LS18 - Strategies Influencing Growth and Development Flashcards
How can trade liberalisation help overcome foreign currency gap?
TL leads to more competition and efficient production –> more output –> more exports –> earn foreign currency
How can trade liberalisation help overcome savings gap?
TL results in more output, meaning more income –> higher savings
Why might infant industries struggle with trade liberalisation?
They might be unable to compete with tough foreign competition
How can TL and diversification beyond primary products develop economy?
Primary prods are income elastic, with volatile prices, meaning income is not insured - this leads to uncertainty, and so, low levels of investment
Manufacturing sector is more income inelastic, meaning more secure income - more growth and investment
Foreign Direct Investment
Foreign entity investing into another economy
Increses injections into economy, leading to more output and exports and rise in AD. Results in higher, more secure income, better livings standards.
Microfinance
Small loans and other financial services given to individuals or groups to promote business activity or investment.
For a farmer in a LEDC, who is unable to get a loan from the bank (due to high risk, low savings, no collateral), can instead use microfinance to fund capital investment (tractor, combine, etc) to improve production and boost income.
With a group of farmers, their collective bargaining increases, allowing them to be more creditworthy and attain larger loans.
Microfinance can improve the level of capital, increasing productivity and economic development.
How can removal of subsidies help develop economy?
Able to redirect spending to investment in inrastrcuture, education, healthcare - boosts productivity, living standards and quality of labour
Why is supporting infant industries harder if subsidies are removed?
Infant industries/SMEs need help while starting up, due to high competition from incumbent firms and global firms.
Why can removal of subsidies on goods such as food or fuel worsen poverty?
If subsidies for these goods are removed, the price of essential goods rises, as the firms face higher costs of production
This reduces the purchasing power of households, with poorer families being hit the hardest, as they struggle to afford necessities
How can floating exchange rates help LEDC gain competitiveness?
Can adjust to market forces - exports cheaper (lower ex rate), meaning their exports are more competitive
How can managed exchange rate worsen foreign exchange gap?
If currency is overvalued, exports are more expensive, reducing export demand and so income
So foreign currency revenue falls, widening the gap
How can floating exchange rate hinder LEDC economic development?
Floating exchange rate is dependent on supply/demand, which causes uncertainty –> bad planning of investment and lack of FDI
How did protectionism help develop economies?
Supported domestic firms and industries, allowed economy to grow value adding industries such as manufacturing
South Korea - shipbuilding, mobile phones, automobiles
Why have some countries domestic industries failed to develop even with protectionism?
Production became dependent on supply, gained no export discipline, Industries became inefficienct
Brazil, Malaysia
How can buffer stock schemes be used to control price?
If price is too high (above upper limit), due to increased demand/reduced supply, this would harm consumers
So govt releases stock into market to bring price back down
If price is too low (below lower limit), due to reduced demand/increased supply, this would harm producers income
So govt buys back stock, reducing supply, increasing demand to boost price
