4.3.3 Strategies influencing growth & development

Question 1

What are free market approaches ?

Answer 1

• favour giving a larger role to private sector enterprises using liberalisation of markets,
  structural supply-side reforms to raise incentives for people & businesses + increased transparency for
  govt also high on the policy agenda

Question 2

Examples of market led policies ?

Answer 2

• fiscal discipline: emphasising greater control of govt spending, budget deficits & national debt
• reallocating state spending: away from subsidies (e.g. minimum prices to farmers) towards health care, education & infrastructure
• tax reforms: incl. widening the base of taxation + encouraging lower tax rates to raise enterprise & work incentives as a means of creating wealth
• liberalising market interest rates: ie. letting financial markets allocate capital among competing uses
• floating rather than fixed exchange rates: implies an absence of central bank intervention
• trade liberalisation: via reductions in import tariffs & fewer forms of protectionism eg. import quotas & other non-tariff barriers
• privatisation: ie. moving state enterprises into the private sector

Question 3

What is trade liberalisation ?

Answer 3

• involves a country lowering import tariffs & relaxing import quotas & other forms of protectionism
• aim: to make an economy more open to trade & investment so that it can then engage more directly in the regional & global economy
• supporters of free trade ague that developing countries can specialise in the goods/services which they have a comparative advantage

Question 4

Micro effects of trade liberalisation ?

Answer 4

• ✅ lower prices for consumers/ households (increases their real incomes) + wider variety of goods/services available
• ✅ increased competition: exposes domestic businesses to international competition (drives innovation, efficiency & productivity) + lower barriers to entry attracts new firms
• ✅ improved efficiency (both allocative & productive)
• ✅❌ might affect the real wages of workers in affected industries
• ✅❌ employment: some industries may experience job losses (due to increased competition from imports) while others benefit from export opportunities & expanded market access
• ✅ investment: may attract FDI + facilitate tech transfer

Question 5

Macro effects of trade liberalisation ?

Answer 5

• ✅ multiplier effects from higher export sales
• ✅ increased trade + investment: increase trade flows as barriers are reduced & can attract FDI
• ✅ lower inflation from cheaper imports (causing an outward shift of SRAS)
• ✅ price stability: by exposing domestic markets to international comp (diversifying sources of supply & reducing dependance on domestic producers)
• ❌ risk of some structural unemployment/occupational immobility
• ❌ may lead initially to an increase in the size of a nation’s trade deficit BUT can also stimulate export growth

Question 6

Advantage of FDI ?

Answer 6

1. improved infrastructure esp in power & transport sectors
2. higher capital intensity/capital deepening ie. more capital per worker leading to higher productivity
3. better training for local workers leading to improved human capital + less risk of structural unemployment
4. investment grows a country’s export capacity (eg. via firms attracted into special economic zones)
5. technology & know-how transfer: promoting diversification of the economy + reducing primary dependence
6. more competition in markets which lowers prices for consumers & increases their real incomes
7. creates new jobs leading to higher per capita incomes & increased household savings
8. can promote a shift to higher productivity jobs & high-value added industries

Question 7

Main risks from policies designed to attract investment into an emerging economy ?

Answer 7

1. multinationals wield power within host countries especially LEDCs and they can gain favourable laws & regulations
2. foreign multinationals take advantage of weak laws on anti-competitive practices & environmental protection
3. multinationals have been criticised for poor working conditions in foreign factories
4. profits made in an LEDC are often repatriated to the host country
5. imports of components/capital goods initially have a negative effect on a country’s trade balance
6. multinationals may only employ local labour in lower skilled jobs
7. volatile FDI flows: FDI more volatile than remittance flows
8. monopsony power of TNC’s: able to negotiate highly favourable prices
9. inequality: profits from FDI flow disproportionately to powerful elites
10. many multinationals use tax avoidance techniques to increase profits

Question 8

Policies to attract FDI ?

Answer 8

• attractive rates of corporation tax
• soft loans & tax relief/subsidies
• trade & investment agreements eg. TPP
• flexible labour force + skilled workers
• creation of special economic zones
• high quality critical infrastructure
• open capital markets for remitted profits
• low labour costs

Question 9

Advantages of govt subsidies ?

Answer 9

• in many developing countries, a sizeable number of producers esp in farming & energy received subsidies or other form of govt financial support eg. guaranteed min price
• subsidies can play an important role in improving incomes leading to higher capital investment + supports innovation & improved productivity in the LR
• subsidies encourage increased production to help overcome the challenges of malnutrition among the poor + help to generate surpluses for export

Question 10

Disadvantages of govt subsidies ?

Answer 10

• subsidies distort the working of the price mechanism
• subsidies can stifle innovation as producers are less reliant on innovation as a way of making more profit
• producers/growers can become “subsidy-dependent” in the LR + there is risk of corruption
  syphoning off financial support to those who don’t need it
• environmental effect: subsidies can lower the incentive for producers to improve efficiency (rewarded by increasing the intensification of farming which can lead to deforestation, a loss
  of biodiversity & increased water scarcity), farmers may overuse fertilisers/pesticides, which can result in soil degradation which reduces the max sustainable yield in the LR

Question 11

Free market approach for govt subsidies ?

Answer 11

• lower/eliminate subsidies paid to consumers
• eg. many developing countries continue to use food-price subsidies or controls to improve nutrition (households might substitute some of their budget towards foods with less nutritional content because a subsidy effectively increases their real incomes)
• energy subsidies are widely adopted in developing countries: IMF recently estimated that the value of energy subsidies to consumers amounted to nearly 3% of global GDP
• economists concerned about environmental threats from climate change would make the case for getting rid of these subsidies so that the price of energy accurately reflects the externalities involved
• cutting subsidies due to the high opportunity cost (govt spending on subsidies might be better allocated to education, health services and public infrastructure?)

Question 12

Benefits of a floating exchange rate ?

Answer 12

• shock absorption: allows economies to absorb external shocks more effectively by facilitating adjustments in relative prices & competitiveness - restores equilibrium in trade balances & external accounts
• reduced need for foreign exchange reserves: central banks don’t need to intervene to change the currency’s price meaning that they don’t have to maintain large reserves of gold & other foreign currencies = lower reserve accumulation & associated costs
• market efficiency: exchange rate movements convey valuable signals about relative economic conditions, helping to allocate resources efficiently + guide investment decisions
• flexibility: provides policymakers w/greater flexibility to pursue independent monetary & fiscal policies tailored to domestic economic conditions (central banks can focus on domestic objectives eg. price stability, full employment, or economic growth w/o being constrained by exchange rate targets or the need to defend a fixed exchange rate)
• capital controls will not be used to limit the inflow/outflow of currency = more attractive to foreign investment
• automatic adjustment: currency values adjust automatically in response to changes in market conditions eg. shifts in trade balances, capital flows, or economic fundamentals (helps to maintain equilibrium in the foreign exchange market w/o the need for intervention by central banks/govts
• eg. CAnada, Japan, Norway, Sweden UK, US, Eu, Russia

Question 13

Evaluation of floating exchange rate ?

Answer 13

• a floating currency might be more appropriate for a country w/ a low trade to GDP ratio since exchange
  rate fluctuations would have less of an impact on the trade balance & the inflation rate
• have to consider whether a country has the size & reserves to be able to control their own currency
• many smaller EU nations have chosen to join the single European Currency
• an economy with one dominant trade partner might decide that the advantages of a pegged currency outweigh come of the possible gains from currency flexibility
• there has been a gradual shift among developing/emerging countries away from fixed (pegged) currency regimes towards managed floating or free-floating systems (managed floating remains the most common)

Question 14

Different microfinance schemes ?

Answer 14

• microfinance refers to a large number of different financial products, including but not exclusive to:

1. micro-credit: the provision of small-scale loans to the poor eg. by credit unions
2. micro-savings: eg. voluntary local savings clubs provided by charities
3. micro-insurance: esp for people/businesses not traditionally served by commercial insurance businesses (a safety net to prevent people from falling back into extreme poverty)
4. remittance management: managing remittance payments sent from one country to another

Question 15

Grameen Bank approach to microfinance ?

Answer 15

• reducing poverty by providing small loans to the country’s rural poor
• targeting of women on the grounds that compared to men, they perform better as clients of micro finance institutions & that their participation has more desirable long-term development
  outcomes
• initially focused on small groups ‘lending circles’ of largely female
  entrepreneurs from the poorest level in the society (became the widely accepted view of what micro finance is)
• in reality there are thousands of commercial microfinance institutions (MFIs) including some large international operators

Question 16

Advantages & disadvantages of micro-credit ?

Answer 16

• ✅ helps overcome the savings gap which limits entrepreneurship
• ✅ encourages entrepreneurship esp social enterprises
• ✅ targeted at women entrepreneurs
• ✅ high rates of repayment because the system is built on social capital / trust
• ❌ high interest rates
• ❌ low success rate for new small businesses
• ❌ alleged forcible collection of debt in many villages (hard to monitor)
• ❌ perhaps relatively ineffective compared to the impact of migrant remittances & FDI

Question 17

What is privatisation ?

Answer 17

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

Question 18

Advantages of privatisation ?

Answer 18

1. private companies have a profit incentive to cut costs + be more productively efficient & raise efficiency
2. govt gains revenue from the sale of assets + no longer has to support a potentially loss-making
   industry
3. if a state monopoly is replaced by a number of firms this extra contestability in an industry will lead to lower prices (helps to increase the real incomes of poorer households)
4. the competitiveness of the macro economy may also improve esp if privatisation leads to increased investment + benefits from economies of scale ➡️ improved competitiveness will drive higher exports & LR GDP growth

Question 19

Disadvantages of privatisation ?

Answer 19

1. social objectives given less importance as privately-owned firms are driven by the profit motive
2. some activities are best run by the state operating in the public interest as they are strategic parts of the economy e.g. water supply, steel/railways & have the characteristics of a natural monopoly
3. govt loses out on dividends from any future profits
4. public sector assets often sold cheaply + the privatisation process may suffer from corruption
5. job losses as firms increase their efficiency (increases risk of poverty)
6. unless privatised corporations are regulated effectively, there is risk of creating private monopolies (who use their market power to increase prices & profits) this can have a regressive effect on the distribution of income

Question 20

What are interventionist strategies ?

Answer 20

• govt intervention in markets designed to correct market failures, influence patterns of trade & investment + address the root causes of extreme poverty & inequality
• supporters of interventionist strategies believe in the concept of a developmental state (where
  the govt can be an active & positive force in driving sustainable & inclusive growth and development)

Question 21

Key possible roles of the state ?

Answer 21

• basic (universal) and health care
• accessible & affordable education of good quality
• infrastructure especially in telecommunications, health & transport
• core public goods that the free-market under-provides
• institutions of governance (including judiciary)
• public-private partnerships in supporting urbanisation
• smarter regulation eg. building codes, regulation of monopoly power
• welfare provision to provide a basic social safety net + encourage saving
• progressive taxation & state spending to reduce inequality of income and wealth

Question 22

Development of human capital ?

Answer 22

• human capital is regarded as
  complementary to investment in physical capital eg. new buildings, plant & equipment & the latest tech
• differences in productivity & per capita incomes are strongly linked to variations in the quality & quantity of human capital available in a country
• between 10-30% of per capita GDP differences is attributable to cross-country differences in human capital
• in poorer countries, almost
  1/4 of children under 5 are malnourished, and 60% of primary school students fail to achieve even a rudimentary education
• more than 260 million children and youth are not in school worldwide

Question 23

Interventions to improve human capital ?

Answer 23

1. strategies to improve nutrition & reduce the extent of stunted growth among young people
2. other health interventions can increase school attendance eg. in Kenya deworming in childhood reduced school absences while raising wages in adulthood by as
   much as 20%
3. increased investment in primary & secondary schooling incl. policies to improve the quality of
   teaching & access to online education
4. incentives to attract an inflow of skilled migrant workers + curb ‘brain drains’ of highly qualified people
5. investment in training to re-skill people at risk of unemployment from the fast-changing pattern of
   employment incl. robotics, automatic & AI
6. cash transfer interventions can increase demand for education esp among the poorest families who must make hugely difficult decisions about how to spend a meagre budget

➡️ building human capital may also require behavioural interventions to address social & cultural norms that often
prevent young people from starting or completing different grades of education

Question 24

What is protectionism ?

Answer 24

• the use of measure to protect domestic industries from foreign competition eg. tariffs, quotas, domestic subsidies
• objective: promote the interests of domestic producers, workers & industries by restricting/ regulating international trade
• average import tariffs are higher when imposed by developing countries than those implemented by advanced, high-income nations
• eg. Iran, Nepal, India have high import tariffs

Question 25

Justifications for protectionism ?

Answer 25

1. import substitution: erecting trade barriers are designed to protect fledgling domestic industries that have not yet achieved sufficient economies of scale to become cost & price competitive in international markets eg. infant industry
2. raise tax revenues: import duty revenues are a useful source of tax revenues for developing
   countries
3. tariffs can be justified as a response to alleged dumping of products into a country i.e. selling at a price below cost
4. tariffs may also be a retaliatory response to allegations that a country has used a competitive devaluation of their currency to make their exports more price competitive

Question 26

Risks of protectionism ?

Answer 26

1. tariffs may protect jobs in some industries eg. car making BUT have damaging effects elsewhere as they increase the prices of key imported raw materials, components & capital technologies
2. revenues raised by tariffs may only be a small % of total govt revenue & lost jobs in
   other sectors will diminish the net effect on these revenues
3. risk of retaliatory action by other countries eg. trade war developing between the US & China
4. Protectionist tariffs risk causing a loss of competition for domestic firms which eventually leads to lower productivity, less innovation & weaker competitiveness
5. tariffs increase prices for consumers leading to higher inflation, reduced real incomes & increased risk of poverty
6. protectionist subsidies for domestic firms can be very costly for a govt leading to an increased
   budget deficit & rising national debt

Question 27

What is a managed floating exchange rate ?

Answer 27

• when the central bank may choose to intervene in the foreign exchange markets to affect the value of a currency to meet specific macroeconomic objectives eg. depreciation or appreciation of the currency
• might also be used by a govt to restore or improve the price
  competitiveness of exporters in global markets or perhaps respond to an external economic shock
• key aim: to reduce the volatility of exchange rates (big
  fluctuations in the external value of a currency can increase investor risk + damage business confidence)
• eg. Argentina, brazil, Iceland, India, New Zealand, Peru

Question 28

Why may the central bank attempt to depreciate the currency ?

Answer 28

1. improve the balance of trade in goods/services or improve the current account position
2. reduce the risk of a deflationary recession: a lower currency increases export demand & increases the domestic price level by making imports more expensive
3. rebalance the economy away from domestic consumption towards exports & investment
4. sell foreign currencies to overseas investors as a way of reducing the size of government debt

Question 29

Why may the central bank attempt to appreciate the currency ?

Answer 29

1. to curb demand-pull inflationary pressures
2. to reduce the prices of imported capital & technology

Question 30

Importance infrastructure development ?

Answer 30

• closing the infrastructure gap is now crucial in nearly all countries but especially emerging countries who want to make progress towards meeting the SDGs, bring down extreme poverty, improve their export capacity and address
  numerous environmental challenges
• infrastructure is critical for economic & social development

Question 31

Why may infrastructure development be difficult ?

Answer 31

• for many countries there is insufficient investment in infrastructure due to the enormous up-front financial commitment & many years before the full benefits of new projects show
• the savings gap in many
  lower/middle-income nations makes financing big capital projects problematic & full of risk + the result can be a lack of investment ultimately hampering growth & affects people’s everyday lives
• attracting foreign direct
  investment to help fund & build infrastructure has become a common feature for many developing countries BUT there are risks involved in relying too heavily on overseas capital

Question 32

What is a joint venture ?

Answer 32

• a separate business entity created by two or more parties, involving shared ownership, returns & risks
• provide an opportunity for developing countries to acquire specific expertise in industries that
  they are hoping will be a new source of comparative advantage in the years ahead
• for global companies, a joint
  venture can be a quicker way of securing access to new markets that were previously closed or subject to some form of protectionist policy
• eg. Apple entered into a joint venture in China to open a new data centre to serve iCloud users there

Question 33

What are buffer stock schemes ?

Answer 33

• buffer stock schemes seek to stabilise the market price of agricultural products by
  1. buying up supplies when harvests are plentiful
  2. selling stocks onto the market when supplies are low
• ✅ in theory, buffer stock schemes will be profit making, since they buy up stocks of the product when the price is low & sell them onto the market when the price is high
• ❌ however, they do not work well in practice, many buffer stock
  schemes have collapsed, & can only work effectively for storable commodities
• success of a buffer stock scheme ultimately depends on the ability of those managing a scheme to correctly estimate the average price of the product over a period of time

Question 34

Advantages of buffer stock schemes ?

Answer 34

• lower risk of extreme food poverty for poorest consumers
• more stable incomes & profits for farmers
• helps macroeconomic stability / investment
• buffer stock ought to be self-financing

Question 35

Disadvantages of buffer stock schemes ?

Answer 35

• buffer stock may not be large enough to change the market price
• setting a high price for farmers often causes rising surpluses ie. a misallocation of resources
• high costs of storage & falling quality of product (might have to be sold at discounted prices)
• many buffer stock schemes fail because of poor administration/ corruption

Question 36

Alternatives to buffer stock schemes ?

Answer 36

• strong evaluation involves considering alternative policies to stabilise prices & incomes for farmers
• in the long term, investment in capital goods such as irrigation & wider access to affordable insurance can be powerful + policies to reduce dependency on any one particular crop
• mobile tech to help farmers
• encourage processing/branding by farmers
• improved basic storage facilities + irrigation
• micro insurance policies for poorer farmers

Question 37

What is the Lewis Model ?

Answer 37

• model of a dual economy, consisting of rural agricultural & urban manufacturing sectors
• a model of structural
  change since it outlines the development from a traditional economy to an industrialised one
• initially, the majority of labour is employed upon the land, which is a fixed resource
• labour is a variable resource & as more labour is put to work on the land, diminishing marginal returns eventually set in: insufficient tasks for the marginal worker to undertake (resulting in reduced marginal product (output
  produced by an additional worker) & underemployment)
• urban workers, engaged in manufacturing, tend to produce a higher value of output than their agricultural counterparts
• the resultant higher urban wages (Lewis stated that a 30% premium was required) might therefore tempt surplus agricultural workers to migrate to cities & engage in manufacturing activity
• high urban profits would
  encourage firms to expand & hence result in further rural-urban migration

Question 38

Is rapid industrialisation the right approach for sustaining growth and development?

Answer 38

1. whilst much manufacturing remains labour-intensive, the rapid adoption of robots & other automated processes can limit the scale of new job opportunities for people moving to urban areas where industries are concentrated
2. successful manufacturing strategies often have close links back to farming & extractive sectors e.g. developing processing capabilities for farmers who grow fruit
3. light manufacturing doesn’t always add a great deal of value added to production especially low-level assembly tasks -countries might do better in the LR if they also invest in building human capital in industries such as research, engineering & design
4. there are drawbacks from rapid urbanisation esp if a country does not have the infrastructure to cope with high rates of rural-urban migration

Question 39

Benefits of tourism for growth a development ?

Answer 39

• in 2016, travel & tourism generated $7.6 trillion (10.2% of global GDP) + an estimated
  292 million jobs globally
• employment creation: tourism is labour intensive industry
• employs a significantly higher % of women helping to increase female labour market participation
• export earnings: tourism is a service industry (helps to generate foreign exchange)
• important source of diversification for many smaller countries (reducing primary dependency)
• lifts AD: possibly creating local & regional income-multiplier effects
• accelerator effects from investment in tourism infrastructure & services like airlines and telecoms

Question 40

Drawbacks of expanding tourism ?

Answer 40

• exploitation of local labour by overseas TNCs (rapid growth of sex industry in many countries)
• many workers in tourism are migrants suffering from poor employment conditions eg. low
  wages/long hours
• outflow of profits from foreign-owned tourist resorts, many resorts have few locally-owned hotels
• all-inclusive deals tend to ignore the local economy
• negative externalities from construction projects eg. congestion, waste, pressure on the natural environment
• rising property prices makes housing less affordable for local people
• deepening pressures on local cultures from westernisation, the doubtful benefits of slum-tourism + concerns with security & health
• a highly cyclical industry vulnerable to global economic & political shocks

Question 41

Why were fair trade schemes created ?

Answer 41

• one of the driving forces behind the founders of Fair Trade was a desire to correct for multiple market failures in industries for many primary sector commodities (incl the effects of monopsony power among transnational food processors & food manufacturers which often led to farmers in some of the world’s poorest
  countries receiving an inequitably low & unsustainable price for their products)
• guarantee a higher / premium price to certified producers
• achieve greater price stability for growers
• improve production standards ( a grower will be able to receive a Fairtrade licence if it can improve working conditions, better pay & guarantees of environmental sustainability)

Question 42

Critics of fairtrade movement ?

Answer 42

1. impact on non-participating farmers: by encouraging consumers to buy their products from Fairtrade sources, this cuts demand for farmers in poorer nations not covered by the Fairtrade (worsening extreme poverty)
2. who captures the gains from Fair-Trade coffee? some evidence that a large part of the premium
   price goes to processors & distributors rather than the farmers themselves
3. the fundamental causes of poverty are not really addressed by Fairtrade - greater investment
   needs to be made in raising farm productivity, reducing vulnerability to climate change, & reaching multi-lateral trade agreements between countries to reduce import tariffs + improve access for poor countries into the markets of rich advanced nations
4. other investment might be better targeted at encouraging farmers to establish producer co-operatives of their own + create their own branded products selling direct to consumers

Question 43

Types of overseas development assistance (aid) ?

Answer 43

• bi-lateral aid: from one country to another
• multi-lateral aid: channelled through international bodies eg. the United Nations
• project aid: direct financing of projects for a donor country
• technical assistance: funding of expertise of various types including engineering/medicine
• humanitarian aid: emergency disaster relief, food aid, refugee relief & disaster preparedness
• soft loans: loan made to a country on a concessionary basis that offers a lower rate of interest
• tied aid: ie. projects tied to suppliers in the donor country
• debt relief: eg. cancellation, rescheduling, refinancing of a country’s external debts

Question 44

UK overseas aid commitments ?

Answer 44

• the UK gave £14 billion in aid in 2017 equivalent to 0.7% of the UK’s GNI
• UK aid strategy is to allocate 50% of aid to fragile states & regions
• the top five recipients of UK aid in 2016 were Pakistan, Ethiopia,
  Nigeria, Syria & Turkey

Question 45

Benefits of overseas aid ?

Answer 45

1. helps to overcome the savings gap + aid can help stabilise post-conflict environments & in disaster recovery
2. project aid can fast-forward investment in critical infrastructure (eventually leading to higher productivity)
3. long-term aid for health & education projects (builds human capital & stronger social institutions)
4. targeted aid might add around 0.5% to the annual growth rate of the poorest countries (benefits donor countries too as trade grows)

Question 46

Drawbacks from high levels of overseas aid ?

Answer 46

1. poor governance: aid might leave the recipient country - can finance corruption by ruling political elites
2. lack of transparency: hundreds of $m is spent on aid consultants & developed country non- governmental organisations
3. dependency culture: aid tends to be most effective where it is needed least – it may harm an entrepreneurial culture
4. aid may lead to a distortion of market forces & a loss of economic efficiency + might cause higher inflation

Question 47

What is debt relief ?

Answer 47

• involves the cancellation, rescheduling, or refinancing of a nation’s external debts
• many of the world’s poorest countries have high levels of external debt owed to other govts,
  institutions eg. the IMF & foreign companies, banks & individuals.
• the Heavily Indebted Poor Countries Initiative (HIPCI) is an initiative to provide debt relief to heavily indebted low-income countries
• debt relief agreements are often conditional on the host country introducing structural economic reforms

Question 48

Cases for offering debt relief ?

Answer 48

• high debt & interest payments on debt can further impoverish the most vulnerable people in poor
  countries (debt relief is an appropriate form of aid for countries who lack access to global capital markets)
• poor countries highly dependent on exports of primary commodities are exposed to global economic shocks
  which can damage their export revenues + take them further into external debt
• debt relief can be made partially conditional on govts introducing economic & social reforms

Question 49

Arguments against extensive debt relief ?

Answer 49

1. moral hazard argument: govts will spend & borrow more (perhaps recklessly ) if they
   know/expect that some of their debts will be written off in the future increasing the risk of govt
   failure
2. if govts ran better macroeconomic policies eg. to control inflation & state borrowing, then the
   interest rates charged on new loans would fall making the repayment of debt less costly

Question 50

What is the World Bank compromised of ?

Answer 50

• comprises two institutions managed by member countries: The International Bank for Reconstruction & Development (IBRD) + the International Development Association (IDA)
• IBRD aims to reduce poverty in
  middle-income & credit-worthy poorer countries
• IDA focuses exclusively on the world’s poorest countries

Question 51

World Bank’s role ?

Answer 51

• provides grants & low interest loans
• offers policy advice & technical assistance to developing countries
• co-ordinates projects w/govts

Question 52

What is the International Monetary Fund (IMF) ?

Answer 52

• has played a prominent role in world financial affairs in the post-WW2 period
• in the 1950s-60s, its main purpose was to support the system of fixed exchange rates
• since then its activities have evolved to embrace developing economies + both banking & sovereign debt crises

Question 53

Roles of the IMF ?

Answer 53

• works to foster global monetary cooperation, secure financial stability, facilitate global trade, promote high employment and sustainable economic growth, & reduce poverty around the world
• provides financing to its members when they are suffering economic difficulties
• financial assistance can come in the form of conditional loans or training
• emerging market countries argue that the IMF requires reform given the changing balance of power in the world economy

Question 54

Key roles of the IMF ?

Answer 54

1. promote international monetary co-operation
2. facilitate the expansion of international trade
3. provide exchange stability
4. make resources available to members experiencing balance of payments difficulties

Question 55

What is an NGO ?

Answer 55

• any not-for-profit voluntary group (can operate on a local, regional, or international scale)
• NGOs often operate on a small scale in developing countries - frequently work in the areas of environmental improvement,
  community development, & human rights (there have been notable interventions from NGOs in the areas of removal of landmines in previously war-torn countries (e.g. Cambodia), gender equality and women’s rights, &
  raising awareness of ‘blood diamonds’)

Question 56

Market orientated strategies ?

Answer 56

• trade liberalisation
• promotion of FDI
• removal of govt subsidies
• floating exchange rate systems
• microfinance schemes
• privatisation

Question 57

Interventionist strategies ?

Answer 57

• development of human capital
• protectionism
• managed exchange rates
• infrastructure development
• promoting joint ventures with global companies
• buffer stock schemes