LS18 - Strategies Influencing Growth And Development (Part 2) Flashcards
Advantages and disadvantages of protectionism as a development strategy
- allows infant industries ‘breathing space’ to develop & become competitive enough to export
- allows for dynamic efficiency gains
- ineffective without export discipline or other incentives to improve quality
Human capital
measure of individuals’ skills,
knowledge, abilities, social attributes, personalities and health attributes. These factors enable individuals to work, and therefore produce something of economic value.
What does a buffer stock aim to do?
Reduce price volatility of primary products to stabilise the incomes of producers in these industries.
How can a buffer stock help to increase investment in LEDCs?
1) By increasing the incomes of those operating in primary product industries which would then increase the amount of savings available for investment.
2) Price guarantees give producers greater certainty of future profits.
Why will a country be more attractive to FDI if the level of human capital in a country increases?
- as human capital rises then they are more likely to produce something of economic value, so increases business confidence so more attractive to FDI
Buffer stock schemes
Buffer stock schemes seek to stabilize the market price of agricultural products by buying up supplies of the product when harvests are pletiful and selling stocks onto the market when supplies are low
Disadvantages of buffer stocks
• It may be difficult to maintain a buffer stock large enough to impact the market price.
• If floor price is set too high, producers have an incentive to grow more crops. This can lead to producers growing an excessive number of products. This would be inefficient as some would be wasted and resources would be directed away from other areas of the economy.
-Storage and transporation costs must be paide seatin, this represent an opportunity
cost.
• All producers must be part of the scheme for it to be effective. Otherwise, control over supply is limited thereby reducing the power of the operators of the scheme to manipulate market prices.
Crucial aspects of a country’s infrastructure
- transport system - Connecting regions of the country through reliable and quick transport networks enables people and goods to around rapidly. Transport networks thereby help to make a country’s goods and services more competitive.
- power networks - Providing reliable energy is vital for industry and running public services. If firms have a secure power supply, they are more likely to meet orders on time and avoid costly delays. This helps them stay competitive and maintain high quality.
Advantages & disadvantages of infrastructure
Advantages
1. Increased productivity
2. Improved quality of life
Disadvantages
1. Opportunity cost
2. Risk that money is wasted if corruption is rife
3. Increase in foreign debt if financed through international borrowing
Joint ventures
A joint venture is an association of two or more businesses for the purpose of engaging in a specific enterprise for profit. The businesses involved remain separate entities.
Examples:
• FirstGroup and TrenItalia form (70:30) joint venture to operate the west coast rail franchise. (2019)
• GVC and MGM form (50:50) joint venture to create a sports betting and interactive gaming platform in the US. (2018)
Advantages of joint ventures
- Potential for technology transfer
- Likely to boost exports (also a good way to earn foreign exchange)
- Injection of foreign capital —> helps overcome savings gap
Disadvantages of joint ventures
Country may come to depend on foreign technology rather than develop its own if governments aren’t proactive about technology transfer
How can a joint venture overcome the problem a savings gap creates?
- can help overcome low levels of investment by providing capital, foreign companies participating in joint ventures allow for higher levels of investment in LEDCs
- this creates the potential for tech transfer since these companies are likely to want to produce as efficiently as possible
- exports are also likely to rise which can help solve the foreign currency problem
How can a joint venture overcome the problem a savings gap creates?
- can help overcome low levels of investment by providing capital, foreign companies participating in joint ventures allow for higher levels of investment in LEDCs
- this creates the potential for tech transfer since these companies are likely to want to produce as efficiently as possible
- exports are also likely to rise which can help solve the foreign currency problem
What is the demand of a currency composed of?
Exports (foreign buyers must hold the currency to pay for imports), inward savings investment (to store money in a foreign bank investors must convert it into the local currency), and speculation.
