
Link to poverty alleviation, theory, more equal distribution of income. Comparisons w other countries- evaluate
effectiveness of one country’s development to another

GDP/ Capita cons:

§ Only a single measure of development- changes in income. Big flaw as development= more than income. Health
and education= pivotal factors infras, environment, gender equality, freedom. Composite indict HDI- more acc.
§ Only accounts for the quantity not quality produced, significant negative externalities in production air pollution,
resource degradation, depletion, loss of biodiversity. Existence of these reduces SOL
§ Provides no information regarding the distribution of income increases in GDP may only benefit elite or small part
of the population - growth may’ve been generated from one dominant sector = capital intensive- capital owners
only see benefit. Corrupt gov = prevent effective distribution of income from higher levels of GDP - increases in tax
rev promoting income inequality. Poor may see no improvements in society reducing SOL / abs poverty remaining
§ The informal economy = official GDP figures are lower than what they should be. Tend to understate development
progress. Informal economy= U/E figures being overstated and tax rev collection being lower than what they
should be – impacting gov spending for development
§ Doesn’t consider remittance incomes. income earned abroad won’t be calc in country’s GDP despite its generated
by that country’s production. Remittance income boosts SOL yet no account in GDP calc. given increasingly
globalised nature of economy, remittances are a sig finance for developing countries- flaw is significant.
§ Can misguide development progress by included profit made by MNC’s . MNC profit – repatriated back home
country not used to inc SOL in country its located. MNCs may impose poor working condition and very low pay
upon workers, inc incomes for managers, directors and shareholders. MNCs sig inc real GDP/ capita w/o noticeable
impact on SOL and development

,§ Developed country- high GDP per head. High levels of education and healthcare, reliable, safe infrastructure,
high productivity and investment. Phase of de-industrialisation – developed service sector. Govts are
democratically elected
§ A developing country- lower GDP per head. Low levels of physical and human capital and high levels of U/E and
underemployment. Health tends to be low with high mortality rates. Weak and corrupt. Education in china- catalyst
for growth and development. Low productivity

Human development index- composite indicators bases on health, education, income. Each of these is given a and a
mean is taken to give a figure between 0 and 1. Higher number the greater the level of development

HDI Pros:

More encompassing and broader measure of development than any single indicator. HDI therefore is extremely useful
when it comes to comparing development between countries

§ Relatively easy to calculate
§ Allow for comparison, countries can meaning track development and judgements ca be made
§ Allows to measure development progress over time
§ Clearly indicates where development progress may need to be concentrated- excellent tool for effective policy
decision and for efficient direction of aid money coming into a developing country. Breakdown of HDI is very clear -
making it easier to finalise and justify these.

Cons:

§ Does not differentiate between rates of development progress within a country, difference in development
between urban &rural areas. The HDI does not account for income inequality within a country and the impact of
inequality in development. BUT HDI can be adjusted for income inequality = income inequality adjusted HDI.
§ Incomes, schooling, and healthcare’s scores= weighted equally in HDI – argued to be arbitrary esp if it’s clear that a
certain area such as healthcare is lacing more than another. Makes It harder to efficiently allocate funds – aid
money directed to areas that aren’t at need
§ HDI only comprising 3 areas= quite narrow in outlook, development consists of multitude of factors such as
freedom, equality, poverty alleviation. HDI used alongside Global competitiveness index, Gini coefficient, global
poverty index, to fully analyse a country’s development of progress

The Inequality-adjusted Human Development Index (IHDI):
§ This is an adjustment of HDI which includes a fourth indicator of development: inequality. The Atkinson Index
adjusts measures for education, health and income according to the level of inequality. It is broader than HDI but
§ can still be criticised for not considering more measures and quality.

The Multidimensional Poverty Index (MPI):
§ Measures the percentage of the population that is multidimensional poor - data for health, education and SOL but
uses a broader range of indicators within these categories.
§ Years of schooling and school attendance data is used for education; child mortality and nutrition data for health;
and availability of electricity, sanitation and safe drinking water in households, cooking fuel used, assets owned
and the type of floor in a house for SOL.
§ Highlights countries where some areas are extremely rich but where most of population isn’t - focuses on poverty
however, cannot be calculated for all countries as data isn’t always available/ doesn’t take account the environ
The Genuine Progress Indicator: It is calculated from 26 different indicators grouped into three main categories:
economic, environmental and social . It aims to look at economic sustainability, to ensure development does not limit
the amount produced and consumed in the future.
§ tend to show developed countries experiencing negative growth over time, due to impact on the environment-
proves that development is unsustainable whilst others argue the index is biased and is constructed to prove the
anti-growth case.

,Factors influencing growth and development:

Primary product dependency

§ Primary products include agriculture, mining etc. A large amount of most developing country’s economic activity is
based on a primary product.
§ Natural disasters can wipe out production of the primary product and so means that farmers are left with no
income. They are often non-renewable
§ Low-income elasticity of demand. The prebisch singer hypothesis suggests the L/R price of primary goods declines
in proportion to manufactured goods, which means those dependent on primary exports will see a fall in their
TOT. However, in recent years, there has been a rise in the prices of some key commodities , such as food and a
fall in prices of some manufactured goods due to the expansion to places like china.
§ Resource curse Prebisch singer hypothesis- constraint on growth. Worsens TOT
§ Dutch disease- country becomes significant commodity producer in S/R causing an increase in demand for the
currency – pushes its value up increases export prices= reduction in comp of economy= fall in output.
1960’s Netherlands exporting lots of gas, manufacturing products- less price competitive

Volatility of commodity prices- diagram

§ Primary products tend to have inelastic demand and supply curves which means relatively small changes in
demand or supply leads to huge fluctuations in price.
§ Large changes in price - producers’ income and country’s earnings rapidly fluctuate - difficult to plan and carry out
L/T investment - producers see their income fall very rapidly, causing poverty.
§ Over investment L/T risk when currency falls eventually

Savings gap

§ Developing countries- lower incomes= save less. Savings gap= difference between actual savings and the level of
savings needed to achieve a higher growth rate.
§ Poor have a higher MPC income. Lack of funds for financial insertions to lend for business investment

§ Harrod-Domar model suggests savings provide funds which are borrowed for investment purposes and that
growth rates depend on level of saving/ productivity of investment. Economic growth depends on amount of
labour and capital and that developing countries have a vast labour supply, problems are caused by capital. To
improve capital, investment is necessary, and investment requires savings.

EV: Economic growth is not the same as economic development- difficult for individuals to save when they have little
income and borrowing from overseas causes problems with debt- investment could be wasted.

Foreign currency gap: exports from developing country are too low compared to imports to finance the purchase of
investment from overs eases requires for faster econ growth

Capital flight: caused argentine econ crisis in 2001

§ Rich tend to save money abroad due to higher rates of interest and more stable foreign currency providing
lucrative returns. Outflow= capital flight
§ Outflows of money taken out of country rather than being invested. If placed in banks, credit could be created for
consumers and businesses to spend
§ Where aid is given to elites or corruption

Demographic factors:

§ Population -impact the growth and development of a country. Link between keeping birth rates down and fighting
hunger, poverty and environmental damage. Rapid population growth - complicated efforts to reduce poverty and
eliminate hunger in Africa.

,Access to credit and banking:

§ Developed country- sophisticated banking system
§ Developing countries = limited access to credit and banking- cannot access funds for investment and struggle to
save = may use loan sharks- high interest rates, leave individuals permanently in debt.

Absence of property rights:

§ Property rights - individuals are allowed to own and decide what happens to certain resources. A lack of rights
mean that individuals and businesses cannot use the law to protect their assets= reduced investment, unwilling
to buy machinery, build factories or establish brands.
§ The loss of property rights in Zimbabwe led to economic collapse.

Non-economic factors

§ Geographical countries- landlocked countries find it difficult to gain access, transport. Corruption. disease


Sources of development and barriers to development:

1.Education. Improved education can directly improve several development indicators e.g. Adult literacy, enrolment
rates. Education can empower women by providing job opportunities and boost health levels through greater
understanding of debt, sanitation and disease prevention

Barriers to education for development

§ Funding. Indebted gov in developing countries lack funds to provide education free or at an affordable price,
reducing access and availability. Even where school do exist, quality, equipment are poor, class sizes may not be
adequate to ensure high class education to improve development outcomes.
§ Income inequality. Rural households with lower incomes than urban counterparts may be unable to afford
education. Education is privatised in developing countries. Underdeveloped infrastructure- difficult or time
consuming to get to school, limiting access to schooling and development progress.
§ Culture of child labour. Developing countries age 10= potential income earners. Uneducated parents don’t
understand value of education, L/T poverty cycle. Significant barrier to female education, gender equality,
empowerment.

2.Healthcare. Healthcare outcomes - improved through greater number of hospitals, doctors, and nurses.
Equipment and vaccination- quality and quantity as well. Health indicators life expectancy/ infant maternal
mortality. Productivity, incomes, and quality of life

Barriers to healthcare for development:

§ Indebted govt lack funds to provide universal, free healthcare.
§ Rural households with lower incomes may be unable to afford healthcare. Significant inequalities

3.Infrastructure. Essential facilities and services necessary for economic activity to take place such as roads,
airports, railways, water systems. Improvements in transport infrastructure make it easier for individuals to access
jobs further afield. Families to access school, hospitals businesses. Also reduces costs of production as transporting
goods becomes quicker and cheaper= greater profitability, investment, and income growth. Water treatment can
help prevent spread of disease

Barriers to infrastructure for development:

§ Govt lack funds to provide adequate infrastructure. Taxation rev may be limited due to corruption, tax
incentives or underdeveloped systems to monitor tax evasion. Only way to access funds is by borrowing in
capital markets= excessive debts. Public private partnership can overcome this

,4. Political stability. Stable govts will work for the wellbeing and betterment of citizen’s pursuing policies to help
alleviate poverty and create jobs. Confidence in gov promotes domestic investment, FDI and aid money

Barriers to political stability for development:

§ Govt corruption and conflict. Corruption Is when gov officials use tax money for inefficient purposes such as
political oppression. Key development outcomes won’t be promoted at all – divide between rich elites and
worsening of poverty at low end= huge gov failure and misallocation of resources. Conflict and corruption
detracts FDI, trade and aid hindering econ growth and hampering development

5. Taxation

Barriers to taxation for development

§ Tax exemptions. To attract MNCs into the developing country and to encourage domestic firms to stay and
produce locally, developing country govts often provide tax exemption’s reducing the fiscal reward of commercial
activity and thus development spend capabilities.
§ Corrupt govt - gov officials use tax money for inefficient purposes such as political oppression. Key development
outcomes won’t be promoted at all – divide between rich elites and worsening of poverty at low end= huge gov
failure and misallocation of resources
§ Inefficient govts will not have developed system to collect tax rev. For taxation to be monitored for masses a
means of digital payment is necessary through bank accounts. In cash dominant developing countries this doesn’t
exist reducing fiscal amount. Tax rev is insignificant to fund large scale infrastructure, health and education
projects
§ Greater role of the WTO. Significant reduction in tariffs and thus tariff revenues. Impacted developing countries
the most as heavily dependent trading economies. Tariff revenues are easy to collect and generate large sums for
gov. gov development spending has taken a hit.

Microfinance and development free market orientated strategy

Microfinance or microcredit- the provision of loans at low interest to small scale entrepreneurs in a developing country

Pros of microfinance

§ Microfinance can break the growth and development poverty cycles in developing countries- increasing
investment and profits – thus incomes of small-scale entrepreneurs; incomes can then increase material and non-
material SOL- ability to access health and education

§ Microfinance can fill the savings gap in developing countries – means to gain finance for small businesses to
grow- become more productive by buying capital machinery. Profitability therefore increases – increases
incomes – families access better standards of education, healthcare, increasing development.
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§ Microfinance can alleviate poverty and create jobs for others. As profits and incomes increase, need to hire
more workers- derived demand from the growth of their business. Not only is income rising and poverty
alleviated for more entrepreneurs and their families but as jobs are given to others in the community, other
family livelihoods improve, and widespread poverty can be alleviated
§ Microfinance provides a means to finance – official lenders may reject riskier small-scale entrepreneur’s – more
capital machinery= boost productivity. Such loans= low interest – paid back over long period of time. Maximum
profit and income growth without pressure of having to pay back debts within short period of time.

§ Microfinance schemes can empower women. Many small-scale business ventures are started by women who need
finance to grow and develop their business. Women make profits, earn incomes become leaders- inspiring more
women. SOL increases

, Cons:

§ Presumption of microfinance= every business venture= successful = not the case. Businesses do fail, individuals
with very low incomes will have debts to repay – cannot afford- trapping themselves into poverty

Evaluation. To overcome this- microfinance loans are usually issued with a mentor or regular meeting providing
guidance and support to make business profitable enough the loan can be paid back. Tend to be given to groups
rather than individuals.

§ Large risk that microfinance institutions become profit motivated rather than being development promotion
and alleviating poverty. I/R charged could become exorbitant and repayment periods – shorter- pressure on
entrepreneurs to repay loans. Recipients face losing all assets- reducing SOL and causing absolute poverty-
barrier to growth and develop

§ Temptation for individuals on low incomes who receive microfinance loans to use money to better SOL of
family rather than invest in business. Only improve S/T SOL and worsen L/T position if loan cannot be paid back.
Invested into informal economy

Trade and development pros:

§ Trade, growth and living standards. Trade allows developing countries to specialise in primary commod.
Developing C= exploit comparative adv in primary commod- where they have an OC adv, using revenues
generated from these sales to purchase capital imports. Net exp in these economies inc thus inc AD = inc in econ
growth. GNI/capita in developing countries will rise, basic life sustaining goods and services more affordable,
lifting people out of absolute poverty. Job prospects in economy will improve – increase in demand – encourage
domestic firms – Increase output- increasing demand for labour- reducing U/E,= economic development –

§ Trade, growth and Fiscal dividend- exporting and depending on rev from primary commod= fiscal div for gov
resulting from higher econ growth. Developing countries- increase in net exports allows incomes, output nd
expenditure to rise- increasing receipts from income tax, VAT/corp tax. Rev= hypothecation into health,
education, literacy rates, life expectancy levels, 2 areas of develop Michael Todaro features at the most sig
development factors. Gov- infrastructure – roads, bridges- decreasing transport costs- increase efficiency –
achieving sustainable dev- businesses access markets, families access to hospitals and school
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§ Trade, technology transfer and development. Trades allows for a faster rate of technological transfer – increase
market size and openness to production methods across the world provides easier access for developing country
producers to develop new tech= better quality products, satisfying local and foreign consumers – firms move
towards more efficient, low cost capital intensive production consequently, developing countries move away
from a dependence of primary commodities, breaking their dualistic economic structures, developing a strong
manufacturing base – future growth and develop can be achieved at a faster rate- inc incomes and job opp

§ Relying on primary commod for growth and develop – inc revenues and profits for domestic firms- successful
strategy for developing countries in recent years = prices of primary commod increasing, driven by high demand
from booming emerging markets (china). Firms -afford clean technology, reduce level of environ pollution and
resource depletion = sustainable econ growth and develop in future as capital stock is added to. This reduces the
neg externalities of production= less divergence between MSC and MPC of production= L/T benefit - productive
capacity inc -new capital boosting L/T sustainable growth without inflationary pressure= future inc in AD from
export of primary commod

§ Export of primary commod (high prices) and terms of trade improvements exporting commod at high prices
brings an improvement in commodity exports TOT- benefiting nations to import essential raw mat and capital
equipment like new tech= reduce poverty rates = provide needed diversification boost into manu sectors –
reduce risks of unsustainability

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