Globalisation - What measures may be used to support growth for less developed countries? Flashcards
1
Q
What are some ways of promoting economic growth and evaluate these methods(18)
A
Free Trade
- Free trade enables countries to specialise in goods where they have lower opportunity cost leading to lower prices and allows them to export these goods and earn more profit, which can be used for economic growth
- However, free trade may mean developing economies focus only on primary products; this may limit development in long term. To develop new industry they may need tariff protection at least in the short term
Aid
- Aid can be used to finance investment in infrastructure and human capital - this can increase capital stock / productive capacity and enable higher growth rates.
- However, it depends on the quality of the aid. Often aid is tied to purchasing donors exports and is limited in value.
- There is also a danger aid could be reduced due to corruption.
Debt relief
- Debt relief aims to end crippling debt interest payments, this enables countries to devote more funds on investment rather than paying interest.
- However, there is a danger debt relief could create moral hazard - If debt is relieved, there may be less incentive to borrow responsibly.
- Debt relief may make private firms reluctant to lend in the future.
Development of human capital
- Supply side policies to improve education and training can lead to better human capital and higher labour productivity.
- However, it takes time to educate workers
- Government spending is not guaranteed to improve labour productivity, as people may be reluctant to learn.
Non-government organisations
- e.g. Charities such as Oxfam
- Money could be used for development and improving healthcare
