4.3 Emerging and Developing Economies (2) Flashcards
What are market-oriented strategies?
Measures which make the economy more free, with minimum government intervention
Examples of market-oriented strategies
- trade liberalisation
- promotion of FDI
- removal of government subsidies
- floating exchange rate systems
- micro finance schemes
- privatisation
What are interventionist strategies?
Strategies that favour government intervention to correct market failures and increase economic welfare
Examples of interventionist strategies?
- developement of human capital
- protectionism
- managed exchange rates
- infrastructure development
- promoting joint ventures with global companies
- buffer stock schemes
How can trade liberalisation influence growth and development?
- encourages competition, leading to efficiency and lower prices for consumers
- increases access to foreign markets
- can allow for countries to shift resources to industry that it has a competitive advantage in
- trade creation between members of a trade agreement
How can the promotion of FDI influence growth and development?
- brings in capital, technology and expertise, increases productivity
- can promote competition
- can help create formal employment in developing countries, especially for women which can benefit human development, lower poverty
How can the removal of government subsidies affect growth and development?
- can lead to more efficient allocation of resources
- reduces market distortions
- encourages innovation i.e. incentivises firms to be more efficient
- can improve fiscal sustainability, government has more money to spend on welfare benefits, etc
How can floating exchange rates impact economic growth and development?
- will help correct trade imbalances over time
- can reduce investment since currency is not stable
- can allow for monetary policy autonomy
- can lead to imported inflation due to fluctuations in the ex.rate, which ca;erode purchasing power
- cannot has exchange rate as a policy tool
How can micro finance schemes impact economic growth and development?
- allows individuals to become entrepreneurs, decreases unemployment, alleviates poverty
- fosters economic development and diversification
How can privatisation impact economic growth and development
- increases efficiency and competitiveness, which can improve the productivity and GDP
- increased revenue for the government, so more can be spent on welfare benefits etc
- can result in loss of environmental development since may ignore external costs
- can allow for increased investment since firms have a long term view, while government may focus till the end of their term
- privatisation in natural monopoly industries can lead to increased prices, can impact SoL
Case study on privatisation?
- BT privatised in 1984
- have shown degrees of improved efficiency and higher profitability
- idk where to find info
How can the development of human capital impact economic growth and development
- increases investment in education, training and healthcare
- improves productivity and innovation
- reduces poverty and inequality
I.e. country can move their production up the supply chain from primary products to manufactured goods to services, which can earn them more.
How can protectionism impact economic growth and development?
- shields domestic industries from foreign competition, which can allow them to develop
- can therefore create domestic jobs
- protects jobs
- can lead to loss of allocative efficiency
- loss of consumer welfare
- retaliation can impact price levels
- tariffs are regressive
How can managed exchange rates impact economic growth and development
- provides stability for international trade
- prevents currency crises
- can result in black markets in forex since people can buy currency at one exchange rate and sell it at a profit at another (only if currency is fixed against a number of different exchange rates)
How can infrastructure development impact economic growth and development?
- enhances economic productivity (reduced travel costs and increased efficiency)
- can lead to increased employment (could be just short term though)
- attracts private investment (UK becomes more attractive for businesses to operate)
- component of Keynesian theory of multiplier effect
What is the Keynesian theory of multiplier effect?
- when economy is in a recession, faces recessionary spiral since unemployment will occur
- only way to come out is to stimulate the economy by increasing public spending
- focus spending on lower-income families who are worse off by the recession, since they will spend immediately
How can promoting joint ventures with global companies impact growth and development?
- increases access to global markets and technology
Case study for infrastructure development?
CHINA => infrastructure development is a top priority for the Chinese government
- Improvements to power and telecommunications benefited 100 million Chinese people between late 1990 and 2005
- there is an argument that the development gap between China and other emerging economies is due to its focus on infrastructure projects
- China invested 9% of their GDP in infrastructure in the 1990s and 2000s, while most emerging economies only invested around 2-5%
- almost 200 airports in China and about 80% of people live within 100km of an airport
How can promoting joint ventures with global companies impact economic growth and development?
- allows firms to participate in international trade
- help technological knowledge to be transferred, which can improve and develop small companies
- open new markets for small firms, saves them time and funds, spreads their risk (important when developing a product is expensive)
- helps firms penetrate a foreign market, reduces barriers to entry
‘Other’ strategies influencing growth and development?
- industrialisation (the Lewis model)
- development of tourism
- development of primary industries
- fairtrade schemes
- aid
- debt relief
What is the Lewis model?
=> explanation of how an agricultural economy could move towards having manufacturing too (developing country, dualistic economy)
=> based on assumption that there is a surplus of unproductive labour in A, and wages are fixed in M
- workers from A attracted to higher rates in M
- entrepreneurs charge above the wage rate, so make profit and reinvest into more fixed capital
- demand for Labour increased, surplus labour in A sector moves to M, so economy industrialises
Problems with Lewis model?
- profits may not be reinvested into the firm (Marxist criticism)
- capital investment may replace labour, so demand for labour could fall instead
- migrating workers may possess insufficient information about job vacancies, pay and working conditions
How can the development of tourism increase economic growth and development?
- can create thousands of jobs and help shift a developing country away from PPD
- helps diversify economy, more attractive to FDI, helps develop infrastructure
- can be a way of earning foreign currency
- helps employees women and younger people
- boosts AD (multiplier effects usually large due to high MPC in developing countries)
- accelerator effects from investment (airlines and telecoms) leads to increased in LRAS
- can allow for countries to preserve cultural heritage (Mexico can preserve ancient Maya and Aztec ruins)
Case study for tourism?
THAILAND => tourism accounts for over 20% of the country’s GDP
=> generates jobs and income, particularly in the service sector
=> popular destination for international tourists helps to attract foreign exchange
=> Thailand hoping to attract 80m tourists annually by 2027
++ Thai government have imposed a tourist tax of 300 baht, which will raise tax revenues and not high enough to deter tourists.
