L18- Strategies influencing growth and development pt 2 Flashcards
what are interventionist strategies
The government intervenes in the market to try and influence growth and development using interventionist strategies
advantages of protectionism
- can help reduce trade deficit ( less imports due to tariffs and quotas on imports)
-protect infant industries- short term until industry develops and becomes competitive enough to export - allows for dynamic efficiency gains
disadvantages of protectionism
- ineffective without export discipline or other incentives to improve quality
- could distort the market and lead to a loss of allocative efficiency
- prevents industries from competing in competitive market and there is a loss of consumer welfare = higher prices and less variety + no incentive to lower costs of production
- tariffs are regressive and damaging to those on low fixed incomes
- risk of retaliation from other countries
development of human capital advantages
- Education and training= enhance skills of the workforce= increased ability of LEDCs to move into higher-value added sectors
- productivity up= more advanced tech to be used as workers will have necessary skills
- skills shortages limits business expansion and innovation
- primary school enrolment 80% to 90%
what are buffer stock schemes
- Buffer stock schemes seek to reduce price volatility of agricultural products by buying up supplies of the product when harvests are plentiful and selling stocks onto the market when supplies are low.= stabilises incomes of producers in these industries
- historically, these have been unsuccessful
advantages of buffer stock schemes
- increasing incomes of those operating in primary product industries= increase amount of savings available for investment
- price guarantees give producers greater certainty of future profits
disadvantages of buffer stock schemes
- may be difficult to maintain buffer stock large enough to impact the market price.
-If floor price is set too high, producers have incentive to grow more crops = excessive number of products= inefficient due to waste and resources would be directed away from
other areas of the economy. - expensive to buy up stocks= opportunity cost.
-Storage and transportation costs= opportunity cost. - All producers must be part of the scheme for it to be effective. Otherwise, control over supply is limited= reducing power of operators of the scheme to manipulate market prices.
Developing infrastructure
- transport system- reliable and quick= people and goods can travel rapidly= goods and services more competitive
- reliable power networks. = vital for industry and running public services= more likely to meet orders on time and avoid costly delays= remain competitive and of high quality
- higher supply costs delay businesses and it reduces the mobility of labour
advantages of developing infrastructure
- increased productivity
- improved quality of life
disadvantages of developing infrastructure
- opportunity cost
- risk that money is wasted if corruption is rife
- increase in foreign debt if financed through international borrowing
Promotion of Joint Ventures with global companies - what is a joint venture
This occurs when a partnership is formed between two firms based in multiple countries.
advantages of promoting joint ventures with global companies
- potential for technology transfer= help improve and develop small companies
- likely to boost exports
- injection of foreign capital= helps overcome savings gap
disadvantages of promoting joint ventures with global companies
country may come to depend on foreign tech rather than develop its own if govts. are not proactive about tech transfer
what are managed exchange rates
- govt. defines target range in which exchange rate is allowed to fluctuate
- if it depreciates below, govt./central bank takes measures to increase its value e.g. raising interest rates, buying domestic currency with foreign currency and capital controls
- if appreciates above = lower interest rates and/or sell domestic currency to buy foreign currency
