Macro 20 - Strategies for growth and development Flashcards

Question

What are the disadvantages of the growth and development of education and human capital in promoting growth and development?

Answer 1

- The cost to the government in providing state education. Much education provision in developing countries is still provided privately limiting the access - There is an inelastic supply of teachers. Finding and training teachers takes a long times so in many areas there is a shortage of suitable teachers. Class sizes are high reducing the quality of education - Gender inequality may persist meaning access to education is not equal

Answer 2

- To promote import substitution and replace imports with domestically manufactured goods - Import substitution will help a country diversify away from primary commodities and industrialise its production - Ultimately the hope is to build a strong domestic base until the firms are large enough to benefit from economies of scale and then cope with foreign competition - To raise revenue as some methods of protectionism such as tariffs raise revenue for the government. Many developing countries are reliant on these revenue streams

Answer 3

If domestic firms are sheltered from competition there is a danger of inefficiency within domestic producers - Comparative advantage can be distorted as the country is not necessarily the most efficient producer. In this case resources will not be allocated efficiently. - It may contravene with WTO rules *Use a tariff diagram to support this analysis*

Answer 4

A managed exchange rate is where market forces partly determine the value at which one currency exchanges for another but intervention by the central bank influences the exchange rate of the currency

Answer 5

- Managed exchange rate systems can help maintain stability for firms which can encourage investment and job creation - If managing the exchange rate keeps it above the rate it would be if floating this can make imports more affordable. These imports could be necessities which increases living standards - The managed system could be used to keep the currency weaker as a way of enhancing the competitiveness of industries

Answer 6

- Retaliation can occur from trading partners - Managed exchange rate systems can be expensive to maintain. This money may be better used improving sanitation or infrastructure

Answer 7

Infrastructure refers to the physical organisation structures and facilities such as buildings, roads, railways, power supplies and the internet. It is the network that allows economic activity to occur

Answer 8

- The majority of infrastructure projects like building a new road will never be privately profitable because of their public good and free rider nature, hence the government is likely to need to take a lead on this - It enables firms to move goods and services between destinations thus facilitating output, income and expenditure. It also helps trade between countries helping imports and exports - It increases the speed of production and productivity rates which increases productivity capacity and LRAS - It should attract additional FDI as foreign multinationals recognise how better infrastructure will reduce their costs of production - A stable electricity supply will allow firms to be able to plan their production and have more confidence

Answer 9

- There is a huge cost involved and many developing countries struggle with high levels of debt. The expenditure may require governments to borrow in international markets and incur long term liabilities in terms of interest payments - If a government is corrupt contacts could be given to friends rather than efficient providers - Infrastructure takes time to plan, design and construct so there is a huge time lag before improvements can occur - Many landlocked countries lack access to ports through neighbouring countries so improvements in their own infrastructure may not be the issue

Answer 10

A joint venture is an association of two or more major businesses for the purpose of engaging in a specific enterprise for profit. Promotion suggests that the government will be influential in negotiating the terms of the joint venture

Answer 11

- They combine the strengths of the two organisations. This is particularly helpful for the developing country that may lack experience in manufacturing or management - They increase the competitive advantage by learning technology transfer - They enable part ownership with the organisation rather than simply hosting a foreign multinational

Answer 12

- There could be difficulties in combining two very different working cultures - Difficulty in ensuring that both parties equally gain from the agreement

Answer 13

A buffer stock scheme is a scheme designed to reduce price fluctuations. It involves setting a ceiling and a floor price (max and min prices) and the buying and selling of stocks to maintain prices within these limits

Answer 14

The buffer stock can be operated by a government or producer's association. It would store or release stocks as required in order to reduce price fluctuations to the agreed limits. The stocks are likely to be held in warehouses

Answer 15

Supply is price inelastic so the supply curves are vertical lines