4.3 - Market Oriented Strategies Flashcards
What is market based development promotion?
Improve the operation of markets by promoting enterprise + trade
List the typical market based development strategies
Trade Liberalisation
FDI Promotion
Removal of govt. subsidy
Floating ER
Microfinance Schemes
Privatisation
What is trade liberalisation?
Opening an economy to trade + investment
Incentivise economic engagement
What are the macro effects of trade liberalisation?
Multiplier from export sales
Cheap imports - Low inflation
May initially increase deficit
How does FDI promotion encourage development?
Drives AD + real growth
How can the removal of govt. subsidy encourage development?
Removes price mechanism distortions
Innovation incentive
Reduces dependency
How does opportunity cost detract from subsidisation?
Large opportunity cost
Could be reallocated
Spending on education, infrastructure, health etc
What are the arguments in favour of a free floating exchange rate?
Protection to external shocks
Capital controls not used to limit currency flows
Defends foreign currency reserves
What are the evaluation points of a floating ER regarding development?
Inability to control currency
Size + reserves
Depends on trade partners
One sole partner may attract peg
What are microfinance schemes?
Improving access to finance for a nations poor population
What are the typical microfinance schemes?
Micro-credit
Micro-savings
Micro-insurance
Remittance management
How does privatisation encourage development?
Improves output
Profitability
Innovation
