Global – Strategies for G&D Flashcards
List all the Strategies that can be used for G&D
1) International trade strategies
2) Diversification and social enterprise
3) Market-based policies
4) Interventionist policies
5) FDI and multinational corporations
6) Foreign aid
7) Multilateral development assistance
8) Institutional change
What International Trade Strategies can be used for G&D?
- Import substitution
- Export promotion
- Economic integration
- Trade liberalization
What is Import Substitution?
Trade strategy where a country begins to manufacture simple consumer goods for the domestic market to promote its domestic industry + application of trade barriers (tariffs/quotas) to protect domestic producers from foreign competition.
What are the Consequences of Import Substitution?
- High levels of protection - allocative inefficiency
- Overvalued exchange rates (import capital cheaply)
- Too much government intervention
- Neglect of agriculture
- Balance of payments deteriorates (more debit)
- Capital-intensive production
- Increased unemployment (capital-intensive prod.)
- Less efficiency (limited possibilities of growth)
What is Export Promotion?
Trade strategy where a country attempts to achieve economic growth by expanding exports. Implements the policies:
• Financial assistance to target key industries
• Large public investment into key areas
• Requirements to multinational corporations
• Exchange rate management
What Countries Successfully used Export Promotion?
Asian Tigers (China, Indonesia, Japan, Singapore, etc).
What are the Disadvantages of Export Promotion?
- May become dependent on exports
- Wages may be maintained low to favor production
- Other countries may implement trade barriers.
How can Economic Integration benefit G&D?
Regional groupings allow countries to:
• Expand markets through economies of scale
• Diversify production and exports
• Increase FDI and domestic investment
• Competition is fair (countries at same level)
• Pursuit of joint policies (investment)
What are the Risks of Bilateral FTAs associated with G&D?
Bilateral FTAs usually occur between developed and developing countries, this conflicts with the first as:
• Must apply same trade barriers (low cuts)
• Compete with other countries which have and FTA
• Trade deficit (little exports and high imports)
• Weaker bargaining power in negotiations
• Weakens regional trade agreements
What is Diversification?
Reallocation of resources into new activities that broaden the range of goods and services produced.
How can Diversification benefit G&D?
Allows countries to achieve:
• Sustained increase in exports
• Development of technological capabilities and skills
• Reduced vulnerability to price volatility
• Use of domestic primary commodities
What is Social Enterprise?
Type of commercial organization that aims to achieve particular social goals to improve people’s well-being and promote social change.
How can Social Enterprises benefit G&D?
- Focus on anti-poverty programmes
- Operate in a broad variety of areas
- High female participation rate
- May provide microfinance
What types of Market-Based Policies can be used for G&D?
1) Trade liberalization
2) Privatization
3) Deregulation
What are the Disadvantages of Trade Liberalization?
- Doesn’t consider trade protection by developed c.
- Growing reliance on free market policies
- Too little government intervention
- Greater income inequality
What types of Interventionist Policies can be used for G&D?
1) Redistribution policies
2) Provision of merit goods
What are the types of Redistribution Policies?
- Tax policies
- Transfer payments
- Minimum wages
How can Redistribution Policies benefit G&D?
- Improve distribution of income (equity)
- Improve welfare of disadvantaged individuals
- Reduce poverty
- Empowerment of women
How can Provision of Merit Goods benefit G&D?
Provision generates social benefits, specifically with provision in education, health and infrastructure.
What is Foreign Direct Investment (FDI)?
Investment by firms based in one country (home) in productive activities in another country (host) with control of at least 10%.
What is a Multinational Corporation (MNC)?
A firm that undertakes foreign direct investment.
How can FDI benefit G&D?
- Investment funds into host are credits to financial ac.
- Supplement and improve technology + skills
- Increase investment
- Greater tax revenue
- Help promote local industry (buy local product inputs)
- Economic growth in host
What are the Disadvantages of FDI?
- Repatriation of profits = debit to financial ac. host
- Corps may hire professionals from home
- Have tax privileges as an incentive (less revenue)
- May force local businesses out of market
- Create unemployment (for above reasons)
- Environmental damage
- Promote inappropriate consumption (e.g. fast food)
- May use gov resources for infrastructure
- May use econ. and political power to influence gov
- Competition in developing countries to host MNCs
What is Foreign Aid?
The transfer of funds or goods and services to developing countries with the objective to bring improvements in economic, social and political areas.
What Forms can Foreign Aid have?
- Official development assistance (ODA)
- Non-governmental organizations (NGO)
- Debt relief
What Two Characteristics must Foreign Aid have?
Must be 1) concessional 2) non-commercial
Distinguish between Humanitarian and Development Aid
Humanitarian aid involves aid extended to regions affected by natural disasters or conflict (intended to save lives). Development aid involves financial support to help regions achieve G&D.
What is Official Development Assistance (ODA)?
Foreign aid offered by countries or international organizations composed by a number of countries.
What are Non-Governmental Organizations (NGOs)?
Non-profit organizations that provide a wide range of services with humanitarian functions.
How can ODA benefit G&D?
- Alleviate poverty
- Makes resources available (health, ed, infrastructure)
- Increases in C+I = increase in GDP (econ growth)
- Achieves SDGs
- Prevents the debt trap (through debt relief).
What are the Disadvantages of ODA?
- Tied aid (can only purchase products from donor)
- Conditional aid (must accept conditions and projects)
- Flow of aid is volatile (uncertainty for policies)
- Uncoordinated donors = inefficiency
- May substitute domestic resources
- May not reach those most in need
- May be associated with corruption (misuse of funds)
- Funds aren’t enough.
How can NGOs benefit G&D?
- Anti-poverty initiatives = poverty alleviation
- Work closely with project beneficiaries
- Democratization (give political voice to the poor)
- Offering expertise and advice
- Propose innovative solutions
What are the Disadvantages of NGOs?
- Small size (unable to play a major role)
- Growing of dependence on aid
- Best qualified personnel is brought away from gov
- May conflict with government policy
What is Multilateral Development Assistance (MDA)?
Lending to developing countries on non-concessional terms (interest rates determined by market) by multilateral organizations.
State Two Examples of MDA Organizations
1) World Bank
2) International Monetary Fund (IMF)
How does the World Bank help Developing Countries?
Extends long-term loans to promote structural change and development. It divides between two sectors:
• International bank for reconstruction and dev.
• International development association
The first lends non-concessional loans to middle-income countries, the second gives concessional loans to low-income countries.
What are the Disadvantages of the World Bank?
- Social and environmental disturbance (via projects)
- Rich countries have higher voting power in the org
- Criticized to not give enough funds for poverty all.
- Excessive use of market-based supply-side policies
What is the International Monetary Fund (IMF)?
Multilateral financial institution established with the World Bank with the purpose of lending to countries experiencing balance of payment deficit under fixed exchange rates.
How does the IMF help Developing Countries?
The IMF provides loans along with a package of policies that must be complied, these can include:
• Contractionary monetary or fiscal policy
• Currency devaluation or depreciation
• Cuts in real wages
• Liberalization policies
What are Liberalization Policies?
Eliminating or reducing controls on prices, interest rates, imports and foreign exchange, to promote a free market and free trade enviornment.
What are the Disadvantages of the IMF?
- Rich countries have higher voting power in the org
- Excessive interference in domestic economy
- Conditional lending (forced to accept conditions)
- Stabilization policies are damaging (e.g. wage cuts)
- Past countries have suffered worsening conditions
What does Institutional Change consist of?
1) Improved access to banking
2) Increasing women empowerment
3) Reduce corruption
4) Establish property and land rights
What Two Strategies can be Applied to Improve Access to Banking?
1) Microfinancing
2) Mobile banking
What is Microfinance?
Refers to credit in small amounts to people who do not have access to it due to lack of collateral (poverty).
+ Also called Microcredit
What are the Disadvantages of Microfinance?
- May become substitutes to poverty policies
- Growth of informal sector
- Loans are given to unskilled people = no profit
- Interest rates are too high (repayment is hard)
What is Mobile Banking?
Involves the use of mobile devices to recieve or send money and pay bills.
What are the Disadvantages of Mobile Banking?
- Network problems cause delays
- The cost of the service is expensive
- Inability of older people to read (vulnerable to fraud)
How can Women Empowerment benefit Developing Countries?
- Improvements in child health and mortality rate
- Improvements in educational attainment of children
- Quality of human resources
- Lower fertility rates/birth rates
What Strategies can be used to Reduce Corruption?
- Supervision by agencies/public of financial progress
- Reform institutions of tax admin
- Merit-based hiring
- Cooperate with other countries
How can Secure Land Rights benefit Developing Countries?
- Contribute to food security
- Lower rates of deforestation
- Preserve biodiversity and food cultures
- Contribute to gender equality (rights to women)
- Poverty reduction
What are the Disadvantages of Market-Oriented Policies?
- Cannot deal with market failure
- Cannot improve institutions
- Insufficient credit for poor people
- Loss in protection of workers = inequality
- Does not redistribute income (more poverty)
- Does not empower women
- May lead to growth of informal market
- Withdrawal of gov. provision hinders G&D
What are the Disadvantages of Interventionist Policies?
- Opportunity cost and budget deficit/debt
- Excessive bureaucracy and intervention (inefficient)
- Elite groups exert political pressure
- Corruption
- Poor governance
