4.3 - Emerging and developing economies Flashcards
Define market orientated strategies
Strategies that create the conditions for private individuals & firms to pursue economic activity with the aim of maximising profit.
Define interventionist strategies
Strategies that are put in place by governments to correct the failings of the
free market and promote the welfare/development of its citizens.
State the market orientated strategies that influence growth & development
1) Trade liberalisation
2) Promotion of FDI
3) Removal of subsidies
4) Floating exchange rate systems
5) Microfinance schemes
6) Privatisation
Explain how trade liberalisation influences growth & development
Trade liberalisation relates to measures designed to remove trade barriers. It has the following effects:
- Opens up an economy to the free market.
- Creates opportunity to exploit a country’s comparative advantage.
- Firms encouraged to invest and innovate, and become more allocatively efficient as other world producers.
Explain how the promotion of FDI influences growth & development
= investment by one private sector company in one country into another private sector company in another. It has the following effects:
- Involves the transfer of knowledge from one country to another, with the company bringing production and management techniques and training for staff, therefore improving labour productivity.
- It provides LEDCs with funds to invest, helping to overcome the savings gap.
- Creates employment, leading to the effect of the multiplier.
Explain how the removal of subsidies influences growth & development.
Explain how floating exchange rate systems influence growth & development.
It means that the currency can be volatile
which makes it difficult for exporters/importers to make decisions about the future and can cause large changes in macroeconomic variables, including economic growth.
Explain how microfinance schemes influences growth & development
= The MFI (microfinance institutions) create schemes which aim to give poor and near-poor households permanent access to a
range of financial services , including loans, savings, insurance and fund transfers.
POSITIVE - Allows them to break away from aid, providing them with the financial tools they need to start or expand a business, invest in their education, or purchase goods and services.
NEGATIVE - It has become a method of financing consumption spending and unemployment means that most people do not have the funds necessary to ensure repayment of their loan.
TMT they have to sell off personal assets, borrow from friends and family or simply take out new loans to repay the old ones.
Instead of actually being used for investment, it has simply increased the informal economy with very little being
spent on sustainable methods of development. Therefore, financial resources have been diverted away from more productive and sustainable activities, for example manufacturing.
Explain how privatization influences growth & development
= Assets are sold from the public sector to the private sector.
The private sector gives firms incentives to operate efficiently, which increases economic welfare.
This is because firms operating on the free market have a profit incentive, as opposed to nationalised govt. run firms.
State the interventionalist strategies that influence growth & development
1) Human capital
2) Protectionism
3) Managed exchange rates
4) Infrastructure
5) Join ventures
6) Buffer stocks
Explain how human capital influences growth & development
Explain how tourism positively influences growth & development
Countries are likely to attract investment from transnational hotel companies, who
will also bring knowledge with them. This 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
Explain how tourism negatively influences growth & development
- The industry is seasonal and involves low skilled, low paid jobs which means the effect of the multiplier is limited. TIB 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 negative externalities, including pollution, waste, environmental damage and impact on culture.
State contextual factors that influence growth & development
1) Industrialisation: the Lewis model
2) Tourism
3) Primary industries
4) Fairtrade schemes
5) Aid
6) Debt relief
Define economic development
The process of increasing people’s wellbeing and quality of life, by improving standards of living, reducing poverty, improving heath & education, increasing freedom and choice.
