4.3.3 Strategies Influencing Growth and Development Flashcards
LS18
What are market orientated strategies?
brief definition
- Measures which make the economy more free, with minimum government intervention.
What are market orientated strategies?
list
- Trade liberalisation
- Promotion of FDI
- Removal of gov. subsidies
- Floating exchange rate systems
- Microfinance schemes
- Privatisation
How does trade liberalisation influence economic growth and development?
- Increases trade
- Helps to overcome foreign currency gap = ↑imports of capital and raw materials = ↑EG+D
- ↑employment and wages = ↑disposable income = ↑EG+D
- ↑competition = ↑innovation and efficiency = ↑quality = ↑EG+D
EVAL:
* Difficult for infant industries to become competitive
*Risk of structural unemployment
*Primary product dependency
How does the promotion of FDI influence economic growth and development?
- ↑EG: higher tax revenue, injection into circular flow, higher exports
- ↑ED: higher wages, improved working conditions, more competition = lower prices
EVAL:
*TNCs may mainly use expats to do work, limits FDI’s improvement of ED
*Tax revenue may be small as some LEDCs use tax breaks as an incentive
*TNCs may outcompete local rivals –> monopoly status
How does the removal of government subsidies influence economic growth and development?
- Subsidies could distort price signals and lead to government failure
- Subsidies can reduce incentives for producers to be efficient as they are already likely to be profitable = waste and lack of innovation
EVAL:
* Can support infant industries
Difference between a floating exchange rate and a fixed exchange rate?
- Floating: market forces determine the exchange rates
- Fixed: government sets the exchange rate
How do floating exchange rate systems influence economic growth and development?
- Can reduce the competitiveness of imports if overvalued = ↑EG
- More foreign currency to use on imported capital goods = ↑EG
EVAL:
*LEDCs lose ability to support infant industries through undervaluing currency
*Exchange rate volatility can create instability = unattractive to FDI
How do microfinance schemes influence economic growth and development?
- Fills savings gap = ↑incomes = ↑capital and ↓poverty = ↑EG
EVAL:
*Some lenders profit orientated = unsustainable debt
*Exorbitant interest rates
How does privatisation influence economic growth and development?
- Profit motive = incentive to ↑efficiency = ↑productivity and quality = ↑EG+D
EVAL:
* Monopoly power = limited choice and high prices for consumers
