• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Development Profile of Bolivia

Extracts from this document...

Introduction

Development Profile of Bolivia University of Westminster Economics of Development Module Leader: Karen Kufuor Date: April 11th, 2005 Author: Patricia Fabro 04207467 Email: patricia_fabro@hotmail.com Address: 79, Fitzjohns Avenue NW36PA Hampstead, London Word count: 2925 Contents: Section A............................................................................................ p. 3 1. Short summary.....................................................................................p. 3 2. Income level in relation to other developing and developed countries...,,................p. 3 3. Economic structure and economic performance..............................................p. 5 Section B International trade / foreign direct investment and development........p. 6 1. The New Economic Policy (NEP).............................................................p. 6 2. Trade...............................................................................................p. 7 2.1. Memberships of organisations...............................................................p. 7 2.2. Trade balance.................................................................................. p. 7 2.3. Traded goods and trading partners.......................................................... p. 9 3. Foreign direct investments .....................................................................p.10 3.1. Evolution of FDI ...............................................................................p.10 3.2. Investment resources..........................................................................p.11 3.3. FDI by sector...................................................................................p.12 4. NEP and poverty reduction.....................................................................p.14 4.1. Poverty rates and inequality..................................................................p.14 4.2. Per capita income growth and inequality...................................................p.15 Section C.............................................................................................p.16 Conclusion...........................................................................................p.16 Bibliography.........................................................................................p.17 Section A 1. Short summary Bolivia is one of the poorest countries in the western hemisphere with a per capita income of under US$ 1000. Bolivia is highly indebted and depends on foreign aid. The economy is characterized by uneven development and a large informal sector. Economic growth increased considerably during the 1990s due to liberalization of the Bolivian market due to rising exports and strong foreign direct investments in state owned companies and trade has been fostered by trade agreements. However, Bolivia remains vulnerable to changes in export prices and to the performance on global markets. Rural poverty could almost not be reduced and still affects a large part of the population. 2. Income level in relation to other developing and developed countries The Bolivian Human Development Index which is annually presented of the United Nations Development Program is very low. With an index of only 0,681 Bolivia rank 114 of 177 countries in 2002. 1 Comparing the GDP of Bolivia with other South American countries and some selected developed countries (table 1 & 2), Bolivia has a very low GDP. ...read more.

Middle

Chart 2 shows that after the shift exports tended to move around 20% of GDP while imports increased and even reached 32% of GDP in 1998.17 Since the colonial time Bolivia mainly has concentrated it�s exports on mineral resources. Until the middle of the century ore generated 90% of foreign currency. Since the 70th the contribution of mining to the export sector has decreased and was overhauled by natural gas exports in the mid 80th . Like all developing countries, that produce natural resources, Bolivia suffers from the aggravation of the "terms of trade". The value of resources compared to the value of imported manufactured goods is declining steadily. The prices of imported good from industrialized countries are getting more and more expensive for developed countries.18 Chart 2: Bolivian Exports and Imports after and before the liberalization Source: World Development Indicators, The Word Bank Consequently, the poor export performance is linked to falling export prices. Chart 3 illustrates the price changes of natural gas, the main export good between 1980 and 2002. Obviously the prices of natural gas started to decline in 1985. Chart 3: Prices of Bolivian Natural Gas, 1972-2003 Source: YPFB While the prices of silver and tin have been relatively low since 1985, prices other important export goods like zinc and gold have been relatively high and also the prices of soya have been relatively stable. Consequently export prices could only party affect the Bolivian export performance between 1985 and 2003.19 The main reason for raising imports has been the surge of foreign direct investment since 1996, stimulated by the privatization program. Import increased so sharply, that a trade deficit was caused, meaning that the value of imports was higher then the value of exports. Trade deficit peaked at US$888 m in 1998. In 2003 the trade balance ran small US$22m surplus. Reasons for this change were steadily increasing natural gas exports, enhancing prices for minerals and agricultural exports and weak import demand.20 2.3. ...read more.

Conclusion

This findings can also be adapted to many other Latin American countries. Chart 10: Growth of GDP and GDP per capita, 1985 - 1999 Section C Conclusion The New Economic Plan (NEP) was introduced in order to foster trade and increase foreign direct investments. It was hoped, that growth would increase and that poverty would be reduced.33 Trade and foreign direct investment had a positive effect on GDP. Considerable growth rates could be achieved in the 90s. GDP growth maintained until 1999, but then began to decrease due to declining demand and declining export prices and decreasing FDI. The analysis shows that development could only partly achieved by growth. Development requires" sustained and sustainable growth in per capita income, accompanied by diversification of production, reduction of absolute poverty, and expanding economic opportunities for all citizens".34 Growth per capita income was almost sustainable but has not lead to a reduction of absolute poverty. Absolute poverty is required to decline to the extent that also the poorest of the population benefit from growth.35 But poverty has fallen in regions where people were already less poor, while extreme poverty has almost not changed. The hydrocarbon sector has received the major part of investments and also wages have increased significantly. One problem is, that no spillover effects have been realized by the hydrocarbon sector and the other problem is that the hydrocarbon sector only employs a very low percentage of the population. Consequently, only few people could benefit from FDI. While total poverty has been reduced, inequality still remains one of the biggest problems of Bolivia. But, there has been some progress in recent years: Trade deficit could be eliminated, because of increased gas export earnings and weaker domestic demand. This was important to reach a gradual decline of the current-account deficit. More over main social indicators have improved and further health and education reforms are planned. However, Bolivia�s economic performance mainly depends on exports and foreign direct investments. Finally we have to keep in mind that Bolivia is still one of the poorest countries and depends on foreign aid and debt relief. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our University Degree Political & International Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related University Degree Political & International Economics essays

  1. Since the initiation of the open door and reform policy, China has experienced the ...

    Such kind of cooperation as between Mitsubishi and Harbin Dong-An Engine Manufacturing Company is a very popular style of the foreign FDI in China - the foreign enterprises have advanced technology, knowledge and management, while the Chinese firms have local knowledge and market distribution channel.

  2. How Successful was the NEP?

    The success of the NEP can in reality only be measured by its aims. The NEP was set up primarily to stabilise the economy; this included decreasing inflation, increasing agricultural and industrial production and re-establishing trade outside of the country.

  1. Business Environments - Oil Price Development and the Consequences for the Economy.

    The following year started with fixed oil prices. This was supported by expectations of a recovering world economy. Since March 2002, the crude oil prices traded back within the desired OPEC range of 22 to 28-dollars per barrel. Therefore, the OPEC held its extremely low production rates.

  2. Economic growth in China

    manage by a head office, and it is easier to transfer technology and know how to control the subsidiary than the partner, therefore, the risk of the release of high technology is slim. However, in China the government regards the automobile industry as its backbone industry, and the current laws

  1. Implications for the macro-economy of the central bank adopting an interest rate rule. ...

    This paper incorporates the judgmental element of the Rule to examine the conduct of monetary policy over three long periods in U.S. economic history: 1875-1913 ("Pre Fed"); 1914-1951 ("Early Fed"); and 1952-1998 ("Modem Fed"). We go beyond the issue of which monetary authority was most effective in dealing with the inflation (or deflation)

  2. Why India is becoming one of the most preferred nations for Foreign Direct Investment

    Due to increased tourist and business travel the demand for hotel rooms has reached to 100,000 rooms. By 2020 India will be one of the most preferred tourist destinations in South Asia and by 2010 alone an investment of 8-9 billion is required for hospitality based real estate.

  1. What are the major changes to the foreign trade/ investment structure of Japan after ...

    Thus, the US and Europe exports were then more competitive in Japan and Japanese firms reacted by putting enormous effort to avoid rising export prices, which was done through foreign direct investment in the sense of rationalising. Japanese FDI increased on a large scale and underwent major changes in its

  2. In December 1992, Canada, the United States and Mexico signed the North American Free ...

    Investment has followed, increasing significantly in Canada. "Domestic investment has also risen substantially in Canada for the production of standard products and services, many of them focused on the North American export market."12 The investment regime of NAFTA predictably enhances the opportunities for investment by domestic producers who want to

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work