L18- Strategies influencing growth and development pt 3

Question 1

explain the Lewis model- industrialisation

Answer 1

• model explaining how LEDCs that focus on agriculture can move to manufacturing
• assumes surplus of unproductive labour in agriculture,fixed wages in manufacturing sector, workers in agriculture attracted to higher wages in manufacturing sector
• manufacturing sector- entrepreneurs charge prices above wage rate- profit they invest into more fixed capital
• demand for labour increases as productive capacity of firms has increased- surplus labour in agriculture employed into manufacturing sector (underemployed, marginal productivity low, transfer without fall in agricultural output)
• grows manufacturing- economy moves from agriculture to manufacturing- traditional to industrialised

Question 2

eval of lewis model

Answer 2

• profits may not be reinvested into firm
• capital investment may replace labour= demand for labour falls instead
• not always easy for labour in agriculture to move to manufacturing

Question 3

development of tourism advantages

Answer 3

• create jobs, help shift LEDCs away from dependency on primary products
• tourism has positive YED, prevent deterioration in TOT
• helps diversify economy, could make country more attractive to FDI as well as developing infrastructure
• way of earning foreign currency
• job creation

Question 4

development of tourism disadvantages

Answer 4

• external costs- overcrowding and loss of habitats
• gains in employment may only be seasonal
• sector likely to decline in times of global recession
  -income from tourism unstable- relies heavily on business cycles in developed countries
• investing in tourism can be risky and expensive- focus where tourism is attracted

Question 5

Difference between static efficiency and dynamic efficiency

Answer 5

static= efficiency at a given point in time e.g. productive/ allocative efficiency
- dynamic= improvements in efficiency over time

Question 6

what is primary product dependency

Answer 6

heavy dependence measured as a share of GDP, total exports or employment from the extraction/ cultivation of primary commodities such as copper and oil

Question 7

advantages of developing primary industries

Answer 7

• way of making efficient use of factors of production which can then fund diversification of the economy
• revenue earned can be used to fund a stabilisation fund or sovereign wealth fund e.g. Norway has world’s largest fund based on its oil revenues

Question 8

disadvantages of developing primary industries

Answer 8

• no guarantee diversification will be successful or even attempted- primary product dependency
• if high degree of corruption, benefits of focusing on primary products are likely to be restricted to the elite (russia-oil, Congo-minerals)

Question 9

What is aid

Answer 9

overseas development assistance from one country to another- e.g. humanitarian assistance, technical expertise, project aid etc

Question 10

how does aid impact growth and development

Answer 10

• consumers in LEDCs= higher propensity to consume than save due to limited incomes= capital inflows in form of aid can help fill savings gap
• aid= temporary assistance e.g. humanitarian aid after conflict= grant for project country may not have funds for
• used to reduces human capital inadequacies or pay off debt, improve infrastructure= productivity up
• benefits limited by corrupt leaders

Question 11

disadvantages of aid

Answer 11

• danger of creating dependency culture in recipient countries= limit incentive to pursue development
• govt may misappropriate aid= food aid redirected to military
  -aid in form of loans must be repaid= if aid fails to increase econ growth, LEDCs debt-to-GDp ratios will rise= more debt
• aid alone unlikely yo affect econ development if no effective strategy in place

Question 12

debt relief advantages

Answer 12

• partial or total forgiveness of debt
• in LEDCs, debt considered principal cause of poverty= causes human suffering= hampers development
• high debt= financial resources diverted from infrastructure, education and healthcare
• debt relief= allow increased imports= standard of living up= imrpoves govt. finances= public services can be funded instead

Question 13

disadvantages of debt relief

Answer 13

• risk of dependency= may feel future debts will be cancelled[ borrow more
  -cancelling debt of countries run by corrupt govt.= more money misused e.g. personal gain
• debt cancellation can be used as way to secure influence in recipient country (china to africa)

Question 14

advantages of fairtrade schemes

Answer 14

• ensure farmers receive fair price for goods= supermarkets buy guaranteed quantity at price above market equilibrium= farmers have guaranteed income and certainty about their sales= plan for future
• support community development and social projects and ensuring working conditions meet minimum standard
• encourages sustainable production, promotes environmental protection, stops use of child labour

Question 15

disadvantages of fair trade schemes

Answer 15

• impact may be insignificant- argue its just a psychological impact on consumers in developed countries- believe they are helping
• could make producers not part of scheme worse off- divides market into fairtrade and non-Fairtrade markets- by distorting rice signals fairtrade us less efficient
• increases price of goods like bananas and cocoa= encourages farmers to produce more= supply up= farmers get minimum price but those not on scheme have to deal with lower market equilibrium price due to increase in supply