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IB economics > real 4.10 > Flashcards

real 4.10 Flashcards

1
Q

state five trade strategies that aim to promote economic growth and/or development

A
  • import substitution
  • export promotion
  • economic integration
  • diversification
    (- social enterprise)
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1
Q

explain import substitution

A

a strategy that says that a developing country should, wherever possible, produce goods domestically rather than import them. this should mean that the industries and economy producing the goods domestically will be able to grow and compete on a world market in the future (economies of scale)

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2
Q

conditions needed for import substitution to work

A
  • govt needs to adopt a policy of organising the selection of goods to produce domestically
  • subsidies made available to encourage domestic industries
  • protectionist system implemented (tariffs)
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3
Q

advantages of import substitution industrialisation (ISI)

A
  • protects job in the domestic market, which means domestic firms can dominate the market
  • protects local culture and social habits by practically isolating the economy from foreign influence
  • protects the economy from the power, and possibly bad influence, of multinational corporations
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4
Q

disadvantages of ISI

A
  • may only protect jobs in the short run, as in the LR, economic growth may be lower which may lead to a lack of job creation
  • country does not enjoy benefits from comparative advantage and specialisation, so is producing products relatively inefficiently when they could be imported from efficient foreign producers
  • may lead to inefficiency in domestic industries as competition is not there to encourage R&D
  • high rates of inflation due to domestic AS constraints
  • may cause other countries to take retaliatory protectionist measures
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5
Q

explain export promotion

A

where growth is achieved by concentrating on increasing exports and export revenue as a leading factor in the aggregate demand of the country. rising GDP should lead to higher incomes and growth in domestic and exporting markets.

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6
Q

what policies need to be adopted to ensure export promotion?

A
  • country concentrates on producing and exporting product in which it has a comparative advantage of production
  • country may manage its er keeping it as low as possible and thus making exports more attractive
  • open up domestic markets to foreign competition in order to gain access to foreign markets
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7
Q

advantages of export promotion

A
  • Greater output generates higher economies of scale
  • Greater output creates more employment
  • National specialisation increases
  • International competition leads to innovation and increased efficiency
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8
Q

disadvantages of export promotion

A
  • Some firms may be unable to compete internationally and fail
  • There is an opportunity cost to the government for supporting firms through export promotion
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9
Q

explain economic integration

A

A process in which countries become more interdependent as they form an agreement which decreases barriers to trade (tariffs, quotas etc.) and increasing common fiscal and/or monetary policies.

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10
Q

advantages of economic integration

A
  • Decreases prices and increases choice
  • Access to a wider range of technology
  • More political cooperation between countries (higher levels of investment)
  • Expands markets for domestic firms -> economies of scale, encouraged diversification, reduced dependence on narrow range of commodities
  • Generates higher efficiency in the global allocation of resources as there is greater competition
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11
Q

disadvantages of economic integration

A
  • Some loss of national sovereignty may occur
  • Some integration requires common barriers (e.g. tariffs) to be erected to third part nations which may limit other opportunities for increasing trade
  • unemployment may rise
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12
Q

explain increasing diversification

A

Occurs when a country is able to increase the number of products that it offers for export and this reduces risk - if one product fails others may well still be successful. Countries may move away from the production/export of primary commodities and replace these with the production and export of manufactured/semi-manufactured goods

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13
Q

advantages of increasing diversification

A
  • Reduces the problems associated with over specialisation such as price volatility
  • Creates new employment opportunities
  • Reduces risk of failure during recessions or periods of economic slowdown
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14
Q

disadvantages of increasing diversification

A
  • Firms may fail to compete as global competitors may be well established
  • It takes time and money to create new industries
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15
Q

two barriers to increasing diversification

A
  • practice of tariff escalation: the rate of import tariffs on goods rises the more the goods are processed, so there is little incentive for domestic producers to shift
  • the need for a more highly qualified workforce in order to produce more sophisticated products
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16
Q

explain social enterprise

A

A social enterprise focuses
on meeting specific social
objectives such as worker welfare, or profit sharing with workers, or providing equal ownership of the business to employees

17
Q

advantages of social enterprise

A

Raises motivation, productivity and output
Can create new employment opportunities
Raises income within the communities

18
Q

disadvantages of social enterprise

A

These ventures tend to be small and very localised
It can be difficult for them to generate economies of scale or to compete internationally

19
Q

define inward foreign direct investment

A

Inward FDI occurs when investment by foreign firms results in more than a 10% share of ownership of domestic firms

20
Q

give the aims of inward foreign direct investment

A
  • Foreign FDI has the potential to generate significant economic growth as more economic activity, employment and output is generated
  • Foreign FDI has the potential to raise household income which helps to break the poverty cycle
21
Q

advantages of inward FDI

A
  • FDI can be a major source of finance in less economically developed countries
  • FDI helps to generate extra national income which can increase the level of savings - and higher savings can help to increase funds available for domestic investment
  • Expansion of supply can lead to increased employment opportunities
    The government may receive higher tax revenue generated by the increased profits from the additional level of national output
  • As more foreign firms invest, governments often start to develop new infrastructure to support their business activity
22
Q

disadvantages of inward FDI

A
  • Weak local regulations are often exploited leading to poor working conditions and increased negative externality’s of production
  • Profits tend to be moved off-shore or returned to the home country of the multinational firms which means that less is reinvested back into the development of the host nation
  • Multinational firms often pay very little tax to host nations as they use sophisticated corporate practices to reduce the amount of tax they are liable for (e.g.transfer pricing )
  • Local firms may struggle to compete with multinational firms who are now based in their country - and they go out of business
  • Multinationals are likely to have the power to keep wages low
  • Multinationals may use workers from their country for management roles and only employ local unskilled labour for manual tasks. The workers may not develop many new skills from the role
23
Q

give the 4 types of foreign aid

A
  • humanitarian aid/development aid
  • debt relief
  • Official Development Assistance (ODA)
  • Non-governmental organisations (NGOs)
24
Q

define humanitarian aid

A

aid given to save lives and alleviate suffering in response to emergencies such as natural disasters or human made crises, or medical crises.

25
Q

advantages of humanitarian aid

A
  • Aid has proven beneficial in times of distress
  • It is particularly helpful in response to large-scale one-off events such as earthquakes or tsunamis
26
Q

explain development aid

A

given by govt, multilateral organisations and NGOs in order to alleviate systematic poverty and promote the economic, social, environmental or political development in recipient countries - more long term assistance than humanitarian aid

27
Q

explain debt relief

A
  • Many developing nations have borrowed significant sums of money in the past which have to be repaid (with interest) over a long period of time
  • The opportunity cost of these repayments is significant & often includes
    -> Loss of infrastructure development
    -> Inability to create a welfare system
    -> Investment in human capital/education
  • Countries began to default on their loans & this has led to the restructuring of these loans to make it more affordable
  • More recently there has been significant progress in writing off the entire debt of the most heavily indebted poor countries (HIPC) so that they can focus on building their economies
28
Q

advantages of debt relief

A
  • The actual repayment of debt is removed or reduced
  • The opportunity cost of debt repayments is reduced or eliminated
  • The Government is able to use the money saved to provide new services and additional public/merit goods
29
Q

disadvantages of debt relief

A
  • The country may have a lot more funds available than ever before and this can breed corruption as individuals in government seek to get their hands on it
  • Once the debt is forgiven, many developing nations borrow more money and the cycle starts again
30
Q

explain official development assistant

A
  • ODA can be bilateral (from donor government to recipient government) or provided through a multilateral
    development agency, such as the United Nations
  • Two of the most common forms of ODA are grants & soft loans
  • The United Nations has set a target for more economically developed countries to spend 0.7 per% of their gross domestic product (GDP) on ODA to help countries eliminate poverty and become developed
31
Q

what is the aim of ODA

A

promote and specifically target the economic development and welfare of developing countries

32
Q

advantages of ODA

A

Funds are available to the LEDC over a long-term period to help with the economic development goals
Bilateral ODA can help to develop the relationship between the two countries, possibly facilitating the exchange of resources, ideas and technology

33
Q

disadvantages of ODA

A

Countries may become dependent on the ODA
Corruption may mean funds are diverted from their true purpose
ODA in the form of loans has to be repaid and these repayments carry an opportunity cost

34
Q

define NGOs

A

These are typically voluntary, community-based organisations which do not aim to make a profit but seek to meet a need or provide a service

35
Q

what do NGOs do?

A
  • Engage in small scale projects giving control to community stakeholders
  • Draw on local skills
  • Encourage sustainability & remove the need for aid
  • Tackle environmental sustainability using local knowledge & resources
36
Q

advantages of NGOs

A
  • NGOs can elicit support for particular need from a very wide audience including the global public and many wealthy governments
  • They often have specialists working for them who provide in country support so as to increase the efficiency of their aid
  • They conduct research, gather data and as a result often make highly specific project proposals aimed at directly improving the standard of living
  • NGOs can help develop human skills in the countries in which they work and this helps to break the poverty trap
37
Q

disadvantages of NGOs

A
  • The country receiving the aid can become overly dependent on it
  • The scope of what an NGO can do may be limited or only focussed on one segment of the population e.g children
38
Q

give the main criticisms of aid

A
  1. if the govt in power does not have the welfare of the majority of the population at heart, it may mean that when aid is received it goes to a small sector of the population/economy that doesn’t need support
  2. sometimes given for political reasons, not countries that need it greatest - so developed countries give aid to countries that are of political/economic interest to them
  3. often linked to political views of donor govt - if these change after change in government for eg, this can have serious consequences on receiving country
  4. long-term provision of large quantities of food may force down domestic prices and make matters worse for domestic farmers
  5. creates a culture of dependency that can limit long term economic development, as the govt has little incentive to implement its own strategies
39
Q

define multilateral organisations

A

made up of member governments from around the world and pool their resources together which enables large-scale development programmes to be funded

40
Q

describe the world bank

A
  • They provide reconstruction loans to countries devastated by war
  • They provide loans to developing countries to aid in their development
  • They provide loans to countries to assist with the development of infrastructure
  • They work with governments and institutions so as to encourage economic reform and trade liberalisation
41
Q

describe the IMF

A
  • aim to facilitate a stable global financial system
  • oversee exchange rates and the system of international payments that occurs between nations and individuals
  • monitor country policies and national, regional and global economic and financial developments through a formal system known as surveillance
  • provide member countries with currency to help deal with balance of payments problems

IB economics (26 decks)

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