Global Economics - Economic growth and economic development strategies Flashcards
Define trade liberalisation
Trade liberalisation is when countries remove barriers to trade such as subsidies, tariffs, quotas and administrative barriers.
What are the benefits of increased imports?
- Lower prices for consumers
- Increased competition improves the quantity and quality of products
- Increased competition pressures local firms therefore improving productive efficiency
- Greater consumer choice
- Access to natural resources and technologies that are locally unavailable
- Improved international cooperation
- More efficient global resource allocation
What are the benefits of increased exports?
- Access to larger markets (higher revenues and profits for firms)
- Income in international currencies can be used to buy resources on global markets
- Economies of scale
- Aggregate demand and national income increase, increasing employment
- Domestic firms may be able to sell goods and services for higher prices abroad than they do in domestic markets, increasing revenues
- Improved international cooperation
- More efficient global resource allocation
What percentage of the WTO members are developing countries?
Over 75%
What are the disadvantages of trade liberalisation for developing countries?
- national security issues
- infant (sunrise) industries / diversification
- health, safety, environment
- unfair competition
- cannot use trade barriers to adjust balance of payments
- decreased government revenues
- job protection
- dependence
Define import substitution
Import substitution refers to protectionist measures that are implemented to help a country become independent from imports from abroad using protectionism to limit foreign competition.
Define export promotion
Export promotion, or export-led growth strategy, is any policy that supports domestic industries so that they become exporting industries. Like import substitution, trade protectionism is used to achieve this.
What are the benefits of diversification?
- Economic resilience
- Helps the economy shift from primary sector to higher value-added sectors
- Smooths fluctuations in foreign exchange earnings
What are the methods to diversify exports?
- Trade liberalisation
- Export promotion
Define social enterprises
Social enterprises are businesses whose primary objective is to improve social or environmental conditions. They can be non-for-profit and for-profit.
What are the market-based policies to encourage economic development and growth?
- Trade liberalisation
- Privatisation
- Deregulation
Define Regulation
Regulations are rules and restrictions that the government creates to ensure that firms behave in a way that is best for social welfare.
What are the strengths of market-based policies (privatisation/deregulation)?
- Economic growth
- Development – multiple dimensions?
- Productive efficiency
- Allocative efficiency
- Reduced pressure on government budget
What are the limitations of market-based policies (privatisation/deregulation)?
- May reduce equity
- May result in market failure
- May increase unemployment
- Ineffective if institutions and complex systems are dysfunctional
- Ineffective if informal economy is large
Define redistribution policies
Redistribution policies are measures taken by governments to reallocate income and wealth more equitably in society.
What are the redistribution policies?
- Tax structure
- Transfer payments
- Minimum wage
Define merit goods
Merit goods are goods or services that are beneficial for those who consume them and have positive externalities for society. In a free market they are under-provided and under-consumed, so the government will usually provide them to some extent.
What are the the merit goods a government can provide?
- Education
- Health (Universal healthcare, vaccines, maternal and newborn care)
- Infrastructure (energy, telecommunications, transportation, clean water and sanitation)
What are the strengths of interventionist policies?
- Development
- Economic growth
What are the limitations of interventionist policies?
- Government budget implications
- Governance, including bureaucracy, corruption and short-term thinking
Define forward direct investment
Foreign direct investment (FDI) is long-term investment in a foreign country by multinational corporations. This involves either setting up factories and expanding their operations in the new country or the purchase of at least a 10% share of a foreign company.
Define inward forward direct investment
When we use the term inward foreign direct investment (IFDI), this refers to FDI coming into a country.
What are the benefits of IFDI?
- Economic growth and employment
- Increased efficiency and productivity due to increased competition
- Diversification
- Improved infrastructure
- Skills and knowledge transfer
- Source of tax revenue
What are the limitations of IFDI?
- Loss of control of capital assets, innovation, human capital and intellectual property
- Environmental damage
- Limitations on tax revenue gains (due to possible tax exemptions to attract FDI)
- Limitations on labour gains (possible worker mistreatment)
- MNC dominance and lower resilience
Define foreign aid
Foreign aid is any assistance given to a country that would not have been provided through normal market forces.
What are the types of foreign aid?
- Humanitarian aid (food aid, medical aid, emergency relief aid)
- Development aid (with the aim of achieving development in the longer term)
- Debt relief
What are the types of development aid?
- Grants (no need to be paid back)
- Concession loans (loans with generous terms and conditions)
- Project aid (funding for small, short-term projects)
- Programme aid (long-term aid that supports improvements in an entire industry or sector)
- Official Development Assistance (when development aid is given by governments)
- NGOs
What is one benefit of development aid?
A major benefit of development aid is that it can be targeted directly where it is needed.
What are some limitations of development aid?
- May require certain actions from beneficiaries
- Major donors may undermine democracy, by deciding how the money donated is used
- Can be inefficient
Define debt relief
This is where part or all of a country’s debt is cancelled, rather than paid back.
What are some benefits of debt relief?
- Debt relief allows highly-indebted countries to direct their money to endeavours that really improve people’s lives, such as improving education, health care and infrastructure.
- Can improve intergenerational equity.
What are 2 limitations of debt relief?
- Is a moral hazard
- If money is not repaid to creditors there is less money available to lend to others who may need it.
Define multilateral development assistance
Multilateral development assistance is the support provided by organisations that many countries contribute to.
What are the largest multilateral development assistance organisations?
The World Bank and the International Monetary Fund (IMF).
What is the aim of the World Bank?
The World Bank loans money for large-scale, long-term development projects. The aim of the World Bank is to reduce poverty.
What is the aim of the IMF?
The aim of the IMF is to maintain global economic stability.
What are the divisions of the World Bank?
The International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA).
How does the IMF pursue its objectives
- Economic surveillance
- Lending
- Capacity development
How can access to banking be improved?
- Improving access to transaction accounts
- Mobile banking
- Micro-credit
How can countries improve access to transaction accounts?
- increase the number of bank access points, especially in rural areas
- reduce service fees for bank accounts
- help people get biometric identification to prove identity
- increase the use of digital technologies
What are the issues associated with micro-credits?
- Poor people are not natural entrepreneurs
- They often have inconvenient payment schedules
What are the 7 drivers of women’s empowerment?
- Tackling adverse norms and promoting positive role models
- Ensuring legal protection and reforming discriminatory laws and regulations
- Recognising, reducing and redistributing unpaid work and care
- Building assets – Digital, financial and property
- Changing business culture and practice
- Improving public sector practices in employment and procurement
- Strengthening visibility, collective voice and representation
What are the components of institutional change?
- Banking and Microcredit
- Women’s empowerment
- Corruption
- Property and land rights
What are all the economic growth and/or economic development strategies?
- Trade policies
- Social enterprises
- Market-based policies
- Interventionist policies (redistribution + merit goods)
- Inward FDI
- Foreign aid
- Multilateral development assistance
- Institutional change (Banking and Microcredit, Women’s empowerment, Corruption, Property and land rights)
