4.3.3 Strategies influencing growth and development (a-c) Flashcards
What are the market based strategies to influence growth and development?
- Trade Liberalisation
- Removal of Government Subsidies
- Promotion of FDI
- Floating exchange rate systems
- Microfinance schemes
- Privatisation
How does trade liberalisation influence growth and development?
- Allows specialisation -> more productive -> lower costs / more output
- Reducing trade barriers like Tariffs -> increased competition for domestic firms from international firms -> forces them to invest and innovate.
How does the promotion of FDI work / influence growth and development?
- Reducing Trade Barriers or Deregulation -> more export oppurtunity -> FDI (TNCs) provide capital to host country -> more employment (BT mumbai).
- Tax incentives -> lower corp tax (I.e Ireland 12.5%) -> TNCs set up HQs in host countries -> more tax revenue for Govt or -> improved infrastruture if TNCs invest in transport roads etc. Also increases income tax as more workers and multiplier effect.
- Competition and efficiency as new firms enter the domestic market - However could force domestic firms out who cant compete (Kenya clothes VS China).
What are the negatives of FDI as a tool to influence growth and development?
- Can be unsustainble -> reliance on foreign countrie and TNCs hold power over GOVT.
- May have inflationary effects
- Possible displacement of domestic industry
- Poorer countries struggle to attract FDI
How would the removal of subsidies influence growth and development?
Firms who rely on the subsidies are thrown in the deep end and are forced to survive - innovate - invest etc.
Also increases tax revenue for government.
How does privatisation positvely influence growth and development?
🔹 Efficiency Gains – Private firms are profit driven, improving productivity, innovation and competitiveness.
🔹 Investment – Increased capital from private sector enhances infrastructure & services.
🔹 Competition – Encourages lower prices, better quality, and consumer choice.
How does privatisation negatively influence growth and development?
🔹 Inequality Risk – Essential services may become unaffordable, worsening inequality. (For instance, UK railway system - calls to be nationalised).
🔹 Regulatory Need – Requires oversight to prevent monopolies & market failures.
How would a floating exchange rate system influence growth and development?
The value of the currency automatically adjusts in response to changes in the economy (like inflation).
This supports strong OPTIMAL economic flexiblity -> Economic Growth.
More attractive for FDI
How do microfinance schemes influence growth and development?
These relate to providing extremely poor people with small loans (microcredit) to help them engage in productive activities or grow their tiny business.
What are the Interventionist strategies to influence growth and development?
- Development of Human Capital
- Protectionism
- Managed Exchange Rates
- Infrastructure development
- Buffer Stock Schemes
What are some other strategies to influence growth and development?
- Industrialisation
- Development of Tourism
- Development of primary industries
- Fair Trade Schemes
- Aid
- Debt Relief
How does protectionism influence growth and development?
- Infant Industry Growth
- Job Creation – Protects domestic employment by reducing reliance on imports.
- Improved Trade Balance – Reduces imports, boosting net exports.
- Government Revenue – Tariffs generate income for investment in development.
How do managed exchange rates influence growth and development?
- Stability for Trade & Investment – Reduces uncertainty, encouraging FDI and business growth.
- Competitiveness – Governments can devalue currency to boost exports and economic growth.
- Inflation Control – Helps manage import prices and overall price stability.
How does infrastructure development influence growth and development?
- Attracts FDI - better ports or broadband makes a country more attractive for TNCs.
- Job Creation – Construction and maintenance generate employment.
- Increased Geographical Mobility of Labour
- Increased productivity - People get into work quicker.
How can promoting joint ventures with global companies influence the growth of companies?
- Access to Capital – Increases investment for expansion and innovation.
- Technology Transfer – Brings advanced techniques and expertise
Can be used as a micro point for Synoptic Papers.
How can buffer stock schemes influence growth and development?
- Price Stability – Helps stabilize volatile commodity prices, ensuring predictable markets.
- Income Security – Protects farmers and producers from price crashes, ensuring steady income.
- Supply Stability – Ensures consistent supply of essential goods, promoting economic stability.
How does development of human capital influence growth and development?
Development of human capital refers to improving the education, skills, health, and abilities of a population to enhance their productivity and economic potential.
- It naturally fosters higher productivity as workers are more skilled -> higher wages -> multiplier.
- **Attracting Investment **– A skilled workforce encourages FDI and business growth
- Innovation & Competitiveness – Better education fosters entrepreneurship and technological progress.
How does industrialisation influence growth and development?
✔ Economic Growth – Boosts productivity, GDP, and job creation.
✔ Infrastructure – Expands cities, transport, and technology.
✔ Global Trade – Increases exports and attracts investment.
⚠ Challenges – Pollution, inequality, and labor exploitation.
Balanced industrialization = Sustainable growth & development.
How does development of tourism influence growth and development?
✔ Economic Growth – Generates jobs, boosts GDP, and attracts investment.
✔ Social Benefits – Supports local businesses, culture, and education.
✔ Global Connectivity – Increases foreign exchange and trade.
⚠ Challenges – Overcrowding, environmental damage, and seasonal dependence employment.
Sustainable tourism = Long-term growth & development.
How can development of primary industries influence growth and development?
Some countries (Like China x copper) have managed to develop purely off the production of primary products in which they have a comparative advantage and can specialise and trade efficiently in.
However, this can lead to dutch disease.
What is dutch disease?
Dutch Disease occurs when a country’s resource exports (e.g., oil, minerals) cause currency appreciation, making other industries like manufacturing less competitive.
This can lead to economic imbalance, overdependence on vulnerable commodities, and slowed long-term development.
How can fair trade schemes influence growth and development?
They provide agricultural workers (usually in developing countries) with fair wages / protect from low prices from monopsopy purchasing power from developed countries as well as fair working conditions.
However, there are lots of middlemen involved and it is argued developed countries supermarkets benefit more.
Also it arguably creates a misallocation of resources as farmers aren’t incentivised to switch to more profitable goods.
How does Aid influence growth and development?
✔ Economic Growth – Funds infrastructure, healthcare, and education.
✔ Poverty Reduction – Provides food, water, and emergency relief.
✔ Human Capital – Improves skills, healthcare, and productivity.
✔ Technology Transfer – Introduces new methods and innovations.
⚠ Challenges – Dependency, mismanagement, corruption, and political influence.
How can debt relief influence growth and development?
Debt crisis means governments are unable to borrow and invest in human capital or other infrastructure necessary for growth and development.
Ends the oppurtunity cost of interests / debt repayments freeing up cash for more beneficial investment.
Creates moral hazard for heavily debted countries as they know they will be bailed out.
