4.3.8 Other measures of promoting growth Flashcards
What are the other measures of promoting growth in LEDCs?
- Fair Trade Schemes
- Debt Cancellation
- Tied Aid
- Sectoral Development
- Lewis Model
- Inward/Outward Looking
- Free Enterprise/Intervetionist
What are some examples of interventionist approaches to promoting growth in LEDCs?
- Import Substitution
- Nationalisation
- Price Subsidies
- Overvalued Exchange Rates
What are two general evaluation points that can be used in any question regarding strategies to promote growth and development in LEDCs?
- What works somewhere might not work somewhere else due to context (Different govt, level of development, natural resources, skill of labour, etc.)
- A combination of policies is likely to be more effective than any single one
What are some evaluation points for why interventionist policies arent the best approach to promoting G&D in LEDCs?
- Low Growth rates due lack of competition
- Absence of profit motive causes allocative inefficiency
- Government Failure
- Increasing Fiscal and Current Account deficits.
What are some examples of free market policies to promote G&D in LEDCs?
- Trade liberalisation
- Supply Side Policies
- Privatisation/Deregulation
- Structural adjustment policies
How does trade liberalisation promote G&D in LEDCs?
Encourages FDI because it makes trade easier and cheaper
What are structural adjustment policies?
Policies aimed at getting rid of budget and current account deficits, by cutting spending on food subsidies and welfare and causing currency devaluation
What are some evaluation points of free market policies to promote G&D to explain why they aren’t the best idea?
- Harsh effect on the poor because cutting food subsidies and social programs affects them the most
- All of the problems of market failure
What is an inward looking strategy for development?
Those that refer to industrialised based on import substitution
What is import substitution?
Where the country tries to get consumers to buy domestic substitutes for the goods they would normally import.
What are outward looking strategies for development?
Those that focus on increasing trade and integrating with the global economy (Trade Liberalisation)
What are examples of inward looking strategies?
Protectionist policies
what are evaluations of inward looking strategies?
- Protectionism leads to X-inefficiency so economy cannot compete without it
- Distortion of comparative advantage
What is the intended effect of outward looking policies to cause G&D?
- Increased Exports
- Encourages FDI
- Less dependent on aid
- More efficient use of resources
- More choice and lower price for consumers
What are the evaluation points four why outward looking strategies may not help growth and development in LEDCs?
- Domestic LEDC firms may be unable to compete
- Infant industries won’t survive
- Resource Dumping
- Damage to Environment from TNCs
What are examples of outward looking strategies?
- Trade Liberalisation
- Deregulation of financial/capital markets
- Devaluation of Currency
What is required for the Lewis Model of Economic Development to occur?
Industrialisation
What are the key features of the Lewis Model?
- Surplus Labour in Agricultural. Marginal productivity = 0.
- Industrialisation causes migration of workers to urban areas which has an OC of 0 due to the excess supply
- Government subsidies to attract investment from TNCs, increasing productivity and wages, improves savings ratio so more funds for investment so more growth.
What are evaluation points for why the Lewis Model may not be accurate?
- Profits made in the industrial sector may not be invested locally
- Investment may be in capital intensive production so few new jobs
- It’s not true that there is surplus labour in agricultural sector and full employment in industrial sector
- You can develop with an agricultural sector
Why is developing tourism appealing for LEDCs?
- Source of foreign exchange
- Investment from TNCs in hotels etc.
- Infrastructure from TNC investment
- Employment Opportunities
- Increased Tax Revenue
- Demand is income elastic
What are the evaluation points for why Tourism isnt the best sector to develop for LEDCs?
- Income elastic so fal in revenues in recession
- Employment is low and seasonal.
- Changes in fashion, might not be a popular destination for long
- Negative Externalities
- Damage to cultural values
What is an example of a country that has developed due to their primary sectors?
Chile, due to their copper, blueberries and papaya
What are the factors that determine whether developing agricultural and primary sectors is a good idea for LEDCs?
- Demand for PP are income elastic
- Potential for growing demand for that PP
- The country has comparative advantage in its production
What is aid?
Aid is a voluntary transfer of resources from one country to another, OR loans given at less than market rate of interest.
What are the purposes of Aid?
To cut absolute poverty and provide short run relief after natural disasters
What are the types of aid?
- Tied Aid
- Bilateral Aid
- Multilateral Aid
What is Tied Aid?
Aid with conditions attached like economic/political reform
What is Bilateral Aid?
Aid given directly by one country to another
What is multilateral aid?
Aid channeled through the World Bank, EU or UN from multiple sources
What are the arguments for Aid?
- Reduction in absolute poverty
- Reduction in global inequality
- Fill the savings gap
- Funds for Infrastructure
- Fills ForEx gap
- Improve Human Capital by improving health and education
What are the arguments against Aid?
- Dependency Culture
- Corruption means aid may not reach where it needs to
- Some aid requires repayment which comes with an OC for the LEDCs
What is the solution to the opportunity cost of aid/loans for LEDCs?
Debt cancellation
What are the arguments for Debt Cancellation?
- Cuts Absolute Poverty
- Narrows Savings Gap and ForEx Gap
- More Business Confidence means more investment
- ‘Debt for Nature’ Swaps help conserve the environment
What are the arguments against debt?
- Takes a long time
- Doesn’t always reduce poverty cos poverty exists in low debt countries
- Other measures to promote G&D may be more effective
What is the main aim of Fair trade?
To address the injustice of low prices by paying producers above the free market level so they can pay their workers enough
What are the pros of fair trade?
- Popular
- Producers are protected by commodity fluctuations
- Quality is better due to higher price
What are the cons of fair trade?
- High proportion of the price goes to profits for supermarkets, not producers.
- High price doesnt guarantee good quality
- Dependency trap for producers
- Only small cooperatives can get certification
What are the characteristics of Microfinance schemes?
- Lending to those who wouldnt normally get finance
- Entrepreneurs guarantee eachother’s loans
- Loans can be as small as £25 to fund basic products like fertiliser
What are the drawbacks of Microfinance?
- Access to credit doesnt necessarily make the poor richer.
- Most microfinance is used to buy extra, unimportant things for the business, instead of the integral fundamental things needed to start up, so it doesn’t really help set up businesses
