4.3.3 Strategies influencing growth and development

Question 1

Rostows model of development

Answer 1

Rostow’s model of development has five main stages of growth.
- The country begins as a traditional society based on agriculture and a subsistence economy.
- They tend develop into the pre-conditions, with an increase in capital used in agriculture and some mining industries.
- Next, they take-off with increased industrialisation, followed by a drive to maturity with diversified industry and higher levels of technology.
- Eventually, they end up a stage of high mass consumption with a strong service sector and high output levels.
- However, this is often seen as i an oversimplified model and necessitates financial infrastructure and investment.
- It does not show how to encourage development, but simply shows the stages and is based on the Western world so may not apply to current developing countries.

Question 2

The Millenium development

Answer 2

The Millennium Development goals were a set of eight measureable goals which aimed to uphold human dignity, equality and reduce poverty.
- They were not all achieved but good progress was made. A second set of goals, The Sustainable Development Goals were set in 2015 and aim to be achieved by 2030.
- They are even more ambitious, including an end to poverty, increased health, infrastructure, access to water and education, reduced inequality, increased sustainability and the empowerment of women.

Question 3

a) Market orientated strategies

Answer 3

• Trade liberalisation
• Promotion of FDI
• Removal of government subsidies
• Floating exchange rate systems
• Microfinance schemes
• Privatisation

Question 4

Trade liberalisation (removal of trade barriers on the free flow of goods/services between counties)

Answer 4

Countries can aim for export led-growth.
Removing trade barriers will mean that domestic industries either close or are forced to become as efficient as other world producers. Resources will be allocated to their best use where the country has a comparative advantage.
- aims to increase economic efficiency by allowing goods and services to be produced in countries where they can be produced most cheaply and to be consumed in countries where they are most in demand

Question 5

Trade liberalisation pros and cons

Answer 5

Pros:
Can promote competition, innovation, and economic growth
Cons:
Can also lead to job losses in certain industries and increased inequality, as well as challenges for smaller and less developed countries in competing with larger and more established economies.

Question 6

Trade liberalisation examples

Answer 6

1) South Korea (1980’s-present):
Trade liberalisation increased exports, created jobs and brought in new technologies and capital.
In 2020, South Korea’s exports were worth US $575 billion.
2) India:
Exports grown to over $330 billion in 2020.
Significant FDI saw $60 billion in 2020.
Growth average rate of 7% in recent years, one of the fastest rates of growth in the world.

Question 7

Trade liberalisation counter-example/ evaluation

Answer 7

Argentina (1990’s):
Attempted to liberalise its trade regime, but the effort was hindered by macroeconomic instability, high inflation, and weak institutions.
The result was a decline in exports and a fall in the country’s overall competitiveness.
Zimbabwe (1990s-2000s):
Trade liberalisation led to increased competition and decreased prices for goods and services, making it difficult for local producers to compete.

Question 8

Promotion of FDI

Answer 8

FDI is ​investment by one private sector company in one country into another private sector company in another​. It includes direct acquisition of a foreign firm, construction of a facility, investment in a joint venture with a local firm or licensing of intellectual property.
- Firms tend to undertake FDI because production costs are lower in developing countries and it enables them access to a new market.
- It is different from a loan because if the investment fails, it is the company who has to deal with it and the ​country does not owe money to foreigners​.

Question 9

Promotion of FDI examples

Answer 9

• India: In 2019, Facebook invested $5.7 billion in Jio Platforms, an Indian technology company, to support the growth of India’s digital economy.
• Bangladesh: In 2021, Chinese textile company Keer Group announced a
  $300 million investment in a new spinning mill in Bangladesh, which will create jobs and boost the country’s textile industry.

Question 10

FDI counter example/ evaluation

Answer 10

Indonesia: In the 1990s, a large number of international pulp and paper companies intention of establishing a lasting interest in the established operations in Indonesia, attracted by FDI can take various forms, including acquiring ownership or control of a foreign company, setting the country’s abundant forests and low labour costs. While these operations created jobs and
brought in much-needed foreign investment, they up a new business or subsidiary in a foreign
also had negative impacts on the country. The country, or making a strategic investment in a
large-scale deforestation caused by the pulp and paper industry has damaged the country’s natura
resources and impacted local communities, who rely on the forests for their livelihoods.
Additionally, the influx of foreign companies has also hurt local businesses, as they struggle to
compete with the large, well-funded multinationals.

Question 11

Floating exchange rates systems

Answer 11

A flexible exchange rate system where the value of a country’s currency is determined by supply and demand in the foreign exchange markets. Allowing a currency to depreciate can promote international competitiveness, boosting exports, AD, growth and employment.

Question 12

Floating exchange rates systems examples

Answer 12

Mexico: Mexico has been using a floating exchange rate regime since the early 1990s. This means that the value of its currency, the Mexican peso, is allowed to fluctuate based on market forces, rather than being fixed to another currency or a basket of currencies.

Question 13

Floating exchange rates systems counter examples/ evaluations

Answer 13

In Turkey (2018), a floating exchange rate system led to currency fluctuations The Turkish lira depreciated by 25% against the US dollar in 2018, contributing to very high inflation (above 50% per annum).

Question 14

Privatisation

Answer 14

Transfer of ownership and control of state-owned assets to the private sector.

Question 15

Privatisation examples

Answer 15

• Chile is often held up as a success story for privatization in the developing world. In the 1980s, the Chilean government privatized a wide range of state-owned enterprises, including its telecom, electricity, and water industries. This helped to increase efficiency, reduce corruption, and stimulate economic growth.
• In the UK (1980s-90s), privatisation of state-owned industries, such as British Airways, led to increased efficiency, competition and investment. In 2020, the UK received private sector investment worth US $63 billion

Question 16

Privatisation counter examples/ evaluations

Answer 16

• Some UK privatised industries, such as the rail industry, have not had a great track record since privatisation. Also, energy companies that were owned by the British state were privatised but then bought by foreign owned, nationalised industries, for example EDF (owned by the French government) now supplies energy to many UK homes.
• In Russia (1991-96), privatisation of state-owned assets led to the creation of oligopolies, and widespread corruption, leading to increased prices for goods and services

Question 17

Removal of government subsidies

Answer 17

Elimination of government support for certain goods or services

Question 18

Removal of government subsidies examples

Answer 18

In India (1991-present), removal of subsidies for the agriculture sector created a level playing field for private sector development. In 2020, India’s agriculture sector received private sector investment worth US $10 billion

Question 19

Removal of government subsidies counter examples

Answer 19

In Indonesia (2015), removal of subsidies for fuel led to increased prices for goods and services, making them unaffordable for poor and low- income groups

Question 20

Micro finance schemes

Answer 20

Microfinance is a type of financial service provided to low-income individuals and households who do not have access to traditional banking services. The aim of microfinance is to provide these people with access to small loans, savings accounts, and other financial services that can help them start or grow a small business, build assets, or improve their financial stability. Microfinance services are often provided by non-profit organizations, cooperatives, or specialised microfinance institutions, and are designed to be accessible to people who would otherwise not be able to access formal financial services. Provision of financial services to the poor and low-income groups.

Question 21

Microfinance scheme examples

Answer 21

Bangladesh: The Grameen Bank, established in Bangladesh in 1983, is widely regarded as the pioneer of microfinance and has provided small loans to millions of poor people in rural areas.

India: The microfinance sector in India has grown rapidly in recent years, with a number of organizations providing small loans and other financial services to low-income households and small businesses

Question 22

Microfinance schemes counter example

Answer 22

Over-indebtedness: Microfinance can lead to over- indebtedness, especially in contexts where there are limited opportunities for borrowers to generate income. When borrowers take on multiple loans from different lenders, it can become difficult for them to repay the debts, which can lead to increased poverty and financial instability

Question 23

Development of human capital

Answer 23

Investment in education, skills and health of the population. Education can play an important role in promoting economic development and reducing poverty in developing countries. By investing in education and expanding access to learning opportunities, countries can build the human capital necessary to drive economic growth and improve the lives of their citizens

Question 24

Development of human capital examples

Answer 24

South Korea (successfully increased education: ln the mid-twentieth century, South Korea was one of the poorest countries in the world, with low levels of literacy and limited access to education. However, in the decades that followed, the government made a concerted effort to expand access to education, particularly at the primary and secondary levels.

Question 25

Development of human capital counter examples

Answer 25

Education for all can be expensive for governments to introduce. It requires sufficient teachers and a functioning government to organise this on a state-wide level.

Question 26

Protectionism

Answer 26

The use of trade barriers and restrictions to protect domestic producers. Developing countries may employ the ‘infant industry’ argument.The “infant industry” argument for protectionism is based on the idea that new domestic industries in developing countries may not be able to compete with established foreign industries due to lack of experience, economies of scale, and other factors. As a result, protecting these new industries from foreign competition through tariffs, quotas, and other measures can help them grow and become competitive in the long run.

Question 27

Protectionism examples

Answer 27

In South Korea, the government implemented policies in the 1960s and 1970s that protected and promoted certain industries, including:
 Steel: The government provided subsidies and loans to steel producers and restricted imports of foreign steel.
 Shipbuilding: The government supported the development of the shipbuilding industry through tax breaks, subsidies, and restrictions on foreign competition.
 Electronics: The government encouraged the development of the electronics industry through investment in research and development, subsidies for domestic firms, and restrictions on imports of foreign electronics.

Question 28

Protectionism counter examples

Answer 28

One of the main criticisms of the infant industry argument is that it can be difficult to determine when a new industry is truly “infant” and in need of protection, versus when it is simply inefficient or unable to compete due to other factors. Additionally, protectionism can lead to retaliation, inefficiencies, rent-seeking behavior, and reduced competition in domestic markets, which can ultimately hurt consumers and slow economic growth.

Question 29

Managed exchange rates

Answer 29

• Maintaining a fixed or semi-fixed exchange rate involves a number of strategies and tools.
• Intervention in the foreign exchange market: In a fixed or semi-fixed exchange rate system, the central bank of the country intervenes in the foreign exchange market to buy or sell its own currency as needed to maintain the exchange rate within a narrow range. For example, if the exchange rate is weakening, the central bank can sell its own currency to increase demand and support the exchange rate. In order to buy its own currency, the central bank will need foreign currency reserves, or other assets, such as gold, to buy its own currency.

Question 30

Managed exchange rates examples

Answer 30

Managing exchange rates can have a positive impact on the development of some developing countries in several ways. Here are some examples:
- Promoting exports: A weaker exchange rate can make a country’s exports cheaper, which can help increase demand for the country’s goods and services in the international market. This can help promote exports and support economic growth. For example, China’s managed exchange rate policy helped make its exports more competitive and contributed to its economic growth.
- Encouraging foreign investment: A stable exchange rate can make a country’s economy more attractive to foreign investors, which can help attract more foreign investment. This can help create jobs, boost economic growth, and improve the standard of living in the country. For example, Vietnam’s exchange rate policy helped attract foreign investment and support its economic growth.

Question 31

Managed exchange rates counter examples

Answer 31

Venezuela implemented a fixed exchange rate regime in 2003, with the aim of stabilizing the value of its currency, the bolivar. Under this system, the government set an official exchange rate for the bolivar and used its foreign currency reserves to support the value of the currency in the foreign exchange market. However, this system faced significant challenges and ultimately failed to achieve its objectives.

Question 32

Infrastructure development

Answer 32

Improved infrastructure refers to the upgrading, expansion, or development of physical facilities, networks, and systems that support economic and social activities in a region or country.

Question 33

Infrastructure examples

Answer 33

KIGALI AIRPORT: In 2019, the government of Rwanda completed a major expansion of the Kigali International Airport, which included the construction of a new passenger terminal and an expanded runway. The new terminal has a capacity of 4.5 million passengers per year, up from the previous capacity of 1.6 million passengers. The airport is now one of the busiest in East Africa, and has helped to support Rwanda’s growing tourism industry.
KIVUWATT Methane Gas Project: In 2015, the government of Rwanda completed the KivuWatt Methane Gas Project, which involved the extraction and use of methane gas from Lake Kivu to generate electricity. This provides around 15% of Rwanda’s electricity needs.
HUYE-KIBEHO ROADS: In 2017, the government of Rwanda completed the construction of the Huye-Kibeho road, which connects the city of Huye to the town of Kibeho. The road is 23 km long, and includes bridges and culverts. The project has helped to improve connectivity between different regions of the country, and has facilitated the transport of goods and services. It has also helped to improve access to social services, such as healthcare and education.

Question 34

Infrastructure counter example/evaluation

Answer 34

One example of an infrastructure project in a developing country that has gone badly wrong and damaged development is the Bujagali hydropower project in Uganda.

It was aimed at increasing Uganda’s electricity generation capacity. One of the key problems with the Bujagali project was its high cost. The project was estimated to cost $860 million, which was more than double the initial estimate. This cost was passed on to Ugandan consumers, who had to pay higher electricity tariffs.
Another issue was the environmental and social impact of the project. The dam and reservoir flooded an area of land that was home to several communities. There were also accusations of corruption.

Question 35

Buffer Stock Schemes

Question 36

Buffer Stock Schemes examples

Answer 36

One example of a fairly successful buffer stock scheme is the International Cocoa Organization (ICCO) which was established in 1973.
The success of the ICCO’s buffer stock scheme can be seen in the stability of cocoa prices over the past few decades. While there have been fluctuations in prices, the overall trend has been one of stability, with prices generally staying within a reasonable range.

Question 37

Buffer Stock Schemes counter examples/evalutation

Answer 37

The rice pledging scheme in Thailand, which was launched in 2011 and implemented until 2014, is an example of a buffer stock scheme that faced significant challenges and criticism.
Under the scheme, the Thai government offered to purchase rice from farmers at prices above the market rate and store the rice in a buffer stock. The aim was to stabilize rice prices and support the incomes of rice farmers.
However, the scheme was poorly managed and suffered from a number of problems. The government bought more rice than it could sell, leading to a surplus in the market and a decline in prices. This resulted in significant financial losses for the government, which was left with large stockpiles of unsold rice. The government also faced criticism for corruption and mismanagement of the scheme.
The rice pledging scheme ultimately contributed to a significant economic burden on the Thai government, which had to borrow money to finance the scheme and deal with the surplus of rice. The scheme was eventually scrapped in 2014, and the government has since introduced other measures to support rice farmers, such as direct cash transfers.

Question 38

Other factors

Question 39

Industrialisation: The Lewis Model

Answer 39

The Lewis model of development, also known as the dual-sector model, proposes that developing countries can achieve economic growth and development by transitioning from a traditional, low-productivity agricultural sector to a modern, high-productivity industrial sector

Question 40

Industrialisation Lewis Model examples

Answer 40

1. South Korea: In the 1960s and 1970s, South Korea underwent a rapid industrialization process that transformed it from an agricultural-based economy into one of the world’s leading industrial powers. The government implemented policies that supported the development of key industries, such as steel, shipbuilding, and electronics. This led to significant growth in manufacturing and exports, which helped to fuel the country’s economic development.
2. China: China’s economic growth and development over the past few decades is another example of the Lewis model in action. The country has transitioned from an agrarian-based economy to a manufacturing-based economy, with a focus on export-oriented industries. The government has implemented policies that support industrial development, such as offering tax breaks and subsidies to companies that invest in key industries.
3. India: India is another example of a country that has followed the Lewis model of development. The country has made significant strides in developing its manufacturing sector, particularly in the areas of textiles, automobiles, and information technology. The government has implemented policies that support industrial development, such as offering tax incentives and reducing bureaucratic barriers for foreign investors.

Question 41

Industrialisation Lewis Model counter example/evalutation

Answer 41

The model has also been criticized for its potential negative impact on traditional agricultural communities and the environment.
Also, in a competitive world, achieving rapid inustrialisation is not easy. It requires many other factors to be in place in order to be successful such as: peace, decent infrastructure, good levels of education etc.

Question 42

Development of Tourism

Question 43

Development of tourism example

Answer 43

One example of promoting tourism as a successful strategy in promoting development in a developing country is the case of Costa Rica. In the 1980s, Costa Rica was a relatively poor country with an economy based mainly on agriculture. The government recognized the potential of tourism as a source of economic growth and began to promote the country as a tourist destination.
The government invested in infrastructure, such as building new airports and roads, and established national parks and protected areas to showcase the country’s biodiversity and natural beauty. The government also implemented policies to encourage private investment in tourism, such as tax incentives and streamlined permit processes.
As a result of these efforts, tourism in Costa Rica has grown significantly over the past few decades, becoming a major source of foreign exchange and employment. In 2019, the country welcomed over 3 million tourists, generating over $3 billion in revenue and providing employment for around 10% of the population.
The growth of tourism has also had positive spillover effects on other sectors of the economy, such as agriculture and services. For example, many small farmers in rural areas have diversified their incomes by offering lodging or food services to tourists, while local crafts and souvenirs have also become a popular source of income for rural communities.

Question 44

Development of tourism counter examples/evaluation

Answer 44

The Maldives is an example of where tourism has been a major driver of economic growth but has also had negative environmental consequences. The construction of resorts and other tourism infrastructure has led to habitat destruction, coral reef damage, and water pollution. The reliance on imported goods and food for tourists has also put a strain on the country’s limited resources and contributed to environmental degradation.
Cancun, Mexico, where tourism has become a major industry but has also led to significant social and economic inequality. The majority of tourism businesses are foreign-owned or operated, and many local workers are employed in low-paying, low-skill jobs such as cleaning or maintenance. Local communities have also been displaced by tourism development, as land is often acquired by outside investors for hotel or resort construction.

Question 45

Development of Primary Industries

Question 46

Development of Primary Industries examples

Answer 46

Another example of a developing country that has developed through primary industries is Chile. The country is rich in copper, which is a valuable mineral used in many industries, including electronics, construction, and transportation. Copper exports have been a major source of revenue for the country, accounting for about 50% of its total exports.

Question 47

Development of Primary industries counter examples/evaluation

Answer 47

• PPD CONSTRAINTS
• One example of a developing country where the attempt to develop primary industries has backfired is Nigeria. The country has significant reserves of oil and gas, which have been the mainstay of the Nigerian economy for several decades. However, the over-reliance on oil and gas exports has had negative consequences for the country’s economic and social development.
  One of the main problems associated with Nigeria’s oil and gas industry is the so-called “Dutch Disease.” This refers to the negative impact that a booming natural resource sector can have on other sectors of the economy, such as manufacturing and agriculture. The high demand for oil and gas exports has driven up the value of the country’s currency, making it difficult for other sectors to compete in international markets. As a result, Nigeria’s manufacturing and agriculture sectors have languished, and the country has become heavily dependent on imported goods.
  Another problem associated with Nigeria’s oil and gas industry is corruption and mismanagement. The sector has been plagued by allegations of embezzlement, theft, and other forms of corruption, which have siphoned off billions of dollars in public funds. The mismanagement of the sector has also resulted in environmental damage, such as oil spills and gas flaring, which have had negative impacts on the health and livelihoods of local communities.

Question 48

Fair trade Schemes

Answer 48

An alternative trading model that guarantees fair prices, working conditions and environmental sustainability for producers in developing countries.

Question 49

Fair trade shemes example

Answer 49

In Ethiopia, at least prior to the current war, from about 2001 Fair Trade provided a stable and fair income for coffee producers, helping to reduce poverty and improve living standards. In 2020, Ethiopia’s coffee exports through the Fair Trade program were worth US $200 million.

Question 50

Fair trade schemes counter example/evaluation

Answer 50

In Guatemala (2000s-present), Fair Trade certification was criticised as expensive and time- consuming for coffee producers, making it difficult for small-scale producers to participate.

Question 51

Aid

Answer 51

Overseas Development Aid (ODA) is money provided by aid agencies or richer governments to poorer countries. It can be broadly classified in ‘humanitarian’ aid in response to emergencies and disasters, such as earthquakes, famines or epidemics and into ‘development’ aid aimed at promoting growth. This latter form is often seen as more problematic.

Question 52

Aid examples

Answer 52

One such example is the Global Fund (an NGO) to Fight AIDS, Tuberculosis and Malaria, a partnership between governments, civil society, the private sector and affected communities to fight the three diseases.
Since its establishment in 2002, the Global Fund has helped to save more than 38 million lives and provide prevention, treatment, and care services to millions of people affected by AIDS, tuberculosis and malaria in more than 100 countries. The Global Fund has played a crucial role in developing and implementing innovative programs to address these diseases, such as providing antiretroviral treatment for people living with HIV/AIDS, distributing bed nets to prevent malaria, and expanding access to diagnostic and treatment services for tuberculosis.
- The Global Fund has also helped to build the capacity of health systems in developing countries, including strengthening health infrastructure, training health workers, and improving supply chain management. In addition, the Global Fund has worked to engage communities affected by the three diseases, such as people living with HIV/AIDS and those at high risk of contracting tuberculosis or malaria, in the design and implementation of programs to ensure their needs are met.
The success of the Global Fund demonstrates the important role that overseas aid can play in promoting development in developing countries. By targeting specific needs, building capacity, and engaging communities, aid can help to address some of the most pressing challenges facing developing countries and support their efforts to achieve sustainable development.

Question 53

Aid counter example/evaluation

Answer 53

While overseas aid has the potential to promote development in developing countries, there have been cases where it has had negative impacts on recipient countries. One such example is the case of food aid in Ethiopia in the 1980s and 1990s.

During this period, Ethiopia experienced a severe famine that resulted in widespread hunger and malnutrition. The international community responded with large-scale food aid programs, which provided emergency relief to millions of people in need. However, the reliance on food aid also had negative consequences for the country’s long-term development.
Firstly, the influx of food aid disrupted local markets and led to a decline in domestic food production. As imported food flooded the market, prices for locally produced food dropped, making it difficult for farmers to earn a living. This, in turn, contributed to a long-term decline in agricultural productivity and rural livelihoods.

Secondly, the focus on emergency relief undermined efforts to address the underlying causes of the famine, such as poverty, conflict, and environmental degradation. The large-scale food aid programs were seen as a temporary solution to a humanitarian crisis, rather than a long-term investment in development. As a result, they did little to address the root causes of the famine or to promote sustainable development in the country.
Finally, the reliance on food aid also created a dependency on foreign aid and undermined the government’s capacity to respond to future crises. Rather than building resilience and self-reliance, the food aid programs reinforced the idea that Ethiopia was a country in need of constant external assistance.

Question 54

Debt relief

Answer 54

See ‘Debt as a constraint to development’

Question 55

Debt relief examples

Answer 55

See ‘Debt as a constraint to development’

Question 56

Debt relief counter examples/evaluation

Answer 56

See ‘Debt as a constraint to development’