Lesson 45-Strategies influencing growth and development Flashcards
Who and what do free market approaches favour?
They favour giving a large role to private sector enterprises using liberalisation of markets
.Structural supply side reforms to raise incentives
Give three examples of market led policies
.Fiscal discipline
.Reallocating state spending away from subsidies
.Tax reforms
.Floating rather than fixed exchange rates
.Privatisation of state enterprises
What does trade liberalisation involve?
This involves a country lowering import tariffs and relaxing import quotas and other forms of protectionism
What is the main aim of trade liberalisation?
It is to make the economy more open to trade and investment so it can engage more directly in the regional and global economy
Give two micro effects of trade liberalisation
.Lower prices for consumers/households which then increases real incomes
.Increased competition/lower barriers to entry
.Improved allocative and productive efficiency
.Might affect real wages of workers in certain industries
Give two macro effects of Trade liberalisation
.Multiplier effects from higher export sales
.Lower inflation from cheaper imports-causing outward shift of short run aggregate supply
.Risk of some structural unemployment
.May initially lead to an increase in the size of a nations deficit
Give three main gains of attracting inflows of HDI
.Improved infrastructure in power and transport sectors
.Higher capital intensity/Capital deepening
.Better training for local workers
.Investment grows country’s export capacity
.More competition in markets which lowers prices
.Creates new jobs leading to higher per capita incomes and increased household savings
.FDI can promote a shift to higher per capita incomes
Give two main risks from policies designed to attract investment into an emerging country
.Multinationals wield power within host countries and they can gain favourable laws and regulations
.Foreign multinationals take advantage of weak laws on anti competitive practices
.Multinationals tend to have poor working conditions
.Profits made in a LEDC are often sent back to the host country
.Multinationals can only employ local labour in lower skilled jobs
Give an example of three policies which are designed to attract foreign direct investment
.Attractive rates of corporation tax
.Soft loans and tax reliefs/subsidies
.Trade and investment agreements
.Flexible labourforce+skilled workers
.Creation of special economic zones
.High quality infrastructure
.Attraction of low unit labour costs
What are some criticisms of subsidies?
.Subsidies distort the working price mechanism
.Subsidies can stifle innovation because producers are less reliant on innovation as a way of making more profit
.Producers can become subsidy dependent
.There is a chance of corruption with the funds
.Subsidies can lower the incentive of producers to improve efficiency
Why would a country choose to have a floating exchange rate?
.It can be helpful for countries exposed to external economic shocks
.It means a country’s central bank does not have to intervene to change the currency’s price
.Capital controls can be used to limit the inflow and outflow of currency and this may make a country more attractive to foreign investment
.A govt does not have to use up foreign currency reserves to defend a fixed exchange rate that the market has decided is not sustainable
Give a benefit of privatisation
.Private companies have a profit incentive to cut costs and be more productively efficient
.Govt is able to gain revenue from the scale of assets and does not have to support a loss making industry
.Competitiveness increases and increased competitiveness will drive higher exports and long run GDP growth
Give two drawbacks of privatisation
.Social objectives are given less importance as private owned firms are driven by the profit motive
.Govt loses out on dividends from any future profits
.Public sector assets are sold cheaply and privatisation may suffer from corruption
.Privatisation leads to job losses as firms increase their efficiency
What interventions may be used to improve human capital?
.Strategies to improve nutrition and reduce the extent of stunted growth among young people
.Increase investment in primary and secondary schooling
.Incentives to attract an inflow of skilled migrant workers and curb ‘brain drains’
.Investment in training to re-skill people at risk of unemployment
.Cash transfer interventions can increase demand for education
What are two of the main arguments for protectionism?
Import substitution- trade barriers are designed to protect domestic industries which have not yet achieving economies of scale
.Can be a useful source of tax revenues for developing countries
.Tariffs can be used in response to the dumping of products into a country set at a price below cost
What are some risks associate to developing countries if they maintain high tariffs?
.Tariffs may protect jobs in some industries
.Revenues raised by tariffs may only be a small percentage of total govt revenue and lost jobs in other sectors will diminish the net effect
.There is a risk of retaliatory action by other countries
.Protectionist tariffs risk causing a lack of competition for domestic firms
.tariffs increase prices for consumers leading to high inlfation, reduced real incomes and increased risk of poverty
What is the one key aim of managed floating currencies?
To reduce the volatility of exchange rates
What are the two aims in appreciating the value of a currency?
.To curb demand pull inflationary measures
.To reduce the prices of imported capital and technological
Give two aims in depreciating the value of the currency
.Improve the balance of trade in goods and services/improve current account position
.Reduce the risk of a deflationary recession
.Rebalance the economy away from domestic consumption towards exports and investment
.Sell foreign currencies to overseas investors as a way of reducing the size of government debt
Give two arguments for having a buffer stock
.Lower risk of extreme food poverty for poorest customers
.More stable incomes and profits for farmers
.Helps macroeconomic stability/investment
Give two arguments against using buffer stock schemes
1.Buffer stock may not be large enough to change the market price
.Setting a high price for farmers could cause rising surpluses
.High costs of storage and falling quality of product
.Many buffer stock schemes fail because of poor administration/corruption
Give a benefit of overseas aid to the receiving country
.Helps to overcome the savings gap and can help stabilise post conflict environments
.Project aid can fast forward investment in critical infrastructure
.Long term aid for health and education projects-this builds human capital
.Target aid might add around 0.5% to the annual growth rate of the poorest countries which benefits donor countries as trade grows
.India has a space station and we dont
Give a drawback of high levels of overseas aid
.Poor governance-aid might leave the recipient country due to corruption
.Lack of transparency
.It may lead to countries becoming dependent on aid and ruining any entrepreneurial culture
.Aid may lead to a distortion of market forces and a loss of economic efficiency
