Other Strategies

Question 1

What are the other strategies (6)

Answer 1

Industrialisation - the Lewis model
Development of tourism
Development of primary industries
Fair trade schemes
Foreign aid
Debt relief

Question 2

What does Arthur Lewis argue (2+)

Answer 2

Subsistence agriculture is bound to achieve lower and lower productivity
Growth of economy is severely limited because primary product dependant + its farming or agriculture

Question 3

What is law of diminishing marginal returns (2)

Answer 3

As more of a variable factor of production is added to a fixed stock of fixed factors
There will come a point where the marginal product of the variable factor will decline

Question 4

Marginal product

Answer 4

The addition of output when one extra unit of the variable factor is added to the production process

Question 5

What does diminishing returns dictate (2+)

Answer 5

There are limits to the gains to be had from specialisation as more labour is used
If ever-increasing quantities of labour are used = the marginal product of that labour will eventually decline to zero

Question 6

Example of Africa limited growth - Lewis model (4)

Answer 6

Africa = cereal crop
Low growth rates in cereals yields and production
High levels of food insecurity at both national and household levels
20% of African cereal consumption depends on imports

Question 7

Arthur Lewis argument on growth (2+)

Answer 7

Growth could be sustained by the gradual transfer of workers from low-productivity agriculture to higher productivity urban industries
The industrialisation of the economy should be the objective of development

Question 8

Why is the Lewis model wrong with assumption (2+)

Answer 8

It could be argued industrialisation = result of economic development rather than a cause
Encouraging rural depopulation will simply lead to urban poverty not increased affluence

Question 9

Increased rural to urban migration potential problems (4)

Answer 9

Lack of sufficient housing = shanty towns & squatters
Pressure on social infrastructure (schools, hospitals etc)
Increased crime
Increased disease

Question 10

Problems with Arthur Lewis argument (3+)

Answer 10

Ignores the costs of educating and training rural workers for employment in the urban sector
Profits from expansion may not be re-invested locally – may be sent abroad to shareholders and investors
Less farmers = less food

Question 11

Example of Lewis model fail (3++)

Answer 11

FoxCoM = electronics company (MNC)
Exploits workers = suicide nets becuase conditions are so bad
Favelas in Brazil = poor quality + sanitation

Question 12

Development of tourism what (3)

Answer 12

Example = Saudi Arabia
Emerging market
Over 40% of global tourism arrivals are in developing countries

Question 13

Development of tourism positives (4)

Answer 13

Labour intensive of low skilled work = jobs created = AD rises
FDI + infrastructure built
Income elastic = when income high then demand is high
Infrastructure tends to generate positive externalities for other economic sectors of the country especially agriculture = Roads, water, Electricity

Question 14

Expenditure on tourism example (2)

Answer 14

Least developed = 154%
Increase in tourism expenditure from 1990-2000

Question 15

Tourism negative externalities (7)

Answer 15

Noise and air pollution
Disruption of wildlife
Litter
Visiting ships = water supply put on pressure
Need to import food + wine
Insensitivity of visitors to local customs
Seasonal unemployment

Question 16

Development of primary industries (++++)

Answer 16

Countries such as Saudi Arabia, Chile, Australia and Norway have enjoyed major success due to comparative advantage in production of certain primary commodities

Question 17

Positives of primary industry development (3+)

Answer 17

If gov uses commodity revenues to diversity the economy = heavy dependence not a problem
The smaller the proportion of GDP from commodities = less vulnerable the economy is to commodity price fluctuations
Get comparative advantage

Question 18

Fair trade schemes + what (5+)

Answer 18

Producers should receive a “fair” price for their products = enables them to make a living
Western firms guarantee to buy a minimum amount of the commodity at a price above the prevailing market price
Enables farmers to plan their crop production and raise loans to buy machinery
Farmers have to follow fair working conditions + agree not to use child labour
Farming must be sustainable and not degrade the environment

Question 19

Critism of fair trade (3++)

Answer 19

Fair trade is insignificant in relation to total world-wide trade = just good PR (ethical) for supermarket chains and will lead to global over-production
‘Fair’ = normative statement
Enables consumers in the West to pretend that they are making a difference when in fact the impact is minimal

Question 20

What if filling the savings investment gap (2)

Answer 20

Developing countries need to invest to alleviate poverty and stimulate growth
W/O sufficient savings = loan from countries

Question 21

Types of loans (3)

Answer 21

Soft loans from world bank or on bilateral basis
Very poor = grants
Soft + grants = called overseas development aid (ODA) = much lower interest rate

Question 22

One of biggest problems facing developing countries (2)

Answer 22

How to manage their debt burden
Interest payments use up valuable foreign exchange

Question 23

Why soft loan is helpful (3+)

Answer 23

Have extended grace periods where only interest or service charges are due
Longer (up to 50 years) repayment schedules
Lower interest rates than conventional bank loans

Question 24

What is the Washington census (3)

Answer 24

World bank and IMF both based in Washington
Their common stance in favour of trade liberalisation and globalisation = “The Washington Consensus”
Over the past 20 years, this term has come to take on a negative connotations

Question 25

What does world bank + IMF encourage (2++)

Answer 25

WB = Encourages countries increase trade
IMF = Only lends money to countries if they agree to sell their resources at the world market price and cut public spending

Question 26

The Washington consensus impose conditions through what (2)

Answer 26

Conditions are imposed in the form of a “Structural Adjustment Programme”
Debtor countries must adhere if they want development aid

Question 27

Why does IMF and WB have strings (3++)

Answer 27

SAPs = not used to fund wasteful spending by governments
Reduce borrowing C fiscal imbalances = adopt “free market“ policies, such as privatisation and deregulation + reduce trade barriers
Countries which fail to enact these policy changes = subject to severe financial sanction by the World Bank or IMF

Question 28

What are loans intended to do (3)

Answer 28

Promote economic growth
Generate income
Pay off the debt which developing countries have accumulated

Question 29

Critics of Washington consensus (5)

Answer 29

Blackmailed
Rapid increase in the price of goods in the country adopting the SAP
An actual increase in poverty
Lower investment
Cuts in social spending

Question 30

World banks recipe for growth

Answer 30

Look on slide later and do it later CBA right now