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Theme 4 > 4.3.3 Strategies Influencing Growth and Development > Flashcards

4.3.3 Strategies Influencing Growth and Development Flashcards

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1
Q

What are the 6 market based strategies to promote growth and development?

A
  • trade liberalisation
  • promotion of FDI
  • removal of government subsidies
  • floating exchange rate systems
  • micro finance schemes
  • privatisation
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2
Q

How does trade liberalisation improve growth and development?

A

Integration between countries is a huge stimulus for growth.

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3
Q

What are the 6 advantages of trade liberalisation?

A
  • comparative advantage (countries specialise in what they’re best in)
  • economies of scale (lower unit costs)
  • consumer choice (has access to world markets)
  • FDI (firms will move to a country that they can import/export from)
  • innovation (faster spread of technology)
  • political ties (more political understanding through trade)
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4
Q

What are the problems with tariffs and why should they be removed?

A
  • welfare loss for consumers
  • higher costs for importers
  • inefficient
  • retaliation
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5
Q

Can trade liberalisation made developing countries less dependent on volatile primary industries?

A

Yes - because they are able to import the goods and services if needed and free trade reduces the cost of exporting goods so makes planning for future easier

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6
Q

What does the importation of investment goods (machinery, technology e.c.t.) lead to?

A

A boost in LRAS (draw diagram)

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7
Q

What is foreign direct investment?

A

When a foreign company moves into your country to produce and export goods.

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8
Q

What benefits does FDI and the arrival of multi-national companies bring to a developing country?

A

FDI creates jobs, raises incomes and therefore living standards. They also export good (Nigeria and Shell) which is an injection into the circular flow of income

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9
Q

What drawbacks does FDI and multinational companies have?

A

MNCs may take over the country and have political power.
They may drive out local firms
May take profits out of the country and send them back to their headquarters

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10
Q

How does the removal of government subsidies affect growth and development?

A

Governmental subsidies for essential items is a useful way of alleviating absolute poverty. However, subsidies are poorly targeted… as they have a ‘one size fits all’ approach, wealthy people are disproportionately advantaged. For developing countries, subsidies take up a large amount of governmental expenditure, meaning cannot be spent elsewhere.

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11
Q

What can governments do instead of giving out subsidies?

A

Replace subsides with cash grants for poorer households, doing this would shift the supply curve left, raising the price and leading to a fall in consumption. Cost of living would increase.

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12
Q

What are the problems with removing government subsidies?

A

Politically very hard. Many people rely on the subsidy to survive.

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13
Q

How does allowing an exchange rate to float help with growth and development?

A

A freely floating exchange rate does not require any government intervention, meaning foreign currency reserves do not need to be spent stabilising currency. Governments can also aim for other macro-economic objectives whilst not worrying about exchange rate. Any depreciation in the currency will therefore improve AD e.c.t.

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14
Q

What are the problems with a floating exchange rate to increase growth and development?

A

If the currency appreciates too much, it will harm economic development. BoP will worsen. A fall in the currency may lead to too little imports and too much exports leading to inflation.

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15
Q

What is a micro-finance scheme?

A

The provision of financial services to the unbanked

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16
Q

What benefits do micro-finance schemes bring?

A

Can empower women (1970s Bangladesh, women used money to expand business, buying more stock or employing more people) benefits of women = higher education, higher healthcare and productivity. Higher incomes, higher living standards.
Generally can raise living standards of all because of rising incomes lead to shift right in AD

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17
Q

What is privatisation?

A

The process of bringing state owned business into private control.

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18
Q

What are the benefits of privatisation?

A

More competition, lower prices, more choice and higher quality.

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19
Q

What are the drawbacks of privatisation?

A

If private firm is a monopoly, firm can exploit consumers

Can also be associated with corruption, for example Russian Oligarchs after fall of Soviet Union in 1991

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20
Q

What are the 6 interventionist strategies to promote growth and development?

A
  • development of human capital
  • protectionism
  • managed exchange rates
  • infrastructure developments
  • promoting joint-ventures with global companies
  • buffer stock schemes
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21
Q

What 3 policies can be used to develop human capital?

A
  • education programmes
  • family planning clinics
  • disincentives to have children
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22
Q

What does a growth in human capital lead to?

A

A slowing down of the population growth

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23
Q

What does a development in human capital lead to in terms of skills?

A

ESPECIALLY WOMEN

Higher skilled jobs lead to high pay, higher standards of living e.c.t.

24
Q

How can protectionism be used to stimulate growth and development? (5 reasons)

A
  • protect BoP
  • comparative advantage (protecting infant industries)
  • fear of structural unemployment
  • loss of government revenue (tariff rev)
  • anti globalisation (back door economic colonisation)
25
Q

What diagram would you use to show the effect of protectionism on a developing country?

A

Tariff diagram and quota diagram

26
Q

What other protectionist measure could be used for growth and development?

A

Export subsidies

27
Q

How can managed exchange rates affect growth and development?

A

Some governments may plan to manage the exchange rate to reduce volatility of prices for producers and consumers. A managed exchange rate will increase consumer and producer confidence, a managed currency will also fend off a sharp appreciation which can harm employment and export led growth.

28
Q

What term is used to describe when a government purposely devalues their currency?

A

‘competitive’ devaluation

29
Q

What is the most extreme form of a managed exchange rate?

A

A fixed exchange rate.

30
Q

How can infrastructure development lead to growth and development?

A

Governments can build a variety of things such as, schools, hospitals ports and airports. Improves the productive capacity of the economy. Will improve productivity of the economy, lead to a fall in price level but rise in output, create jobs, incomes will rise.
Pos/neg externalities associated with projects (airports, waste e.c.t.)
Social profit

31
Q

How can promoting joint ventures with Multi-National Corporations help growth and development?

A

Can force multi-national corporations to form joint-ventures with domestic companies. The local partner will provide some finance and land for the JV in a developmental zone set up by the government. The foreign partner will provide expertise and import equipment from oversees. Over time, locals will gain skills themselves.

32
Q

In the LNG project in Angola, how much does BP own?

A

13.6%

33
Q

In the LNG project in Angola, how much do domestic oil companies own?

A

22.8%

34
Q

What is a Buffer Stock Scheme?

A

Can establish buffer stock schemes to stop the volatility of commodity prices.

35
Q

How does a buffet stock scheme respond to a fall in the price?

A

The buffer stock scheme will buy stock in order to restrict supply and raise the price

36
Q

How does a buffer stock scheme respond to a rise in the commodity price?

A

Will release stockpile in order to increase supply and reduce the price

37
Q

What are the advantages of a buffer stock scheme?

A

Stabilises prices and encourages firms to invest. Prevents people from sinking into absolute poverty

38
Q

What are the disadvantages of a buffer stock scheme?

A

Commodity must be able to kept for a long time without deteriorating, difficult with food. If the free market price continues to rise, buffer stock may run out of stock. Costly top buy up spare stock

39
Q

What are the ‘other strategies’ a country can employ to invoke growth and devlopment?

A
  • industralisation
  • tourism
  • development of primary industries
  • aid
  • debt relief
40
Q

What did Lewis find about industrialisation and growth and development?

A

Lewis argued that an agricultural economy was bound to achieve lower productivity, and therefore lower growth.

41
Q

Why do agricultural societies experience lower levels of growth?

A

Because land and capital is fixed, the only variable factor in only labour meaning they experience the law of diminishing returns.

42
Q

Why should societies move towards convert to an industrial society?

A

Workers should move from agricultural areas to industrial areas, industrial areas can increase output faster than an agricultural economy can.

43
Q

What are the problems with the Lewis model?

A

There is no simple majority between poverty levels in the countryside and in industrial towns. Could be argued that industrialisation is a result of economic development rather than the other way around. Ignores cost of educating workers.

44
Q

How does tourism promote growth and development?

A

Tourism is a source of income for many countries. It is labour intensive, often much of it being low skilled. The internet makes it relatively cheap for developing countries to promote tourism. Creates FDI opportunities from hotel companies and generates income through consumer spending.

45
Q

What does tourism tend to lead to?

A

Negative externalities, noise pollution, disruption to wildlife, litter

46
Q

What country had the highest rate of tourist demand in 2015?

A

Montenegro at 9.8% real growth rate

China at 9% real growth rate

47
Q

How can the development of primary industries lead to growth and development?

A

Countries can enjoy a significant advantage over the production of certain goods. For example, China and Saudi Arabia (oil)

48
Q

How can the development of primary industries be a blessing to governments?

A

If the government uses commodity revenue to diversify the government, the heavy dependence may not be a problem.

49
Q

What are the problems with developing a primary commodity industry?

A

High levels of exports may leads to appreciation of the industry, ruining other domestic industry due to volatility of prices

50
Q

How can Fairtrade schemes help growth and development?

A

Ensures that producers receive a fair price for their products which enables them to make a living. This usually means that Western firms guarantee to buy a minimum stock of product above the equilibrium price. Farmers can use extra money to invest

51
Q

What are the criticisms of a Fairtrade scheme?

A

Insignificant in reducing poverty, just a PR stunt

52
Q

How can debt relief impact upon growth and development?

A

Need money to invest to; stimulate growth and alleviate poverty. But without domestic savings, firms cannot borrow to invest meaning international organisations must fill in - World Bank

53
Q

What are the 3 international organisations that help promote growth and development?

A
  • World Bank
  • IMF
  • NGOs
54
Q

What is the role of the World Bank?

A

Can loan funds to member countries and its aim is to aid economic and social progress. Involved in many schemes globally such as; microcredit, supporting education

55
Q

What is the role of the International Monetary Fund (IMF)?

A

Promote monetary cooperation between countries, members can borrow for the IMF if they need to stabilise their currency or fix a BoP deficit

56
Q

What is the role of NGOs?

A

A funded government organisation (but are not public sector), which raise concerns about local residents i.e. human rights healthcare

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