LS18 - Strategies Influencing Growth & Development (Part 3)

Question 1

Lewis model of industrialisation

Answer 1

• small-scale household farming in LEDCs is characterised by excess supply of workers
• marginal workers in this sector therefore have a marginal productive of 0
• opp cost of transferring workers from agricultural sector to industrial sector is low/0
• the transfer of labour facilitates industrialisation
• can boost profit which can be invested in capital leading to more growth and opportunities to invest

Question 2

Evaluation of Lewis model of industrialisation

Answer 2

1) Without state support and infant industry protection countries have struggled to industrialise successfully.
2) Improving efficiency through supply-side policies in the agricultural sector.
- investment in education & training to enhance human capital will likely be needed to move beyond labour intensive industries
- profit may not be reinvested locally if the firm is a TNC

Question 3

Advantages & Disadvantages of Developing Tourism for Growth and Development

Answer 3

Advantages
1. A large tourism sector will provide ample foreign currency
2. Potential for inward FDI from MNCs in the tourist industry
3. Job creation
4. Tourism has a positive YED which can help prevent deteriorations in the terms of trade
Disadvantages
1. External costs
2. Gains in employment may only be seasonal
3. Sector likely to decline in times of global recession

Question 4

What’s the difference between static efficiency and dynamic efficiency?

Answer 4

Static efficiency is efficiency at a given point in time e.g. productive or allocative efficiency. Dynamic efficiency refers to improvements in efficiency over time.

Question 5

What is a primary product?

Answer 5

Goods that are available from cultivating raw materials without a manufacturing process. Significant primary product industries include agriculture, fishing, mining, and forestry.

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

Norway

Answer 7

Oil producers

Question 8

Qatar

Answer 8

Oil producers

Question 9

Chile

Answer 9

Papaya, copper & lithium

Question 10

New Zealand

Answer 10

Meat, wood & dairy products

Question 11

Countries that successfully developed primary industries

Answer 11

• Taiwan
• Japan
• South Korea

Question 12

Countries that failed to develop primary industries

Answer 12

• Malaysia
• North Korea
• Thailand
• Indonesia
• Philippines

Question 13

Advantages of developing primary industries

Answer 13

• It is a way of making efficient use of existing 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 developed the world’s largest sovereign wealth fund based on its oil revenues.

Question 14

Disadvantages of developing primary industries

Answer 14

• No guarantee diversification will be successful or even attempted → primary product dependency
• If there is a high degree of corruption, benefits of focusing on primary products are likely to be restricted to the elite e.g. Russia (oil), Congo (minerals) etc.

Question 15

Disadvantages of developing primary industries

Answer 15

• No guarantee diversification will be successful or even attempted → primary product dependency
• If there is a high degree of corruption, benefits of focusing on primary products are likely to be restricted to the elite e.g. Russia (oil), Congo (minerals) etc.

Question 16

Sovereign wealth fund (SWF)

Answer 16

A government or state-run fund usually created by profits from natural resources. Highly secretive, their assets grew dramatically when oil prices rose to record levels. Some of the largest SWFs are in the oil and gas-rich Middle East and Norway.

Question 17

Aid

Answer 17

overseas development assistance from one country to another. Might take the form of humanitarian assistance, technical expertise and project aid etc.

Question 18

Official Development Assistance (ODA)

Answer 18

loans, grants, and technical assistance provided to developing countries.

Question 19

Bilateral aid

Answer 19

ODA from one country to another e.g. UK ODA to Pakistan

Question 20

Multilateral aid

Answer 20

ODA from a multilateral institution or group of countries to another e.g. World Bank ODA to Lesotho.

Question 21

Tied aid

Answer 21

ODA from one country to another that must be used to purchase goods and services produced by the donor country.

Question 22

External debt

Answer 22

the total debt which the residents of a country owe to foreign creditors. The debtors can be the government, corporations or citizens of that country.

Question 23

External debt

Answer 23

the total debt which the residents of a country owe to foreign creditors. The debtors can be the government, corporations or citizens of that country.

Question 24

Debt relief

Answer 24

cancellation or rescheduling a nation’s external debts.

Question 25

Heavily Indebted Poor Countries (HIPC) & Multilateral Debt Relief Initiative (MRDI):

Answer 25

World Bank and IMF led debt relief programmes to the poorest LEDCs that started in 1996 and 2005 respectively

Question 26

Heavily Indebted Poor Countries (HIPC) & Multilateral Debt Relief Initiative (MRDI):

Answer 26

World Bank and IMF led debt relief programmes to the poorest LEDCs that started in 1996 and 2005 respectively

Question 27

Aid disadvantages

Answer 27

• can create dependency culture, may lessen the impetus for gov in LEDCs to pursue development
• aid can be misappropriated
• aid in forms of loans have to be repayed, if aid doesn’t lead to growth then it can make debt levels rise and less sustainable
• aid alone is unlikely to lead to economic development if there isn’t an effective development strategy in place

Question 28

Arguments in favour of debt relief

Answer 28

• frees up money for public services e.g healthcare & education
• money saved by the developing country can be invested in capital goods to grow the economy

Question 29

Arguments against debt relief

Answer 29

• some claim that cancelling debt creates a moral hazard & a dependency culture- feel future debts will be cancelled so may borrow more
• cancelling debt of corrupt countries may mean more money is misused e.g. personal gain/repression
• debt cancellation can be used by donor country to secure influence in recipient countries

Question 30

What is a fair trade scheme?

Answer 30

In a fair trade scheme, groups of producers act collectively by selling their produce together to food retailers in MEDCs. Organisations buying from free trade collectives pay a minimum price to the producer plus an additional premium, usually 10%. As a result, fair trade products are usually more expensive than standard products.
The premium is collected by the cooperative and is to be spent on community development projects determined through a democratic voting process involving all cooperative members.

Question 31

What is the rationale for fair trade schemes?

Answer 31

Some argue that the prices received by producers of primary products in LEDCs are not high enough to allow for an acceptable standard of living. If they were to receive a higher price, the argument goes, this could reduce poverty and the inequality between MEDCs and LEDCs. Thus, consumers in MEDCs can shop ethically and producers in LEDCs can receive higher revenue.

Question 32

Arguments in favour of fair trade schemes

Answer 32

• procedures receive a higher price which can improve LEDCs incomes, helps overcome savings & foreign currency gaps & reduce absolute poverty
• due to premium, extra funding for social & infrastructure projects is available, can help improve infrastructure and human capital in LEDCs
• additional revenue may finance investment that allows producers to diversify into other products

Question 33

Argument against fair trade schemes

Answer 33

• distortion of market forces - low prices due to overproduction & producers ought to recognise this as a signal to switch to growing other crops

Question 34

Evaluation of fair trade schemes

Answer 34

• farmers in developing countries may lack abilities to switch between production types due to lack of info, access to financed & markets. Low prices may be due to MEDC subsidies (distort market)
• artificially high prices may encourage production & new firms to enter the market, increasing supply so reduces market prices. Doesn’t affect producers part of the scheme, but those outside would experience a fall in price and revenue depending on PED
• if PED is elastic a fall in price will lead to a rise in total revenue, guaranteeing a min price may reduce incentive for producers to improve quality