NON INTERVENTIONIST (MARKET ORIENTATED) STRATEGIES Flashcards
Trade liberisation
Decription: Trade liberalization refers to a reduction in trade barriers such as tariffs, quotas, and other restrictions on the free flow of goods and services between countries.
Example of enhancement: Vietnam’s exports have grown rapidly in recent years, reaching over $300 billion in 2020.
The country has seen significant foreign investment, with over $30 billion in foreign direct investment (FDI) flowing into the country in 2020.
Poverty rates have fallen dramatically in Vietnam, from nearly 60% in the 1990s to less than 10% today.
Counter example/evaluation: Argentina attempted to liberalize its trade regime in the 1990s, but the effort was hindered by macroeconomic instability, high inflation, and weak institutions. The result was a decline in exports and a fall in the country’s overall competitiveness.
Promotion of FDI
Decription: Foreign Direct Investment (FDI) refers to a type of investment made by a company in one country into a business in another country with the intention of establishing a lasting interest in the foreign company.
Example of enhancement: India: In 2019, Facebook invested $5.7 billion in Jio Platforms, an Indian technology company, to support the growth of India’s digital economy.
Vietnam: In 2020, Samsung Electronics announced a $220 million investment in a new smartphone factory in Vietnam, which will increase its production capacity in the country.
Counter example/evaluation: Indonesia: In the 1990s, a large number of international pulp and paper companies
lian ny.
established operations in Indonesia, attracted by the country’s abundant forests and low labour costs. While these operations created jobs and brought in much-needed foreign investment,
Floating exchange rate systems
Decription: A flexible exchange rate system where the value of a country’s currency is determined by supply and demand in the foreign exchange markets.
Example of enhancement: Mexico: Mexico has been using a floating exchange rate regime since the early 1990s. This means that the value of its currency, the Mexican peso, is allowed to fluctuate based on market forces, rather than being fixed to another currency or a basket of currencies.
Counter example/evaluation: In Turkey (2018), a floating exchange rate system led to currency fluctuations The Turkish lira
• depreciated by 25% against the US dollar in 2018, contributing to very high inflation (above 50% per annum).
Privatisation
Decription: Transfer of ownership and control of state-owned assets to the private sector
Example of enhancement: Chile is often held up as a success story for privatization in the developing world. In the 1980s, the Chilean government privatized a wide range of state-owned enterprises, including its telecom, electricity, and water industries.
Counter example/evaluation: Some UK privatised industries, such as the rail industry, have not had a great track record since privatisation.
Removal of government subsidies
Decription: Elimination of government support for certain goods or services
Example of enhancement: In India (1991-present), removal of subsidies for the agriculture sector created a level playing field for private sector development. In 2020, India’s agriculture sector received private sector investment worth US $10 billion
Counter example/evaluation: In Indonesia (2015), removal of subsidies for fuel led to increased prices for goods and services, making them unaffordable for poor and low- income groups.
Microfinance schemes
Decription: Microfinance is a type of financial service provided to low-income individuals and households who do not have access to traditional banking services.
Example of enhancement: India: The microfinance sector in India has grown rapidly in recent years, with a number of organizations providing small loans and other financial services to low-income households and small businesses.
Counter example/evaluation: India: In 2010, the microfinance sector in India came under intense scrutiny following a series of suicides by poor borrowers who had taken out loans from microfinance institutions (MFIs).
Development of human capital
Decription: Human capital development in macroeconomic terms refers to investments made in the knowledge, skills, health, and abilities of a population to enhance their productivity and contribute to economic growth and development.
Example of enhancement: One example of a developing country that has successfully increased education levels is South Korea. In the mid-twentieth century, South Korea was one of the poorest countries in the world, with low levels of literacy and limited access to education.
Counter example/evaluation: Education for all can be expensive for governments to introduce. It requires sufficient teachers and a functioning government to organise this on a state-wide level.
Protectionism
Decription: The use of trade barriers and restrictions to protect domestic producers.
Example of enhancement: Chile is often held up as a success story for privatization in the developing world. In the 1980s, the Chilean government privatized a wide range of state-owned enterprises, including its telecom, electricity, and water industries.
Counter example/evaluation: Some UK privatised industries, such as the rail industry, have not had a great track record since privatisation. Also, energy companies that were owned by the British state were privatised but then bought by foreign owned, nationalised industries, for example EDF (owned by the French government) now supplies energy to many UK homes.
Managed exchange rate systems
Definition: Maintaining a fixed or semi-fixed exchange rate involves a number of strategies and tools.
Example: Managing exchange rates can have a positive impact on the development of some developing countries in several ways.
Counter argument: One example where attempts by a developing country to use a managed exchange rate system have failed is the case of Venezuela.
Infrastructure development
Definition: Improved infrastructure refers to the upgrading, expansion, or development of physical facilities, networks, and systems that support economic and social activities in a region or country.
Example: KIGALI AIRPORT: In 2019, the government of Rwanda completed a major expansion of the Kigali International Airport, which included the construction of a new passenger terminal and an expanded runway.
Counter argument: One example of an infrastructure project in a developing country that has gone badly wrong and damaged development is the Bujagali hydropower project in Uganda.
Promoting joint ventures with global companies
Definition: Promoting joint ventures with companies in macroeconomic terms involves creating policies and incentives that encourage collaboration between domestic and foreign firms to drive economic growth and development.
Example: In 2018, Starbucks entered a $7.15 billion deal with Nestlé to transfer its consumer packaged goods and foodservice businesses to Nestlé.
Counter argument: potential conflicts in decision-making processes due to differing priorities and corporate cultures.
Buffer stock schemes
Definition: Buffer stock schemes, also known as buffer stock programs, are government-led initiatives designed to stabilize the prices and supplies of agricultural commodities, such as grains or other staple foods, in the market.
Example: One example of a fairly successful buffer stock scheme is the International Cocoa Organization (ICCO) which was established in 1973.
Counter argument: The government bought more rice than it could sell, leading to a surplus in the market and a decline in prices. This resulted in significant financial losses for the government,
Industrialisation: The lewis model
Definition: In the Lewis Model, the traditional agricultural sector is characterized by low productivity, surplus labor, and limited technological advancement. Wages in this sector remain low due to the abundance of labor and the limited scope for productivity growth.
Example: South Korea: In the 1960s and 1970s, South Korea underwent a rapid industrialization process that transformed it from an agricultural-based economy into one of the world’s leading industrial powers
Counter argument: The model has also been criticized for its potential negative impact on traditional agricultural communities and the environment.
Development of tourism
Definition: The development of tourism refers to the process of strategically planning, promoting, and enhancing various aspects of a destination to attract visitors and generate economic, social, and environmental benefits.
Example: One example of promoting tourism as a successful strategy in promoting development in a developing country is the case of Costa Rica. In the 1980s, Costa Rica was a relatively poor country with an economy based mainly on agriculture.
Counter argument: Cancun, Mexico, where tourism has become a major industry but has also led to significant social and economic inequality. The majority of tourism businesses are foreign-owned or operated, and many local workers are employed in low-paying, low-skill jobs such as cleaning or maintenance.
Development of primary industries
Definition: The development of primary industries refers to the process of advancing and enhancing sectors involved in the extraction and production of raw materials or natural resources.
Example: Another example of a developing country that has developed through primary industries is Chile. The country is rich in copper, which is a valuable mineral used in many industries, including electronics, construction, and transportation. Copper exports have been a major source of revenue for the country, accounting for about 50% of its total exports.
Counter argument: One example of a developing country where the attempt to develop primary industries has backfired is Nigeria. The country has significant reserves of oil and gas, which have been the mainstay of the Nigerian economy for several decades.
