4.3.3 Strategies Influencing Growth + Development

Question 1

Give some examples of market-oriented strategies

Answer 1

• Trade Liberalisation
• Promotion of FDI
• Removal of subsidies
• Floating exchange rate
• Microfinance schemes
• Privatisation

Question 2

What is a free-market approach

Answer 2

Favour of giving a larger role to the private sector enterprise using liberalisation of markets, structural + supply-side reforms to raise incentives for people and business and increased transparency

Question 3

Describe how Trade Liberalisation can allow for growth and development

Answer 3

• lowering protectionism to open an economy to trade + investment
• Developing countries can specialise based upon comparative advantage
• Multiplier effect from higher export sales
• Lower inflation from cheaper imports

Question 4

What are the problems with trade liberalisation

Answer 4

Risk some structural unemployment

larger initial trade deficit

Question 5

Describe how the promotion of FDI can allow growth and development

Answer 5

• Source of Aggregate Demand and real growth
• Improved infrastructure - can allow increased productivity
• increase output + export capacity
• Allow diversification of the economy
• New jobs + more competitive markets

Question 6

What are the problems with FDI growth?

Answer 6

Due to poor laws in developing countries, workers’ conditions and wages in new jobs created maybe poor

profits of MNC are repatriated

Question 7

Describe how removal of Government subsidies can allow growth and development

Answer 7

Subsidies distort the price mechanism

Stifel innovation and power productivity due to dependency

Opportunity cost for government finance - could be used for an infrastructure project e.g

Question 8

What are the problems with removing Government subsidies

e.g. in the case of food industries

Answer 8

Subsidies for some industries like food can allow for increased nutrition and increased real incomes

energy/necessities subsides can increase social welfare

Question 9

Describe how a floating exchange rate can allow for growth + Development

Answer 9

• can protect against external shocks
• Reserves of cash aren’t needed
• Capital controls are not limited to maintaining currency stores
• floating is not necessarily volatile

Question 10

What are the problems with floating exchange rates

Answer 10

Floating may be more appropriate for a country that is reliant on export-led growth

Pegged exchange rates may be more beneficial if there is a major trading partner

Question 11

What is micro-credit, micro-saving, micro-insurance and remittance management

What are the aims of the micro-finance schemes

Answer 11

Micro-credit - provision of small scale loans to low-income groups

Micro-saving - voluntary local saving clubs provided by charities

Micro-insurance - especially for people, businesses to scared by insurance industries

Remittance management - making remittance easier

Aims to reduce poverty using small loans helps overcome savings gaps and encourages social enterprise

Question 12

Describe how Privatisation can allow growth and development

Answer 12

Involves a transfer of a business, industry or service from public to private ownership

Allows increased efficiency and large economies of scale

Revenue from sales of assets can be gained by Gov

Could induce a natural monopoly leading to high output at low prices

Question 13

What are the problems with Privatisation

Answer 13

Social objectives maybe more important than profit maximisation

Can lead to job losses

Question 14

What are Interventionist strategies

Answer 14

Involve many different types of Government intervention designed to correct market failure, influence patterns of trade and investment and address causes for extreme poverty

Question 15

How can the development of human capital allow growth and development

Answer 15

Differences in productivity and per capita incomes are strongly linked to variation in quality and quantity of human capital available in a country

This can be done by strategies to improve nutrition, school attendance, brain drain prevention and reskilling and training schemes

Question 16

How can Protectionism allow for growth and development

Answer 16

Average import tariffs are higher when imposed by developing countries

Import substitution to support domestic industries and possibly infant industries

Can raise tax revenues

Reduce currency account deficits

Create jobs in domestic industries

Question 17

What are the problems with protectionism

Answer 17

Tariffs may cause higher import prices - stifling any investment spending

Risks of retaliation

Loss of productivity, efficiency and higher prices through inflation

Question 18

How can a Managed Exchange Rate affect growth and development

E.g. why maybe a managed devaluation be beneficial

Answer 18

This is when a central bank may choose to intervene in foreign exchange markets

Devaluation may be beneficial to improve CA deficit, prevent deflation and reduce import dependence

Seen to be less volatile and hence support economic confidence

Question 19

Describe how infrastrucural development can allow for growth and development

Answer 19

Closing the infrastructure gap is crucial but especially in NEE who went to allow progress in meeting sustainable development goals

Savings gaps are a barrier to investment

China has benefited greatly from infrastructural development, however, it is questionable whether this growth has been equal

Question 20

Describe how joint ventures with global companies have allowed growth and development

Answer 20

Joint venture is a separate business entity created by two or more parties, involving shared ownership, returns and risk

Provide an opportunity for developing countries to acquire specific expertise in industries that they are hoping will be a new source of comparative advantage

Example: 2017 Apple entered a joint venture in China to open new data center to serve iCloud users

Question 21

Describe how buffer stock schemes allow for growth and development

Answer 21

Way to smooth out fluctuation in price - stabilise price of agricultural products

Buying up supplies when the harvest is plentiful

Selling stocks onto markets when supplies are low

In theory is profit making

Can reduce risk of extreme food poverty

Allow stable income for farmers

In theory-is self-financing

Question 22

What are the problems with buffer stock schemes

Answer 22

Many buffer stock schemes have collapsed

only work effectively with storable commodities

Admin costs + corruption

Stocks maybe not big enough to change market price

Question 23

Other Strategies: Lewis Model - industrialisation

Answer 23

Model of a dual economy of rural agriculture + urban manufacturing

Initially, majority of labour is employed on land being a fixed resources

There will experience diminishing marginal return and underemployment

Urban workers engaged in manufacturing tend to produce higher value of output, leading to higher wages. Hence temping surplus agricultural workers to migrate to cities leading to rural-urban migration

Question 24

What is the problem with the lewis model

Answer 24

Dangers of automation in manufacturing

low-level assembly tasks don’t always add a great value of value-added

may not have the infrastructure to cope with higher rates of rural-urban migration

Question 25

Other Strategies: Development of Tourism allowing growth and development

Answer 25

Creates large GDP growth and jobs globally (especially for women)

Export earnings through generating foreign exchange

Lifts AD and accelerator effect from investment

Question 26

What is the problem with using tourism as a method for growth and development

Answer 26

• Exploitation of labour and low wages + long hours
• Remittance of profits
• Effect on environment
• Vulnerable to economic shocks e.g. covid

Question 27

Other Strategies: Fair Trade schemes as a method of growth and development

Answer 27

Come about to prevent market failure and effect of monopsony power

Generate high prices/stability

Improve production standards

Question 28

What are the problems with Fairtrade schemes

Answer 28

impact on non-participating farmers

Improving productivity would be better through infrastructural investment

Question 29

Other Strategies: Overseas Aid to allow growth and development

Answer 29

Help to overcome saving gaps

Fast-forward critical infrastructure

Educational aid can improve productivity

Question 30

What is the problems with overseas aid

Answer 30

Poor Governance may prevent money from going towards good

Dependency culture

Distorts market force + economic forces

Maybe instead beneficial when coming in the term of reform

Question 31

Other Strategies: Debt relief to allow growth and development

Answer 31

External debt owed to overseas creditors can be a constraint on growth

Can involve cancelling, rescheduling or refining of nations external debts

High debts can further impoverish the poorest

LICs are highly dependent on primary commodity export which global shocks can push them further into debt

can be done on the terms of social or economic reform

Question 32

What is the problem with debt relief

Answer 32

Moral Harazrd - Spend more and borrow more

If the Government ran better macroeconomic policies instead

Question 33

What does the World Bank do

Answer 33

Provides grants + low-interest loans

Policy advice + technical assistance to developing countries

Co-ordinated projects with the Government

Question 34

What does the IMF do

Answer 34

Promote international money cooperation

Expansion of international trade

Exchange stability

Resource available to members and advice

Question 35

What are NGO’s

Answer 35

Not-for-profit, voluntary group

Work in local, regional and international scales

Work on environmental projects, community development and human rights