Other Strategies Flashcards
What are the other strategies (6)
Industrialisation - the Lewis model
Development of tourism
Development of primary industries
Fair trade schemes
Foreign aid
Debt relief
What does Arthur Lewis argue (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
What is law of diminishing marginal returns (2)
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
Marginal product
The addition of output when one extra unit of the variable factor is added to the production process
What does diminishing returns dictate (2+)
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
Example of Africa limited growth - Lewis model (4)
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
Arthur Lewis argument on growth (2+)
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
Why is the Lewis model wrong with assumption (2+)
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
Increased rural to urban migration potential problems (4)
Lack of sufficient housing = shanty towns & squatters
Pressure on social infrastructure (schools, hospitals etc)
Increased crime
Increased disease
Problems with Arthur Lewis argument (3+)
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
Example of Lewis model fail (3++)
FoxCoM = electronics company (MNC)
Exploits workers = suicide nets becuase conditions are so bad
Favelas in Brazil = poor quality + sanitation
Development of tourism what (3)
Example = Saudi Arabia
Emerging market
Over 40% of global tourism arrivals are in developing countries
Development of tourism positives (4)
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
Expenditure on tourism example (2)
Least developed = 154%
Increase in tourism expenditure from 1990-2000
Tourism negative externalities (7)
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
Development of primary industries (++++)
Countries such as Saudi Arabia, Chile, Australia and Norway have enjoyed major success due to comparative advantage in production of certain primary commodities
Positives of primary industry development (3+)
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
Fair trade schemes + what (5+)
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
Critism of fair trade (3++)
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
What if filling the savings investment gap (2)
Developing countries need to invest to alleviate poverty and stimulate growth
W/O sufficient savings = loan from countries
Types of loans (3)
Soft loans from world bank or on bilateral basis
Very poor = grants
Soft + grants = called overseas development aid (ODA) = much lower interest rate
One of biggest problems facing developing countries (2)
How to manage their debt burden
Interest payments use up valuable foreign exchange
Why soft loan is helpful (3+)
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
What is the Washington census (3)
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
What does world bank + IMF encourage (2++)
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
The Washington consensus impose conditions through what (2)
Conditions are imposed in the form of a “Structural Adjustment Programme”
Debtor countries must adhere if they want development aid
Why does IMF and WB have strings (3++)
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
What are loans intended to do (3)
Promote economic growth
Generate income
Pay off the debt which developing countries have accumulated
Critics of Washington consensus (5)
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
World banks recipe for growth
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