To what extent is P.P.D a constraint on economic growth & development in developing countries?

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Primary Product Dependency

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To what extent is P.P.D a constraint on economic growth & development in developing countries?
  1. Primary Product Dependency
    1. A Nation that relies on the export of 1 or 2 primary products for the majority of its FOREX earnings, leaving it vulnerable to fluctuating world prices
      1. Primary Products can be divided into hard commodities
        1. Copper
          1. Tin
            1. Iron
            2. Soft Commodities
              1. Agricultural Crops: Wheat, Palm Oil, Rice and Fruit
            3. Issues w/ PPD
              1. Price Fluctuations
                1. Given thier PES and PED, any demand-side or supply-side shock will result in a significant price change
                2. Fluctuations in producers' incomes and foreign exchange earnings
                  1. since demand in price inelastic, then a fall in price will cause total revenue to fall and in turn, the foreign currency earning from exports to fall
                  2. Difficulty of planning investment & output
                    1. the price fluctuations cause uncertainty which is a detterent to investment.
                    2. Natural Disasters
                      1. extreme weather such as hurricanes, tornadoes, droughts and tsunamis can cause severe distruption to production of primary products, especially agricultural products
                      2. Protectionism by developed countries
                        1. EX: The huge subsidies given to US cotton farmers have created great difficulties for Indian cotton farmers, who are unable to compete; the EU's Common Agricultiral Poliy has meant that there is no free acess to European markets for food from developing ocuntries.
                        2. Low YED for Primary Products
                          1. Prebisch Singer Hypothesis states that terms of trade between primary products and manufactured goods tend to detiriorate over time
                        3. Evaluation
                          1. Less Economically Developed Countries (LEDCs) have comparative advantage in primary products
                            1. Demand may be income elastic
                              1. Diamonds (Botswana)
                                1. Oil (Nigeria)
                                  1. Gold (Ghana)
                                  2. Sustainability
                                    1. i.e. in the L-run if resources are non-renewable, economic growth in unlikely to be sustainable
                                    2. Eval. for Prebisch-Singer
                                      1. Some countries have developed on the basis of their primary products, ex. Botswana w/ their diamonds
                                        1. if a developing country has a comparative advantage in a primary product then its resources will be used more efficiently by specialising in the production of that product
                                          1. Primary product prices rose sharply until mid 2008 while the prices of manufactured goods were falling
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