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Econ Theme 4 > L18- Strategies influencing growth and development pt1 > Flashcards

L18- Strategies influencing growth and development pt1 Flashcards

market- orientated startegies

1
Q

market-orientated strategies influencing growth and development

A
  • trade liberalisation
  • promotion of FDI
  • removal of govt. subsidies
  • floating exchange rates
  • microfinance schemes
  • privatisation
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2
Q

interventionist strategies influencing growth and development

A
  • development of human capital
  • protectionism
  • managed exchange rates
  • infrastructure development
  • promotion of joint ventures
  • buffer stock schemes
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3
Q

other strategies influencing growth and development

A
  • industrialisation
  • development of tourism
  • development of primary industries
  • fair trade schemes
  • aid
  • debt relief
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4
Q

what are market orientated strategies

A

measures which make the economy more free, with minimum government intervention.

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5
Q

market- orientated strategies: trade liberalisation

A
  • results in greater trade
  • allows countries to specialise- output up- living standards up, economic growth up
  • more foreign currency earned= overcome foreign currency gap= funds imports of capital and raw materials= econ growth up
  • higher employment and wages= overcome savings gap= econ growth up
  • more competition= promotes innovation and efficiency= econ growth up
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6
Q

advantages and disadvantages of trade liberalisation for firms

A

+ greater market access- greater sales potential and expand and benefit from economies of scale
+ cheaper raw materials and capital goods
- more competition
-risk of dumping

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7
Q

advantages and disadvantages of trade liberalisation for economies

A

+ more competition= increase in efficiency and quality (or outcompeted and go out of business)= resources allocated to industries in which country has comparative advantages = efficiency and economic growth increase
-infant industries unlikely to survive competition= hinder efforts to move up value chain and into more advanced goods and services= period of protectionism needed before trade liberalisation fully implemented to give country best chance of achieving economic development

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8
Q

why does the savings gap hinder economic development

A
  • financial capital in system is limited (as savings rates are low)= restricts amount of finance can be provided to firms seeking to invest= amount of capital goods is limited= low economic growth- incomes likely to remain low
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9
Q

what is the foreign currency gap and why does it hinder economic development?

A
  • in LEDCs, the amount of foreign currency available is not enough to meet the demand for imports
  • imported goods vital for industrialisation- limited due to foreign currency gap, productivity growth limited= economic development of LEDCs is constrained
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10
Q

disadvantages of trade liberalisation (Eval)

A
  • difficult for infant industries to mature into competitive firms
  • risk of structural employment in some industries if it exposes them to more competitive rivals
  • some LEDCs will be specialised in primary products- limit economic development in long run
  • price volatility may negatively impact export revenue esp for LEDCs specialising in primary products
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11
Q

what is FDI

A

the flow of capital from one country to another, to gain a lasting interest in an enterprise in the foreign country.

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12
Q

how does FDI help LEDCs

A
  • MNCs setting up in country provides external funding
  • MNCs likely to train local workers and suppliers
  • MNCs likely to bring more advanced forms of capital
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13
Q

Advantages of FDI

A
  • injection into circular flow
  • potential for transfers of tech and skills
  • higher economic growth
  • capital inflows can be used to finance current account deficit
  • higher exports from host country- improves position on current account
  • FDI generates tax revenue for host country
  • FDI lead to higher wages and improved working conditions esp if TNCs take social responsibility seriously - raise living standards, overcome savings gap
  • greater competition lowers prices= raise living standards
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14
Q

Disadvantages of FDI

A
  • may only hire local workers to limited extent as low- skilled work left to locals and high skilled done by expats= limits degree to which FDIs will improve skills of LOCAL labour force
  • tax revenue raised may be small as some LEDCs use tax breaks as incentive for TNCs. MNCs may have accounting tricks to minimise tax bill
  • TNCs likely to outcompete local rivals through superior quality- monopoly status
  • may take advantage of weak environmental regulation and external costs borne by host country
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15
Q

what is microfinance

A
  • small loans and other financial services given to individuals or a group to promote business activity
  • increases income of those who borrow and can reduce their dependency on primary products - could be multiplier effect form investment of loan
  • usually for unbankable people- allows to break from aid and gives financial independence
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16
Q

advantages of microfinance

A
  • fills savings gap= higher incomes + higher capital accumulation= lower poverty + economic growth+ higher chance of economic development
  • empowers women= higher incomes= lower poverty + greater utilisation of available factors of production= higher economic growth= chance of economic development
  • detach poor from high interest loan sharks, investment, stimulate employment
17
Q

disadvantages of microfinance

A
  • some lenders are profit orientated rather than motivated to improve lives of poor= reckless lending and unsustainable debt
  • some microloans have high interest rates= greater chance of failure and higher chance of debt
  • some microloans spent on immediate consumption
  • data collected on microfinance may not be reliable if there is dishonesty regarding where money was spent
  • tamil nadu- less than 2% of microenterprises still operating after establishment
18
Q

how can removal of govt. subsidies increase growth and development

A
  • govts. often give subsidies to goods and services that do not produce external benefits or produce external costs
  • firms with subsidies may feel less under pressure to be efficient and minimise waste (can counter this by making subsidies contingent on positive economic performance)
  • subsidies could distort price signals by distorting free market mechanism- could lead to govt. failure= could be inefficient allocation of resources as market mechanism is unable to act freely
19
Q

what is privatisation

A

the transfer of economic activity from the public sector to the private sector- govt. sells a firm (revenue raised for govt), firm is left to free market and private individuals
- e.g. royal mail

20
Q

advantages of subsidies

A
  • for LEDCs can be used to support infant industries= growth of these industries can lead to economic development= once able to produce at competitive level, subsidies removed= dynamic efficiency
  • e.g. south korea- creating domestic car, ship and semiconductor industries
  • increased production of goods and services, spending on R&D can lead to tech innovations and boost economic growth
21
Q

how does privatisation increase growth and development and eval

A
  • profit motive present, competition present= efficiency up as firms can increase profits by lowering costs= increases economic welfare
  • competition= incentive to lower costs and meet customer needs = increases allocative efficiency + higher quality
  • BUT risk that price and quality will not improve if privatised industry is a natural monopoly (because introducing competition to these markets is difficult) and LEDCs may lack capacity to regulate these industries- risking corrupt practices
22
Q

what is a floating exchange rate

A
  • market forces (S+D) determine exchange rates instead of govt. in fixed exchange rate
23
Q

advantages of floating exchange rate-

A
  • exchange rates may be overvalued in a fixed exchange rate- this would reduce competitiveness of imports
  • LEDcs govts./central banks do not need to hold large reserves of gold/currency- this means there is more foreign currency to use on imported capital goods
  • monetary policy is freed up to target macro objectives
  • can help reduce deficit on current account
24
Q

disadvantages of floating exchange rate

A
  • LEDCs lose ability to support infant industries through undervaluing the currency
  • LEDCs lose ability to pursue import substitution industrialisation
  • exchange rate volatility can create instability that undermines investment

Econ Theme 4 (11 decks)

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