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Economics- Theme 4 > 11- Strategies influencing growth and development > Flashcards

11- Strategies influencing growth and development Flashcards

1
Q

Market orientated strategies

A
  • Trade liberalisation
  • Promotion of FDI
  • Removal of government subsidises
  • Floating exchange rate systems
  • Microfinance schemes
  • Privatisation
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2
Q

How can trade liberalisation help influence growth and development?

A
  • Countries can aim for export-led growth
  • It will mean domestic industries are forced to become efficient as other world producers (BUT THEY MAY HAVE TO CLOSE)
  • Resources will be allocated to best use
  • Hong Kong, Singapore, South Korea have benefitted from this method.
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3
Q

How can promotion of FDI help influence growth and development?

A
  • Creates jobs and has multiplier effect
  • Transfer of knowledge- techniques for training
  • Labour productivity increases and higher wages
  • Investment can help fill savings gap
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4
Q

Countries that have benefitted from FDI?

A
  • India- with Make in India Initiative led to a 48% increase in FDI in a range of sectors- railways, manufacturing, pharmaceuticals
  • Samsung Vietnam investment
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5
Q

Problems with increased FDI?

A
  • Usually a repartition of profits (profits invested back into origin country)
  • Developing countries exploited with lower wages offered.
  • Countries may lose sovereignty and become dependant on the firm.
  • Local competition will struggle and much of the labour will be imported labour.
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6
Q

How can removal of government subsidies help influence growth and development?

A
  • Subsidises can be poorly targeted- could be better giving poorer households one off cash payments.
  • Subsidises to farmers may cause inefficiency if they were given over a long period of time.
  • Subsidies make up a lot of government spending and have a high opportunity cost.
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7
Q

Why subsidies may help growth and development?

A
  • Helps minimise absolute poverty and ensuring a minimum standard of living.
  • Can be beneficial in helping an infant industry grow.
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8
Q

Examples of the failure of subsidies in helping influence growth and development?

A
  • Venezuela- fuel subsidies lead to increased emissions (unintended consequence).
  • In Venezuela they were implemented to help curb inflation but demand was still higher than supply.
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9
Q

How can a floating exchange rate system help influence growth and development?

A
  • Country needs not to worry about gold and foreign currency reserves.
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10
Q

Drawbacks of a floating currency system to help influence development and growth?

A
  • Can lead to a volatile currency which makes it difficult for importers and exporters to make decisions about the future and can cause changes to growth.
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11
Q

What are microfinance schemes?

A

Schemes which aim to give poor and near-poor households permanent access to a range of financial services

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12
Q

How can microfinance schemes help influence growth and development?

A
  • They aim to give poor and near-poor households permanent access to a range of financial services including savings, loans, insurance and fund transfers.
  • Provides an implicit guarantee of future loans if present loans are repaid fully and promptly.
  • Allows borrowers to reinvest in their businesses or start up new ones.
  • The scheme tends to target groups who would be less likely to otherwise receive loans e.g woman.
  • In South Africa- microfinance schemes became a method of financing consumption.
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13
Q

Privatisation definition

A

Privatisation means the transfer of assets from the public (government) sector to the private sector.

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14
Q

How can privatisation help influence growth and development?

A
  • It can help end corruption within a firm owned by the state.
  • Encourages efficiency with more competition
  • Will improve government finances by selling off firm which will reduce levels of debt
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15
Q

Drawbacks of using privatisation to help influence growth and development?

A
  • A natural monopoly is often better owned and run by the government due to lack of competition.
  • Would not be as effective if the government sells the firm below market price to a friend or family or receives bribes to accept one company’s bid.
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16
Q

Example of a success of privatisation in helping influence growth and development?

A
  • In 2006, Ghana privatised their water industry- this increased the water revenue, quality, efficiency and customer service.
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17
Q

Interventionist Strategies

A
  • Development of human capital
  • Protectionism
  • Managed exchange rates
  • Infrastructure development
  • Promoting joint ventures with global companies
  • Buffer stock schemes
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18
Q

How can the development of human capital help influence growth and development?

A
  • It would provide workers with skills and capital who would become more productive and efficient.
  • Businesses struggle to expand when there are skills shortages and it limits innovation.
  • Higher skills would allow a country to develop from the primary to manufacturing sector- overcoming primary product dependency.
  • Better education improves quality of life.
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19
Q

Examples of the development of human capital?

A
  • Developed through schooling or vocational training.

- E.g. China and South Korea

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20
Q

Protectionism definition

A

When government enact policies to restrict the free entry of imports
into their country, such as tariffs and quotas.

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21
Q

How can protectionsim help influence growth and development?

A
  • Allows domestic firms to grow (keeps foreign goods and competition out).
  • They can use import substitution, where they deliberately attempt to replace imported goods with domestically produced goods by adopting protectionist measures.
  • Creates jobs in the short run
  • Will allow industries to grow and then compete internationally when barriers are removed.
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22
Q

Problems with using protectionism to help influence growth and development?

A
  • Missing out on the benefits of specialisation and comparative advantage.
  • Could lead to inefficiency (lack of competition).
  • Other countries may retaliate.
23
Q

Managed exchange rate definition

A

Value of the currency is determined by demand and supply but the Central Bank intervenes to prevent large changes.

24
Q

How can a managed exchange rate help influence growth and development?

A
  • High exchange rates can be introduced for imports of essential goods (making the price lower).
  • Lower exchange rates can be introduced for exports and other goods (making the price higher).
  • It encourages investment and reduces poverty.
25
Q

Drawbacks of using a managed currency in helping to influence growth and development?

A
  • These exchange rates often fail in practice; black markets of foreign exchange can destabilise the system.
  • Corruption can become an issue when government officials buy currency at one exchange rate and sell it for profit at another.
  • Speculation will make it difficult to maintain.
26
Q

How can infrastructure development help influence growth and development?

A
  • A country needs roads, airports, schools, hospitals, railways to develop.
  • Due to high capital costs it is unlikely to private sector will provide it.
  • Has positive social benefits.
  • Lower transport costs.
  • Encourages FDI.
  • Improves productivity.
27
Q

Drawbacks of infrastructure development in helping influence growth and development?

A
  • Tends to suffer from free-rider problem.
  • Has high capital costs making it.
  • Government may not have funds and it may be inefficient.
  • Often associated with bribery and corruption.
  • Can cause environmental damage if poorly maintained.
  • Some argue that immediate technology which uses local materials and can be fixed locally is better than large scale infrastructure.
28
Q

Joint ventures definition

A

A separate business entity created by two or more parties, involving shared ownership, returns and risks.

29
Q

What are buffer stock schemes?

A

-A buffer stock scheme is a government plan to stabilise prices in volatile markets. This requires intervention in buying and selling.
Often the government imposes both maximum and minimum prices for goods, buying up stock when there is excess supply and selling them off when there is excess demand.

30
Q

Why can prices of agricultural goods be volatile?

A
  • Supply can vary due to the weather.
  • Demand is inelastic
  • Supply is fixed in the short term
31
Q

What is the aim of buffer stock schemes?

A
  • Stabilise prices
  • Ensure the supply of food
  • Prevent farmers/producers going out of business because of a drop in prices.
32
Q

Advantages of buffer stock schemes

A
  • Stabilise prices which encourages investment as producers can plan for the future.
  • Can prevent sharp price falls, meaning producers are kept out of absolute poverty.
  • Can solve issues relating to primary product dependancy
  • Helps maintain food supply
  • Government could make profit
33
Q

Problems with buffer stock schemes

A
  • Requires stocks to go up or down
  • The scheme will run out of money if prices keep rising and the scheme will run out of stock if the prices keep falling.
  • Requires huge start up, administrative costs and problems with storage.
  • Could be free riders of the system
  • When min prices are too high it encourages inefficiency.
  • Tax payer will feel burden if it goes wrong.
34
Q

How can tourism help aid growth and development?

A
  • Provides them with the funds to develop their economy and improve living standards.
  • The income elastic nature of tourism means that as the global economy grows, demand for the industry will increase even further, allowing the developing country to continue development.
  • Tourists represent a source of foreign currency, which will fill the currency gap so countries will be able to fund their imports without negative consequences.
  • Countries are likely to attract investment from transnational hotel companies, who will also bring knowledge with them.
  • Can help to fund improvements in infrastructure, as tourism requires reliable electricity, airports, clean water etc. and so the government have an incentive to provide this. This investment will have a
    multiplier effect through the economy.
  • Jobs are created locally since the tourism industry relies on low skilled workers who know the local area, rather than to high skilled workers which may be sourced from abroad. It is very labour intensive.
    -The government will see higher tax revenues due to higher income and higher profits. It can provide funds to allow countries to diversify.
35
Q

Problems with tourism in helping aid growth and development?

A
  • Tourism is income inelastic so it also means that they will suffer in times of recession.
  • Holidaymakers’ demands for products from their home countries mean that the tourism industry is associated with an increase in imports and so may not help the foreign currency gap at all.
  • However, the industry is seasonal and involves low skilled, low paid jobs which means the effect of the multiplier is limited. Tourism destinations can go in and out of fashion , meaning some areas will see a loss of employment and that investment may only receive a short-term return.
  • A large amount of wealth created will be withdrawn as TNCs repatriate their profits, causing problems involving capital flight.
  • On top of this, the country can suffer from a large number of externalities, including pollution, waste, environmental damage and impact on culture
36
Q

How can development of primary products help aid growth and development?

A
  • Some countries, such as Saudi Arabia, Norway and Australia, were able to develop because of an abundance in natural resources. The development of a primary industry provides funds to allow a country to diversify as well as allowing infrastructure development and better education.
  • The government can address the Dutch Disease.
37
Q

Problems with using the development of primary products in aiding development and growth?

A

However, primary products are volatile and primary product dependency causes many issues. Primary industries also suffer from corruption.

38
Q

Dutch disease definition

A

The Dutch disease refers to the problems associated with a rapid increase in the production of raw materials (like oil and gas) causing a decline in other sectors of the economy. When the raw materials run out, the economy can be in a worse position than before.

39
Q

What are fair trade schemes?

A

Fairtrade is defined as being ‘a trading partnership based on dialogue, transparency and respect, which seeks greater equity in international trade’

40
Q

How can fair trade schemes help aid development and growth

A
  • Gives producers stability and raises their income.
  • The system means that child labour is not used and that production is sustainable and does not take place at the expense of environmental degradation.
41
Q

Drawbacks of the fair trade system?

A
  • It is argued that the system has an insignificant impact on the developing world. It benefits the Fairtrade producers but can leave others worse off since non-Fairtrade producers see a fall in demand. In the long term, the higher price for Fairtrade goods
    will increase supply and thus this could bring price back down, but this will depend on the price elasticity of supply.
  • Another issue is that higher incomes reduces the incentive to diversify and keeps farmers engaged in low profit activities.
42
Q

Aid definition

A

When a country voluntarily transfers resources to another or gives loans on a concessionary basis.

43
Q

Different types of aid

A
  • Tied aid is aid with conditions attached, such as economic or political reforms or a commitment to buy goods from the donor country
  • Bilateral aid is directly from one country to another
  • Multilateral aid is when countries give aid to an international organisation who distributes it to other countries.
  • Concessional loans are loans given on lower, or no, interest rates
44
Q

How does aid help development and growth?

A
  • Aid is good as it is able to reduce absolute poverty, particularly emergency relief provided after disasters.
  • It can fill the savings gap , as outlined by Harrod-Domar, and thus provides funds for investment, whether this be in infrastructure or in human capital.
  • ## It can contribute to increased globalisation and trade as well as reducing world inequality.
45
Q

Problems with aid to help development and growth?

A
  • However, it is unclear whether the money really reduces absolute poverty, as improving infrastructure does little to help those who suffering most.
  • However, some argue it results in a dependency culture where countries are unconcerned by their finances as they know they can receive aid from another country.
  • Corruption means that money does not always go to where it is meant to. In the long term, tied aid and concessional loans may mean that the country loses out. Since concessional loans still have to be repaid, this may limit where the money is spent; countries may only spend money on things they know will see a return in the short term.
46
Q

How can debt relief help growth and development?

A
  • It will ease government finances and allow more money to be spent on provision of services and infrastructure to aid development.
47
Q

Problems with using debt relief for growth and development?

A
  • It causes moral hazard because it creates a precedent: every poor country may now expect to receive debt relief. It also eases pressure on weak governments
    to adopt reforms and good economic policies.
48
Q

How does the World Bank help developing countries?

A
  • It aims to bring about long-term development and a reduction in poverty.
  • Provides financing, policy advice and technical assistance
  • Helps strengthen the private sector in developing
    countries by providing them with finance, technical assistance, political risk insurance and settlement of disputes.
49
Q

How does the International Monetary Fund (IMF) help developing countries?

A
  • They provide loans to help countries when there are international exchange rate crises or when they cannot afford to pay off their international debt.
  • When providing loans, the IMF insists that countries make macroeconomic reforms to resolve the problems.
  • It can also be in the form of lower government spending.
  • The IMF also provides advice which aims to bring about economic stability and raise living standards and help countries to develop their economic institutions through training and technical assistance.
50
Q

Criticism of the IMF

A
  • The IMF has received criticism for this because it causes problems for countries. Usually, it involves reducing imports and increasing exports which reduces the amount of resources available for domestic consumption.
  • However, countries are not forced to turn to the IMF for help but many do because the alternative is defaulting on their loans , which would cause even more problems than the reforms do.
51
Q

What are NGOs?

A
  • These are non-profit organisations that are run independently from the government.
52
Q

How can NGOs help developing countries?

A

Firstly, they can provide direct assistance to countries in the form of project work, this can range from education to wells to healthcare and can either be emergency or long term.
- They can act as pressure groups to lobby governments to adopt more pro-development strategies.

53
Q

Criticism of NGOs

A

A problem of NGOs is that it is believed that they alone can never solve the problem, it is the government who has to fix the issues

Economics- Theme 4 (11 decks)

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