In the country of Zapata, the GDP per capita has fluctuated between 1965 and 2010, with periods of growth noted in 1980 and 2000, followed by periods of decline in 1990 and 2010. Fluctuations in GDP are caused by different factors. One factor is population growth. Population growth can decrease the GDP due to periods where that growth was happening faster than the growth of the GDP. In addition to population growth, a consistent decrease in the currency value exchange. The devaluation of a currency leads to an increase in the cost of imports.
Government expenditure can also be responsible for fluctuations as brief periods of increased expenditure can have a trickle effect and stimulate the economy over a period of time. In Zapata, government expenditure increased in 1980 followed by a slight decrease in 1990. This may be responsible for the rise in GDP in 2000 and 2010 as government expenditure during this time decreased. Manufacturing also peaked in 1980 with a slight decline in 1990, 2000, and 2010. Manufacturing impacts total output and employment. Increased employment and wages in turn increase product and consumer demand. Foreign debt also began increasing while manufacturing decreased, indicating an economy that is not producing sufficient goods and services required to pay back current debt without incurring additional debt, which is weighed against the GDP.
The GDP is the number used to represent the total market value of all goods and services produced in a country during a specific period of time (Statistics Times). This numerical value is reported in the country’s own currency. To compare the GDP between countries, these values are converted into a common currency through one of two methods: nominal or purchasing power parity (PPP). The nominal method uses market exchange rates to determine the GDP but does not take into consideration the cost of living in a country. PPP is an exchange rate that factors in the cost of living and is calculated by converting the currency of a country into the currency of another country and using that figure to compare the purchasing power of the volume of goods and services in both countries. PPP rates control for the differences in cost of living and price levels of a country, determining a more accurate representation of GDP than the nominal method (Statistics Times).
In Zapata, the PPP was higher than the nominal GDP between 1965 and 1990. During this period of time there was a marked increase in government expenditure, manufacturing, and a rise in services with relative stability in currency valuation. Exports Increasing population subsequently increased the demand for and consumption of services. Inflation, combined with an increase demand for products and services, impacts the cost of living in Zapata. The rise in PPP would indicate a lower cost of living during between 1965 and 1990, followed by a steady increase in the cost of living in the period since then.
2. What has happened to income distribution? Can you think of a reason for these changes?
The income distribution is represented by the Gini coefficient, which represents the income or wealth distribution of a nation’s residents and is the most commonly used measurement of inequality. 1 is the numerator that indicates maximum inequality. In Zapata, we can calculate the Gini coefficient by the highest income percentage share of GDP and the lowest income percentage share of GDP and finding the coefficient (G). In 1965, G=0.462; 1980, G=0.300; 1990, G=0.365; 2000, G=0.474; and in 2010, G=0.488 (Shlegeris). If 1 indicates maximum inequality, we can see that the trend in Zapata has been less than 0.5 indicating a trend toward more equality from 1965 through 1990. In 2000 the trend began to shift and the numerical values representing G=0.474 in 2000, and G=0.488 in 2010 indicate a rise in income inequality.
Income inequality can be influenced by multiple factors. Population growth during this time would impact this figure. Age impacts Gini with older populations tending to see less inequality than younger populations, due to a decrease in income disparity. The decreased literacy rate would support this along with rising population, indicating the population of Zapata is younger as it increases. Life expectancy rates among male and female residents increased in 1980 and began to decrease over the remaining review period, reaching an all-time recorded low in 2010. Factors that impact life expectancy include socioeconomic status, income, employment, access to healthcare, quality of healthcare resources, and more. During this same time frame, the percentage of doctors per capita has markedly decreased, suggesting a decrease in access to healthcare and a decrease in quality of healthcare. Income inequality would also impact an individual’s ability to access healthcare.
Income inequality is also impacted by manufacturing. Zapata experienced a marked increase in manufacturing in 1980, followed by a small, but consistent decline over the next several years. The initial increase in manufacturing jobs aligns with the higher rate of income equality in Zapata during the same time period. As manufacturing has decreased, inequality has increased. This may be a result of manufacturing jobs being “replaced by low-wage, low-skill, service-sector jobs that typically provide few, if any benefits” (Ritzer and Dean 398). Additionally, in developing countries low-income, part-time and temporary jobs replace middle-class manufacturing jobs, which is commonly spurred by structural adjustment programs. As Zapata continues to develop, it is likely that the Gini coefficient will trend toward higher rates of inequality due to the feminization of labor. The “feminization of labor” in developing countries results from a shift from import to export-related manufacturing. More women “are drawn into labor-intensive and low-paying industries” and are “preferred in these industries because they will typically work for lower wages” (Rizter and Dean 407). This is also impacted by a country’s shift from import substitution to export-oriented manufacturing.
3. Define what is meant by ‘terms of trade.’ Explain these indicators with respect to Zapata’s exports and imports (noting sectors). Make sure you show why they fluctuated in the period under review. Make sure you consider the reasons why export prices may rise or fall and how globalization may have resulted in either higher/lower prices for both consumer goods and primary products. How would the Black Gold documentary help illustrate this argument?
Terms of Trade (TOT) refer to the difference between a country’s export and import prices. The ratio is calculated “by dividing the price of the exports by the price of the imports and multiplying the result by 100” (Investopedia). When a country’s TOT is greater than 100, it indicates the country is generating more capital from exports than it is spending on imports. When a country’s TOT is less than 100, it indicates that the country is losing more capital than it is receiving or generating it.
Fluctuations in the prices of imports and exports can impact a country’s TOT. Additional factors that influence TOT include the scarcity of a product, good, or service. Scarcity impacts the amount of that product, good, or service that is available for trade. The size of goods and the quality of goods also impacts TOT. Higher quality goods will generally cost more than lower quality goods. Producing and exporting high quality goods would generate additional capital allocated for the procurement of additional goods.
In Zapata, the chief exports are copper and bananas. Copper accounts for 80% of exports, while bananas account for 16% of exports. Chief imports for the country are oil, machinery, and consumer goods. Oil accounts for 45% of imports. In 1960 Zapata’s TOT was 100 indicating baseline. Since then, Zapata’s TOT declined in 1975, 1985, and 1995 with the exception of a brief recovery in 2005, marked by another decline in 2010. The decline in TOT indicates that Zapata was required to export a larger number of exports in order to purchase the same number of imports. This is common in many developing countries and markets as a result of a general decline in the price of commodities compared to the price of manufactured goods. Globalization also impacts prices by reducing the cost of manufactured goods. The temporary increase would have been marked by a decrease in import prices, especially in the oil sector in conjunction with an increased demand and price for exports including copper. The reliance on primary exports means that Zapata often sells or exports the primary product and in return spends more money to importing secondary, tertiary, and quaternary products.
In the documentary Black Gold this is illustrated by the market dynamic of coffee exports in Ethiopia. The international market in New York and London control the price of coffee. Coffee is sold in the industrialized world at a much higher price than what it is purchased for. Coffee farmers only receive a very small percentage of the income generate by the coffee exports. Coffee farmers in areas supplying coffee are facing extreme poverty and famine. They receive approximately 1 to 2 Ethiopian birrs per day and need require approximately 10 birrs to be able to provide basic food and clean water for their families. The uneven distribution of benefits is exacerbated by Ethiopia’s reliance on coffee as a primary commodity, which places it in a vulnerable position within the world market as primary commodities are not as competitive.
4. Using the above tables, refer to all the social indicators that would indicate that Zapata is in the Developing world. Make sure to explain your choices.
Zapata is a young country that gained its independence in the 1960s. Zapata’s economy is impacted by high-inequality, a shift to high government spending, import substitution, increasing foreign debt, structural adjustments, and more. Zapata’s chief economic exports are primary commodities. Primary commodities are an indicator of a developing country as primary commodities are often the dominant sector as is the case in Zapata. Zapata’s declining TOT is another indicator of developing countries. A developing country has very little control over the global market, price, and demand of primary commodities. A developing country that is a primary producer often lack in terms of development because the abundance of a natural resource, does not always mean economic growth. For Zapata, their chief export is copper, but they have little control over the global market, price, and demand of copper and are subject to the industrialized determinations of the global market. The volatility of global markets is also a factor. The global market for copper and bananas can swing unpredictably and Zapata has very little control over this.
It is also possible that Zapata’s government is mismanaging resources. A bad government “with bad policies can not only inhibit an economy from growing, but it can literally destroy it” though in some cases it is possible for a country to recover from bad governance (Ritzer and Dean 363). High government spending is indicated in the increase in government expenditure between 1980 and 1990, along with a marked increase in foreign debt during the same time frame that extended through 2000. Zapata’s government may also be the primary beneficiaries and property-owners of production in the country. This would allow them to monopolize the access to resources and commodities and profit from ownership of the property, while production from profit is reduced, increasing inequality.
Zapata also relies on one primary commodity, which is copper. This reliance indicates a mono-economy, increasing associated economic risk and vulnerability. A decline in the relative value of exports in relation to imports result in negative terms of trade. Ultimately a developing country cannot compete well in the global market, especially against industrialized western subsidies.
The literacy rate of Zapata has steadily declined and so has the percentage of doctors. These factors indicate not only population growth, but also a reduced access to resources such as education and healthcare. In addition to basic access, it is likely the citizens of Zapata experience difficulty in accessing quality education and healthcare resources. These social factors indicate that Zapata is a developing country.