4.3.3: Strategies Influencing Growth & Development

Question 1

What are the categories of strategies influencing growth & development?

Answer 1

-Market-Orientated Strategies.
-Interventionist Strategies.
-Other Strategies.

Question 2

What is the difference between market-orientated strategies and interventionist strategies?

Answer 2

Market-orientated strategies minimalize the role of the government and maximize the demand & supply mechanisms.
Interventionist strategies involve an active role by the government and manipulation of the economy.

Question 3

What are the market orientated strategies?

Answer 3

-Trade liberalisation.
-Promotion of FDI.
-Removal of government subsidies.
-Floating exchange rate systems.
-Microfinance schemes.
-Privatisation.

Question 4

1. How does trade liberalisation influence growth & development?
2. What is a drawback of trade liberalisation?

Answer 4

1. Removing trade barriers will mean that domestic industries either close, or are forced to become as efficient as other world producers (e.g. South Korea).
2. Can cost jobs, as cheaper goods flood the nation’s domestic market.

Question 5

What is FDI?

Answer 5

Foreign Direct Investment is the purchase of interest of a company by an investor located in another country.

Question 6

1. How does promotion of FDI influence growth & development?
2. What is a drawback of promotion of FDI?

Answer 6

1. FDI promotes long term sustainable growth by encouraging technological innovation and creating employment.
2. Profits are often repatriated, and workers are given low wages & poor working conditions.

Question 7

1. How does removal of government subsidies influence growth & development?
2. What is a drawback of removal of government subsidies?

Answer 7

1. Removing subsidies counteracts the negative effect on the government budget & debt.
2. Removing a subsidy can be very politically unpopular, and some governments have been thrown out attempting to do so.

Question 8

1. How does floating exchange rate systems influence growth & development?
2. What is a drawback of floating exchange rate systems?

Answer 8

1. The country doesn’t have to worry about their gold & foreign currency reserves.
2. The currency can be volatile, making it difficult for exporters/importers to make decisions about the future.

Question 9

What is microfinance?

Answer 9

A type of banking that provides financial services to low income individuals who would otherwise have no access to finance.

Question 10

1. How does microfinance schemes influence growth & development?
2. What is a drawback of microfinance schemes?

Answer 10

1. Gives borrowers the ability to set up businesses while avoiding high interest rates.
2. Opportunity cost for funding sustainable methods of development.

Question 11

1. How does privatisation influence growth & development?
2. What is a drawback of privatisation?

Answer 11

1. Firms operating in the private sector have a profit incentive, while nationalised firms don’t, encouraging efficiency.
2. If the firm is privatised as a monopoly, there will be no competition in the market.

Question 12

What are the interventionist strategies?

Answer 12

-Development of human capital.
-Protectionism.
-Managed exchange rates.
-Infrastructure development.
-Promoting joint ventures with global companies.
-Buffer stock schemes.

Question 13

1. How does development of human capital influence growth & development?
2. What is a drawback of development of human capital?

Answer 13

1. Improves productivity & allows more advanced technology to be used, since workers will have the necessary skills. Also allows the country to develop into a manufacturing sector, overcoming primary product dependency (e.g. China).
2. Time-consuming & expensive.

Question 14

1. How does protectionism influence growth & development?
2. What is a drawback of protectionism?

Answer 14

1. Reduces trade deficit due to trade barriers, allowing infant industries to grow.
2. Consumers face less choice, retaliation from other countries, less competition.

Question 15

1. How does managed exchange rates influence growth & development?
2. What is a drawback of managed exchange rates?

Answer 15

1. The exchange rate floats on the market, but the central bank buys & sells currencies to try and influence their exchange rate, providing stability.
2. Requires large-scale foreign exchange reserves.

Question 16

1. How does infrastructure development influence growth & development?
2. What is a drawback of infrastructure development?

Answer 16

1. Social benefits, such as easy transport.
2. The government may not have the funds, construction causes environmental damage.

Question 17

How does promoting joint ventures with global companies influence growth & development?

Answer 17

-Joint ventures opens up new markets for small firms, so they can distribute their products to consumers, saving time & funds (e.g. Starbucks in India).
-They have all the benefits of FDI, without the negatives of exploitation and some of the profits remain in the country.

Question 18

How does a buffer stock scheme work?

Answer 18

Governments buy up harvests during surpluses, and sell the goods onto the market when supplies are low.

Question 19

1. How does buffer stock schemes influence growth & development?
2. What is a drawback of buffer stock schemes?

Answer 19

1. It helps incomes of farmers to remain stable, as fluctuations in the market are reduced, while increasing consumer welfare by ensuring prices aren’t in excess (e.g. Ghana and cocoa, 2017).
2. Storage is difficult and expensive, since agricultural goods don’t last long, and there are administrative costs.

Question 20

What are other strategies?

Answer 20

-Industrialisation (the Lewis model).
-Development of tourism.
-Development of primary industries.
-Fairtrade schemes.
-Aid.
-Debt relief.

Question 21

What is the Lewis model?

Answer 21

A model that describes a two-sector economy:
-A surplus of labour in the traditional, low-productivity sector (e.g. agricultural).
-A shortage of labour in the modern, high-productivity sector (e.g. industrial).

In this model, the movement of labour (traditional -> modern) drives economic growth & development.

As the economy grows, wages will rise in the modern sector, leading to an increase in consumption and investment, causing higher living standards for everyone.

Question 22

1. How does industrialisation influence growth & development?
2. What is an example of a country not going through industrialisation?

Answer 22

1. The process has improved productivity and has allowed for mass production.
2. India went from agriculture to services.

Question 23

1. How does development of tourism influence growth & development?
2. What is a drawback of development of tourism?

Answer 23

1. Makes the country more attractive to FDI, as well as developing their infrastructure. Tourism can also be a way of earning foreign currency for developing countries.
2. Travel agents are likely to repatriate their profits, environmental damage, such as pollution.

Question 24

1. How does development of primary industries influence growth & development?
2. What is a drawback of development of private industries?

Answer 24

1. Some countries choose to exploit their comparative advantage of natural resources to diversify the economy (e.g. Saudi Arabia).
2. Primary product dependency.

Question 25

1. How does Fairtrade schemes influence growth & development?
2. What is a drawback of Fairtrade schemes?

Answer 25

1. Ensures that farmers receive a fair price for their goods, giving them a guaranteed income and certainty about their sales, so they can plan for the future.
2. It could make producers that are not part of Fairtrade worse off, dividing the market into Fairtrade and non-Fairtrade markets.

Question 26

1. How does aid influence growth & development?
2. What is a drawback of aid?

Answer 26

1. Provides temporary assistance to a country after conflicts or natural disasters, reduces human capital inadequacies, improves infrastructure.
2. The benefits of aid are limited by corrupt leaders.

Question 27

1. How does debt relief influence growth & development?
2. What is a drawback of debt relief?

Answer 27

1. Improves government finances, so public services could be funded instead.
2. Creates a moral hazard with developing countries.

Question 28

What international institutions are looked at for growth & development?

Answer 28

-World Bank.
-International Monetary Fund (IMF).
-Non-Government Organisations (NGOs).

Question 29

What is the role of the World Bank?

Answer 29

-Aims to promote economic & social progress by raising productivity and reducing poverty.
-Supports education and rebuilds countries after natural disasters with interest free loans.

Question 30

What is the role of the International Monetary Fund (IMF)?

Answer 30

-Aims to promote monetary co-operation between countries.
-Supports exchange rate stability, avoiding competitive depreciations between currencies.

Question 31

What is the role of Non-Government Organisations (NGOs)?

Answer 31

-Voluntary groups that aims to raise the voices of ordinary citizens.
-Lobbies governments to make changes (e.g. raising funds to establish schools in developing countries).