4.3.3: Strategies Influencing Growth & Development Flashcards
What are the categories of strategies influencing growth & development?
-Market-Orientated Strategies.
-Interventionist Strategies.
-Other Strategies.
What is the difference between market-orientated strategies and interventionist strategies?
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.
What are the market orientated strategies?
-Trade liberalisation.
-Promotion of FDI.
-Removal of government subsidies.
-Floating exchange rate systems.
-Microfinance schemes.
-Privatisation.
- How does trade liberalisation influence growth & development?
- What is a drawback of trade liberalisation?
- 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).
- Can cost jobs, as cheaper goods flood the nation’s domestic market.
What is FDI?
Foreign Direct Investment is the purchase of interest of a company by an investor located in another country.
- How does promotion of FDI influence growth & development?
- What is a drawback of promotion of FDI?
- FDI promotes long term sustainable growth by encouraging technological innovation and creating employment.
- Profits are often repatriated, and workers are given low wages & poor working conditions.
- How does removal of government subsidies influence growth & development?
- What is a drawback of removal of government subsidies?
- Removing subsidies counteracts the negative effect on the government budget & debt.
- Removing a subsidy can be very politically unpopular, and some governments have been thrown out attempting to do so.
- How does floating exchange rate systems influence growth & development?
- What is a drawback of floating exchange rate systems?
- The country doesn’t have to worry about their gold & foreign currency reserves.
- The currency can be volatile, making it difficult for exporters/importers to make decisions about the future.
What is microfinance?
A type of banking that provides financial services to low income individuals who would otherwise have no access to finance.
- How does microfinance schemes influence growth & development?
- What is a drawback of microfinance schemes?
- Gives borrowers the ability to set up businesses while avoiding high interest rates.
- Opportunity cost for funding sustainable methods of development.
- How does privatisation influence growth & development?
- What is a drawback of privatisation?
- Firms operating in the private sector have a profit incentive, while nationalised firms don’t, encouraging efficiency.
- If the firm is privatised as a monopoly, there will be no competition in the market.
What are the interventionist strategies?
-Development of human capital.
-Protectionism.
-Managed exchange rates.
-Infrastructure development.
-Promoting joint ventures with global companies.
-Buffer stock schemes.
- How does development of human capital influence growth & development?
- What is a drawback of development of human capital?
- 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).
- Time-consuming & expensive.
- How does protectionism influence growth & development?
- What is a drawback of protectionism?
- Reduces trade deficit due to trade barriers, allowing infant industries to grow.
- Consumers face less choice, retaliation from other countries, less competition.
- How does managed exchange rates influence growth & development?
- What is a drawback of managed exchange rates?
- The exchange rate floats on the market, but the central bank buys & sells currencies to try and influence their exchange rate, providing stability.
- Requires large-scale foreign exchange reserves.
- How does infrastructure development influence growth & development?
- What is a drawback of infrastructure development?
- Social benefits, such as easy transport.
- The government may not have the funds, construction causes environmental damage.
How does promoting joint ventures with global companies influence growth & development?
-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.
How does a buffer stock scheme work?
Governments buy up harvests during surpluses, and sell the goods onto the market when supplies are low.
- How does buffer stock schemes influence growth & development?
- What is a drawback of buffer stock schemes?
- 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).
- Storage is difficult and expensive, since agricultural goods don’t last long, and there are administrative costs.
What are other strategies?
-Industrialisation (the Lewis model).
-Development of tourism.
-Development of primary industries.
-Fairtrade schemes.
-Aid.
-Debt relief.
What is the Lewis model?
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.
- How does industrialisation influence growth & development?
- What is an example of a country not going through industrialisation?
- The process has improved productivity and has allowed for mass production.
- India went from agriculture to services.
- How does development of tourism influence growth & development?
- What is a drawback of development of tourism?
- 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.
- Travel agents are likely to repatriate their profits, environmental damage, such as pollution.
- How does development of primary industries influence growth & development?
- What is a drawback of development of private industries?
- Some countries choose to exploit their comparative advantage of natural resources to diversify the economy (e.g. Saudi Arabia).
- Primary product dependency.
- How does Fairtrade schemes influence growth & development?
- What is a drawback of Fairtrade schemes?
- 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.
- It could make producers that are not part of Fairtrade worse off, dividing the market into Fairtrade and non-Fairtrade markets.
- How does aid influence growth & development?
- What is a drawback of aid?
- Provides temporary assistance to a country after conflicts or natural disasters, reduces human capital inadequacies, improves infrastructure.
- The benefits of aid are limited by corrupt leaders.
- How does debt relief influence growth & development?
- What is a drawback of debt relief?
- Improves government finances, so public services could be funded instead.
- Creates a moral hazard with developing countries.
What international institutions are looked at for growth & development?
-World Bank.
-International Monetary Fund (IMF).
-Non-Government Organisations (NGOs).
What is the role of the World Bank?
-Aims to promote economic & social progress by raising productivity and reducing poverty.
-Supports education and rebuilds countries after natural disasters with interest free loans.
What is the role of the International Monetary Fund (IMF)?
-Aims to promote monetary co-operation between countries.
-Supports exchange rate stability, avoiding competitive depreciations between currencies.
What is the role of Non-Government Organisations (NGOs)?
-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).
