4.10 Economic Growth/Development Strategies Flashcards
Trade strategies to promote economic growth
import substitution
export promotion
economic integration
Explain import substitutions and its consequences
Growth strategy where country manufactures simple consumer goods for the domestic market to promote its domestic industry
Consequences:
- high levels of inefficiency
- overvalued exchange rates
- neglect of agriculture
- capital expensive production
- deterioration in balance of payments
Explain export promotion and its benefits
Country attempts to achieve growth by expanding exports via managing exchange rates
Benefits:
- expansion into foreign markets
- diversification
- no BOP problems
Explain diversification as a strategy to promote economic growth
Involves a reallocation of resources into new activities that broaden range of goods or services produced
Resulting in:
- engaging in more varied production activities
- creating employment opportunities
- establishing new firms
- expanding into activities requiring higher skills
What is social enterprise as a strategy to promote growth
A type of commercial organization that sims to achieve particular social goals to improve peoples well-being and promote social change
What is social enterprise
Type of commercial organization that aims to achieve particular social goals to improves people well being
3 market based policies aimed to increase growth
trade liberalization - free trade via elimination of trade barriers
privatization
deregulation - reducing minimum wage, removing barriers to enter market etc,
Interventionist strategies to promote growth
Redistribution policies:
- tax policies
- transfer payments
- minimum wage
Provision of merit goods:
- education and health services as merit goods
What is FDI
Investment by firms in productive activities in another country
What is a firm that undertakes FDI called
Multinational corporation
Why do MNCs expand into less economically developed countries
- lower costs of production
- use locally produced raw materials
- increase sales and revenues
- by pass trade barreirs
Advantages of FDI of MNC for host
- MNC can increase local employment
- MNC can lead to greater tax revenue
- MNC can promote local industry
- MNC can supplement technology
- MNC can lead to economic growth
Disadvantages of MNC for host
- MNC may import labor - increasing unemployment
- may not to greater tax revenues
What is foreign aid
Transfer of funds or goods and series of developing countries with the main objective to bring about improvements in their economic, social or political conditions
Types of aid
Humanitarian aid - aid given to countries experiencing violent conflict or natural disasters, intended to save lives
Development aid - help developing countries achieve their economic growth and development objectives
What is official development assistance
Grants from government
How do they reach developing countries
Bilateral aid - finds go directly from donor to recipient
Multilateral aid - goes indirect from donor to international organizing who transfer fund to recipient
NGOs- donor gives money to NGOs which spend them in development countries
What are NGOs
Private organizations that pursue activity to relieve suffering
Negatives of foreign aid
Tied aid - donors make recipient spend all or a portion of funds to buy goods and services from donor country
Aid is unpredictable and volatile
Aid may be associated with corruption
What is multilateral development assistance
Involves lending to developing countries
Multilateral banks which lend to support economic growth
World bank
The IMF - International Monetary Fund
What is the world bank
Development assistance organization that extends long-term loans to developing country governments for the purpose of promoting economic development
Explain micro finance aimed to promote growth
Refers to credit in small amounts to people who do not have access to credit
