4.3.3 Strategies Influencing Growth And Development Flashcards
Give examples of market-orientated strategies.
- Trade liberalisation
- Promotion of FDI
- Removal of government subsidies
- Floating exchange rate systems
- Microfinance schemes
- Privatisation
How is trade liberalisation used as a strategy for growth and development?
- 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
- Countries like Singapore and South Korea and regions like Hong Kong have benefited from this method
How is promotion of FDI used as a strategy for growth and development?
- It will create jobs and leads to the multiplier effect
- Labour productivity increases and wages are often higher
- Its a source of investment and can help to fill the savings gap
What is the evaluation of promoting FDI as a strategy for growth and development?
- Usually a repatriation of profits and developing countries may find the company exploits them (by offering lower wages and poorer conditions than they would in a developed country)
- The country will also lose some sovereignty and become dependent on another firm
- Environmental damage and exploitation of natural resources tend to become problems
Give application for promotion of FDI as a strategy for growth and development.
- India: benefited greatly from FDI. The Make In India initiative liberalised FDI policy and led to a 48% increase in FDI in a range of sectors, including pharmaceuticals, manufacturing and railways
- Samsung’s investment in Vietnam has been crucial. Many local firms are now a part of their supply chain and other businesses have set up around their factories, for example hotels and restaurants
How is the removal of government subsidies used as a strategy for growth and development?
- placed on essential items within a country (food or fuel)
- targets agriculture and industry in an attempt to increase output and investment
- effective way of minimising absolute poverty and ensuring a minimum standard of living
Evaluate the removal of government subsidies.
- poorly targeted since they benefit everyone not just the poor
- subsidies to farmers and producers tend to lead to inefficiency
- if they are given a large amount over a long period of time, the subsidy becomes ineffective in increasing development
- opportunity cost and high levels of debt
- corruption and criminality (Venezuela: subsidised fuel is smuggled across its birders snd sold in neighbouring countries for profit)
- removing subsidy can be politically unpopular
How are floating exchange rate systems used as a strategy influencing growth and development?
- in these systems, market forces determine the currency
- country doesn’t have to worry about their gold and foreign currency reserves and the government does not intervene
What are the problems with floating exchange rate systems?
- the currency can be volatile which makes it difficult for exporters/importers to make decisions about the future and can cause large changes in macroeconomic variables, including economic growth
How are micro finance schemes used as a strategy to influence growth and development?
- aim to give poor and near-poor households permanent access to range of financial services (including loans, savings, insurance, and fund transfers)
Evaluate the use of microfinance schemes
- South Africa: it has increased the informal economy
- it has become a method of financing consumption spending and u employment means that most people do not have the funds necessary to ensure repayment of their loan (so they have to sell off family assets, borrow from friends and family or take out new loans to repay the old ones)
How is privatisation used as a strategy to influence growth and development?
- it can end the corruption within a firm who is owned by the state, as well as encouraging them to be more efficient by increasing competition
- selling off a firm (particularly if it is loss making) will improve government finances and reduce levels of debt
Evaluate the use of privatisation
- if the firm is privatised as a monopoly there will be no competition within the market
- it can also be associated with corruption where politicians or officials sell the company at below market price to a friend or family member or receive bribes to accept one company’s bid
Application of privatisation
Water industry in Ghana was privatised in 2006 but when the contract was expired in 2011, the government didn’t extend it
Water quality improved but reliability did not
There had been increased revenue and efficiency and improved customer service
What are the interventionist strategies influencing growth and development?
- Development of human capital
- Protectionism
- Managed exchange rates
- Infrastructure development
- Promoting joint ventures with global companies
- Buffer stock schemes
How can development of human capital be used as a strategy influencing growth and development?
- this would provide workers with skills and training and thus help them to be more efficient and improve productivity
- human capital could be developed through schools or vocational training (apprenticeships or simply classes provided for business people)
- higher skills allows the country to develop from the primary sector to a manufacturing sector (overcoming primary product dependency)
- better education also improves quality of life
- both China and Korea developed their human capital massively in order to develop
How can protectionism be used as a strategy influencing growth and development?
- allows domestic industries to grow by keeping foreign goods out and protects them from strong competition
- they will create jobs in the short run and will allow the industry to develop (possibly to the extent where the barriers can be removed) and the industry can compete globally
Evaluate protectionism
- it means countries can lose out from the benefits of specialisation and comparative advantage and could cause inefficiency, since domestic producers suffer from a lack of competition
