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Transfer of Capital

IB DP Geography
       
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Base Knowledge and Understanding

Base knowledge and understanding

 
Video Clip
Data Visualization
   
Definition capital
Definition loan
debt repayment
development aid
remittances
foreign direct investment
repatriation of profits
News Article
Words to be defined
 
Base Level

Context

 

The aim of this lesson:

  • To examine the importance of loans, debt repayment, development aid, remittances, foreign direct investment and repatriation of profits in the transfer of capital between the developed core areas and the peripheries.
 
 
Geography Activities
Geography Activities

Stage 1: What is capital?

The term capital suggests financial or physical assets which can generate income, such as property or investments. Capital is one of the factors of production, it is the stock of man-made resources used in the production of goods and services. The other factors of production are land, labour and entrepreneurs.

Money is just a representation of goods or resources - try building a boat on a deserted island with just a pocket full of Euros.

 
Geography Activities
Geography Activities

Stage 2: Understanding the Rostow Model and the need for capital

 
Highlight the importance of capital in development.
 
Geography Activities
Geography Activities

Stage 3: Revise the 'developed core areas and the peripheries'

Gdp per capita ppp world map 2005
GDP per capita, purchasing power parity
 
UN Human Development Report 2009
The United Nations Human Development Index (HDI) rankings for 2009
 
HDI Map Legend
 
Geography Activities

Synthesis

 
Geography Activities
Geography Activities

Stage 4: Loans

What  
What Money borrowed from the International Monetary Fund, World Bank or private organizations with the aim of aiding development projects. The loaned money needs to be invested wisely to get a return to service the debt. Interest repayment rates can fluctuate with the global economic markets.
       
Example      
 
BBC News
 

Ghana looks to build sports industry [27 October 2009]

Ghana learned it was to get a $600m three-year loan from the International Monetary Fund (IMF), amid concerns about the impact of the recession on poorer countries. The country needs funds to reduce its budget deficit and support its currency, after being hit by high food and fuel prices.

   
Importance  
What

The IMF gave the go-ahead for a $741m (£469m) loan to Iraq. The money is part of a previously agreed $3.7bn loan programme designed to help the country rebuild its ravaged infrastructure. Iraq relies on oil revenues for as much as 90% of its income and needs funds to rebuild after years of conflict and insurgency following the 2003 US-led invasion. [Source]

 
Geography Activities
Geography Activities

Stage 5: Debt Repayment

What  
What Debt is money owed: either the original sum borrowed or interest charges levied on the original sum. Debt service is the process of repaying a loan according to an agreed schedule. High debt service payments are often blamed for reducing government revenue, and thus resources for health and education. As a result, there are increasing calls for debt relief, which is a term used to describe the process of either forgiving or reducing debts held by poor countries.
       
Example      
What
BBC News
 

G7 nations pledge debt relief for quake-hit Haiti [7 February 2010]

Canada's finance minister announced at a summit that Group of Seven countries planned to cancel Haiti's bilateral debts. He said he would encourage international lenders to do the same. Some $1.2bn (£800m) of Haiti's debts to countries and international lending bodies has already been cancelled.

   
Importance  
What The Human Development Report 2002 from the United Nations Development Programme (UNDP) shows that, among 50 African countries, at least 29 recently spent more on debt service than on health. At present 41 countries are classified as heavily indebted poor countries (HIPCs) - 33 in Africa, four in Latin America, three in Asia and one in the Middle East. The main objective of the HIPC initiative is to reduce debt in these countries to a sustainable level, thereby releasing extra budgetary resources for poverty-reducing expenditure, including expenditure on health.
 
Geography Activities
Geography Activities

Stage 6: Development Aid

What  
What Development aid or development cooperation (also development assistance, Official Development Assistance (ODA) or foreign aid) is aid given by governments and other agencies to support the economic, environmental, social and political development of developing countries. It is distinguished from humanitarian aid by focusing on alleviating poverty in the long term, rather than a short term response. There tends to be a grant element to distinguish from a loan.
       
Example      
What
BBC News
 

Development aid at record in 2008 [30 March 2009]

Rich nations donated more development aid than ever before in 2008, according to the Organisation for Economic Co-operation and Development (OECD).

   
Importance  
What The largest Development Assistance Committee donors were the United States ($21.8 billion), Germany ($12.29 billion), France ($9.88 billion), United Kingdom ($9.85 billion). However, none of those met the UN target of giving at least 0.7 percent of the Gross National Income (GNI) as aid. United States (0.16% of GNI) and Japan (0.17% of GNI) were in fact giving least among the members of DAC. The only countries meeting the targets in 2007 were Norway (0.96% of GNI), Sweden (0.93% of GNI), Luxembourg (0.91% of GNI), the Netherlands and Denmark (both 0.81% of GNI). [Source]
 
Geography Activities
Geography Activities

Stage 7: Remittances

What  
What A remittance is a transfer of money by a foreign worker to his or her home country.
       
Example      
What
BBC News
 

Africans' remittances outweigh Western aid [17 April 2013]

Analysis of cash flows by Hong Kong-based Ghanaian academic Adams Bodomo shows that Africans living outside the continent send more money home to their families than is sent by traditional Western aid donors in what is called Official Development Assistance (ODA).

   
Importance  
What

In 2010 - the most recent year for which meaningful comparisons can be made, according to Mr Bodomo - the African diaspora remitted $51.8bn (£34bn) to the continent. In the same year, according to World Bank figures, ODA to Africa was $43bn (£28bn). [Source]

 
 
Geography Activities
Geography Activities

Stage 8: Foreign Direct Investment

What  
What The purchase of land, equipment or buildings or the construction of new equipment or buildings by a foreign company. FDI also refers to the purchase of a controlling interest in existing operations and businesses (known as mergers and acquisitions).
       
Example      
What
BBC News
 

Guinea and China 'agree big deal' [13 October 2009]

Mines minister Mahmoud Thiam said a Chinese firm would invest more than $7bn (£4.5bn) in infrastructure. In return, the company would be a "strategic partner" in all mining projects in the mineral-rich nation.

   
Importance  
What Many Chinese firms employ large numbers of local workers but wages remain low. However, there is evidence that workers are learning new skills because of the availability of Chinese-funded work. Taking advantage of low labour costs, the Chinese are also building factories across Africa. Most African countries now have a growing trade deficit with China, in spite of favourable tax-free trading agreements. Ethiopian exports to China reached $132m (£63m) in 2006, a figure dwarfed by the value of Chinese imports of $432m (£206m). [Source]
 
Geography Activities
Geography Activities

Stage 9: Repatriation of Profits

What  
What To return something, especially money or profit, to the country of its owner or its origin
       
Example      
What
Hyperlink
 

Bloomberg - Time to Bring U.S. Corporate Profits Home [12 October 2010]

Imagine if U.S. companies could add well over $1 trillion to their U.S. coffers in an instant without having to sell a subsidiary, issue a single share, or incur a penny of debt. Cisco Systems has an estimated $30 billion in cash outside the U.S.

   
Importance  
What There are 63,000 transnational corporations worldwide, with 690,000 foreign affiliates. Three quarters of them are based in North America, Western Europe and Japan. Ninety-nine of the 100 largest transnational corporations are from the industrialized countries. Royal Dutch Shell's revenues are greater than Venezuela's Gross Domestic Product. Using this measurement, WalMart is bigger than Indonesia. General Motors is roughly the same size as Ireland, New Zealand and Hungary combined. [Source]
 
Geography Review

Review

 

Compare the importance of two different transfers of capital [loans | debt repayment | development aid | remittances | foreign direct investment | repatriation of profits] between the global core and peripheries. [10 Marks]

The markbands can be found here - you need to look at Paper 3 Part (a).

 
Essay Graphic Organiser
 

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