Market-Orientated, Interventionalist, and other Strategies

Question 1

What are market-orientated strategies?

Answer 1

Strategies that aim to boost growth and development through the promotion of market forces and incentivising investment.

Question 2

What are 6 market orientated strategies?

Answer 2

1) Trade liberalisation.
2) Promotion of FDI.
3) Removal of government subsidies.
4) Floating exchange rate system.
5) Microfinance schemes.
6) Privatisation.

Question 3

What is trade liberalisation?

Answer 3

The opening up of an economy to a free market philosophy, and to non-protectionist, open trade with other nations. The opposite of protectionism.

Question 4

What are 3 benefits of trade liberalisation?

Answer 4

1) Allows the exploitation of a country’s comparative advantage through export-led growth.
2) Firms are encouraged to invest and seek new export markets.
3) Increased efficiency and competitiveness of industries.

Question 5

What is a drawback of trade liberalisation?

Answer 5

Only the most efficient industries survive, meaning there will be job losses in industries that cannot compete.

Question 6

How does the removal of government subsidies promote trade liberalisation?

Answer 6

Allocating subsidies efficiently is difficult, and artificially low equilibrium prices encourage inefficiency, and provide the government with a large opportunity cost. This means that the money could be used more efficiently elsewhere, allowing for trade liberalisation.

Question 7

What are the drawbacks of removing government subsidies (4)?

Answer 7

Government subsidies for producers and consumers can:
1) Support domestic industries.
2) Reduce absolute poverty.
3) Correct market failure.
4) By removing a subsidy, it can create political unrest, as it is unpopular.

Question 8

When would be the best time to remove a government subsidy for the economy?

Answer 8

When market prices are falling.

Question 9

What is microfinance?

Answer 9

The availability of small-scale loans to entrepreneurs and businesses.

Question 10

How can microfinance promote growth and development in lesser developed countries (2)?

Answer 10

1) Developing nations tend to have weak financial sectors, so improving the banking system will support entrepreneurship.
2) Often, there is a savings gap in developing nations, meaning that loans are needed to invest or start a business.

Question 11

What are 6 interventionist strategies?

Answer 11

1) Development of human capital.
2) Protectionism.
3) Managed exchange rates.
4) Infrastructure development.
5) Buffer stock schemes.
6) Promotion of joint ventures with global companies.

Question 12

What are interventionist strategies?

Answer 12

Strategies that aim to boost growth and development through supply-side policies and government intervention.

Question 13

How can protectionism promote growth and development?

Answer 13

It supports domestic growth and development by protecting domestic industries from international competition.

Question 14

What are buffer stock schemes (3)?

Answer 14

1) Common in developing nations, reliant on commodities (due to high price volatility), buffer stock schemes aim to protect buyers and sellers through maximum and minimum prices.
2) In periods of excess supply (e.g. a bumper harvest), governments will buy the excess supply and stockpile it.
3) In periods of supply shortages, the government will release the buffer stock to increase the supply and maintain a stable price.

Question 15

How can government promotion of joint ventures with global companies encourage growth and development (3)?

Answer 15

1) Capital inflows, through FDI, can create jobs and increase national output.
2) Can lead to higher wages and better working conditions.
3) Can improve knowledge and expertise, through the transfer of human capital.

Question 16

Why is the government often the primary investor in human capital and infrastructure, opposed to the private sector, and what does the investment’s success depend on?

Answer 16

As the private sector is only likely to invest in human capital/infrastructure when it is profitable, then the government will have to intervene to achieve the economic/social benefits. The success depends on availability of resources and the efficiency of the project, which may be better delivered by the private sector.

Question 17

What are some strategies, other than market-orientated and interventionist strategies, that can be used to boost growth and development (6)?

Answer 17

1) Industrialisation.
2) Diversification of industries.
3) Growth of the tourist industry.
4) Aid.
5) Debt relief.
6) Fair trade.

Question 18

What does the Lewis model assume?

Answer 18

That for developing nations yet to industrialise, there is excess labour in the agricultural sector (equal output could be achieved with fewer workers), meaning there is no opportunity cost of these workers moving to industry/manufacturing to obtain higher-paid jobs.

Question 19

What are 3 criticisms of the Lewis model?

Answer 19

1) Transferring of labour is not easy and requires investment in training and education.
2) Industry can be capital intensive, and not create many new jobs.
3) The presumption of excess labour in the agricultural industry may not be true year-round, as this excess labour will be utilised during harvest periods.

Question 20

How can the growth of the tourism industry stimulate growth and development?

Answer 20

As tourism is effectively an export, it can create significant flows of income, creating jobs, and encouraging FDI.

Question 21

What are 3 drawbacks of growing the tourism industry?

Answer 21

1) Environmental damage.
2) It is extremely seasonal.
3) Can lead to an increase in imports, worsening the balance of payments, if reliant on imports to support the tourism industry.

Question 22

How can diversification of industries stimulate growth and development?

Answer 22

Developed countries may decide to use the income generated from primary industries to diversify their industries. This makes them less reliant on markets where added value is low and prices fluctuate greatly.

Question 23

What is aid, and how can it boost growth and development (4 ways)?

Answer 23

The transferring of resources from one country to another. This boosts growth and development by:
1) Reducing absolute poverty.
2) Reducing the savings gap.
3) Reducing the foreign exchange gap.
4) Creating a multiplier effect, increasing AD.

Question 24

What is debt relief, and how can it boost growth and development (4 ways)?

Answer 24

The cancelling of a country’s debt. This boosts growth and development by freeing up money for:
1) Public services.
2) Healthcare.
3) Education.
4) Investment in industries.

Question 25

What are 3 drawbacks of aid and debt relief?

Answer 25

1) Can lead to a culture of dependency in developing nations.
2) Danger of corrupt governments using aid inappropriately.
3) Danger of the donor nation using aid to secure favours in the future.

Question 26

What is fair trade?

Answer 26

An arrangement to help producers in developing countries achieve sustainable and equitable trade relationships, whilst minimising negative externalities and resource depletion.

Question 27

What is the World bank (3)?

Answer 27

1) Est. in 1944 to promote economic development.
2) They provide low-interest loans, interest-free credit, grants for industry development to developing nations, healthcare, and education.
3) Supports the development of infrastructure and capital investment to encourage international trade.

Question 28

What are the World Bank’s 2 goals for 2030?

Answer 28

1) End extreme poverty, by decreasing those living on $1.90 a day to less than 3%.
2) Promote shared prosperity by fostering the income growth of the bottom 40% for every country.

Question 29

What is the International Monetary Fund (IMF) (3 details)?

Answer 29

1) Est. in 1945 to ensure the stability of the international monetary system.
2) Every member country has a quota of resources to provide to the IMF, which are then loaned to poorer countries to support projects fighting poverty and improving living standards.
3) Provides support and guidance to developing nations on policies that maintain economic sustainability.

Question 30

What does the World Trade Organisation do (WTO) (3)?

Answer 30

1) Promotes the liberalisation of trade and fair trade globally.
2) Acts as a a forum for governments in negotiating trade deals and removing trade barriers.
3) Acts as an arbitration court in issues of dispute.

Question 31

What are non-government organisations (NGOs)?

Answer 31

Private organisations and charities that often have humanitarian aims, e.g. to reduce poverty, protect the environment, support sustainable economic growth, etc. They are often small scale, and support projects on a community level.

Question 32

What are some examples of NGOs (6 possible)?

Answer 32

1) UNICEF.
2) Water Aid.
3) Cancer Research UK.
4) Christian Aid.
5) Tusk.
6) The Prince’s Trust.

Question 33

What are 2 criticisms of international organisations?

Answer 33

1) Most organisations have a set of economic policies/conditions that have to be met to access their support. These conditions may not benefit the country involved, and can lead to inequality.
2) Some view them as western organisations acting in the interest of the developed world.