Macro A2 - Factors Influencing Growth & Development

Question 1

How does Trade liberalisation influence growth and development

Answer 1

measures such as reducing tariffs, eliminating import quotas, and removing restrictions on foreign investment. It can have many positive impacts on growth.

Increased competitiveness
Access to larger markets
Improved resource allocation
Enhanced technology transfer

Question 2

How does promotion of FDI lead to growth and development

Answer 2

FDI leads to:

Increase in Job Creation
Increase Capital Influx
Transfer of Technology and Skills
Improved Infrastructure
Boost in local supply chains.

Question 3

`

Answer 3

Leads to:

Increased Efficiency
Improved Resources Allocation
Reduced Government Spending
Increased Competition

Question 4

How do floating exchange rates affect growth and development

Answer 4

Greater economic flexability
Improved monetary policy
Increased Volatility
Balance of payments concerns (Risk)

Question 5

How do microfinance schemes affect growth and development

Answer 5

help these individuals and small businesses to improve their standard of living and become self-sufficient by providing them with the financial tools they need to start or expand a business, invest in their education, or purchase goods and services.

Question 6

How does buffer stock schemes affect growth and development

Answer 6

Advantages of buffer stocks
Stable prices help maintain farmers incomes. A rapid drop in prices can make farmers go out of business, which leads to structural unemployment. Price stability encourages more investment in agriculture. Farming can have positive externalities e.g. helps rural communities.

Question 7

How does industrialisation the Lewis model affect growth and development

Answer 7

Urban workers, engaged in manufacturing, tend to produce a higher value of output than their agricultural counterparts. The resultant higher urban wages (Lewis stated that a 30% premium was required) might therefore tempt surplus agricultural workers to migrate to cities and engage in manufacturing activity.

Question 8

The Lewis model

Answer 8

It is also known as the two sector model, and the surplus labour model. It focused on the need for countries to transform their structures, away from agriculture, with low productivity of labour, towards industrial activity, with a high productivity of labour

Question 9

How does the development of tourism affect growth and development

Answer 9

Government will invest in things such as infrastructure, wildlife protection,

Question 10

How does the development of primary industries affect growth and development

Answer 10

The industry becomes an important source of economic growth, employment, tax revenue and export earnings. Without primary products, countries would be worse off. Developing economies have a large and elastic supply of labour willing and able to work in these industries.

Question 11

Non-government organisations

+Examples

Answer 11

NGO activities include, but are not limited to, environmental, social, advocacy and human rights work. They can work to promote social or political change on a broad scale or very locally. NGOs play a critical part in developing society, improving communities, and promoting citizen participation.

For example: - Red Cross

Question 12

The world Bank

Answer 12

offer support to developing countries through policy advice, research and analysis, and technical assistance. Our analytical work often underpins World Bank financing and helps inform developing countries’ own investments.

Question 13

IMF

Answer 13

The IMF is an organization of 189 member countries that works to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

• Exchange rate stability
• Balance of Payments adjustment
• Economic Surveillance
• Loans

Question 14

Microfinance

Answer 14

A banking service provided to unemployed or low income individuals or groups who otherwise would have no access to to financial services

Question 15

Benefits of Microfinance

Answer 15

Credit access.
Assistance with education.
Encourages saving.
Creates chances for employment.

Question 16

Drawbacks of Microfinance

Answer 16

Higher interest rate compared to mainstream banks.
Easy to default on the loan.
The expertise of financial services is limited.
Insufficient investment validation.

Question 17

Lewis model Negatives

Answer 17

Neglects international trade.
You will eventually run out of people.
People may not have the correct skills to work in a factory.
Labour isn’t cheap as people now know their worth.
Less rural labour.
Destroys rural areas economy.

Question 18

Lewis model positives

Answer 18

It will, in turn lead to the generation of more savings in the capitalists sector. The additional saving, will not only help the entrepreneurs to invest more but also to improve the quality of capital invested. This will result in more employment of labour from the subsistence sector.

Question 19

How tourism affects growth

Answer 19

The economic effects of tourism include improved tax revenue and personal income, increased standards of living, and more employment opportunities.

Question 20

Positives of tourism

Answer 20

Tourism offers great opportunities for emerging economies and developing countries. It creates jobs, strengthens the local economy, contributes to local infrastructure development and can help to conserve the natural environment and cultural assets and traditions, and to reduce poverty and inequality.

Question 21

negatives of tourism

Answer 21

Intense use of resources.
Physical damage to natural and marine areas.
Increased waste, pollution and emissions.
Land use and infrastructure development.

Question 22

Why is aid given / what is the purpose of aid?

Answer 22

• Provides immediate accesss to capital for countries that might not be able to (ethically correct)
• improves international stability
• allows domestic county to provide indirect assistance to a foreign country

Question 23

The Harold domar model

Answer 23

Used to explain an economy’s growth rate in terms of the level of saving and of capital. It suggests that there is no natural reason for an economy to have balanced growth.

Question 24

Different forms of Aid.

Answer 24

• Debt Relief - Forgiving debt can save LDCs annual interest payments and leave them more resources for internal investment
• Direct AID- giving food, money and health care supplies directly to the countries in need
• Indirect Aid - Financing the building of infrastructure and communication networks which enable countries to develop
• Cheap Finance - Schemes like Micro aid finance give affordable loans so that countries can benefit from more local entrepreneurship
• Tied Aid - Aid which is dependent on reciprocal benefits such as agreeing to buy goods and services from the donor country.
• Untied Aid - Aid given without any strings attached.
• Bilateral aid -Aid given directly from one country to another
• Multilateral aid - Aid given from one country to an international organisation which is then distributed to a variety of different countries. For example, the Red Cross and Oxfam.

Question 25

Advantages of aid

Answer 25

• it benefits the domestic economy as well as the foreign economy.
• creates a stronger relationship for parties within the transaction.
• it can reduce the impact of poverty.
• creates economic opportunities for foreign and domestic economy.
• it encourages national independence
• it can offer agricultural improvements
• allows countries to help each other indirectly
• ## doesn’t require a significant amount to create positive change

Question 26

Disadvantages of aid

Answer 26

• Foreign aid can increase local prices.
• aid is sometimes offered as a political tool.
• can be used as a method of global favouritism.
• corrupt government officials are likely to just keep it.
• it is easily wasted, especially when it isn’t wanted.
• it doesn’t offer a guaranteed benefit.
• causes countries to become reliant on aid.
• it can cause conflict .
• reduces / eliminates market pricing.
• it doesn’t create wealth (may even cause lower levels of wealth).
• just because it increases education it doesn’t mean that there are jobs for those people with education.

Question 27

HIPC program

Answer 27

Heavily indebted poor countries program. Half of it is funded by IMF and the world bank. The other half is provided by creditor countries

Question 28

The purpose of the HIPC programme

Answer 28

Ensuring that no poor country faces a debt burden it can’t manage.

Question 29

Countries in the HIPC

Answer 29

Afganistán, Haiti, Somalia etc

Question 30

Requirements of HIPC

Answer 30

Debt to gov revenue of 280% / debt to exports 250%. The countries must be on a path to development and must be implementing western values

Question 31

Disadvantages of HIPC

Answer 31

• undemocratic (forcing agenda upon nation)
• debt cancelled is not enough (only $76bn for 37 countries)
• criteria like privatisation increase inequality.

Question 32

Fair Trade

Answer 32

trade between companies in developed countries and producers in developing countries in which fair prices are paid to the producers.

Question 33

Advantages of fair trade

Answer 33

• Ethical reasons
• increases output.
• increases equality.
• social premium e.g. healthcare, police etc
• protects suppliers.
• ensures health and safety of workers.
• Encourages sustainable business practices.
• domestic consumption will increase .
• increase in domestic & overseas sustainability.
• ## as child working is banned there will be a higher proportion of children in education.

Question 34

disadvantages of fair trade

Answer 34

• not a lot of people care about fair trade.
• there are very high fees associated with it.
• the product choice is very limited .
• administration costs are usually quite high.
• producers may not get the current market price as they have to agree a price 12 months in advance.
• ## may worsen inequality in the foreign country as it drives up prices there.

Question 35

Non governmental organisation (NGO)

Answer 35

a non-profit organization that operates independently of any government, typically one whose purpose is to address a social or political issue.

Question 36

advantages of NGOs

Answer 36

• experienced and responsive
• no political agenda
• they help the poorest of the poor
• provide a broader range of expertise compared to governments

Question 37

Disadvantages of NGOs

Answer 37

NGOs with limited scope have no time to solve social problems outside of specific projects, are prone to malpractice and inefficiency and have a limited capacity for innovation.

Question 38

Harold domar modle disadvantages

Answer 38

• Difficult to increase saving
• it assumes the existence of a reliable finance and transport system
• economic development is much more than just pure economic growth

Question 39

Capital flight

Answer 39

The leaving of of financial assets and capital from a nation due to events such as political or economic instability, currency devaluation or the imposition of capital controls.