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Macroeconomics > Strategies Influencing Growth and Development > Flashcards

Strategies Influencing Growth and Development Flashcards

1
Q

Why is Trade Liberalisation likely to result in greater trade

A

Makes trading goods and services between nations easier - amount of trade taking place should increase

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2
Q

Advantages of Trade Liberalisation for firms

A

Greater market access leads to potential for greater sales and opportunity to expand and benefit from economies of scale

Cheaper raw materials and capital goods

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3
Q

Disadvantages of trade liberalisation for firms

A

Greater level of corruption
Risk of dumping

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4
Q

What can lead to higher rates of economic growth

A

Greater amount of foreign currency earned - helps too overdone foreign exchange gap - funds imports of capital and raw materials

Higher levels of employment and wages - helps to overcome savings gap

Greater levels of competition - increases production and competition

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5
Q

Problems facing LEDCs

A

Foreign exchange gap
Savings gap
Low levels of technology
Limited tax base
Limited capital stock
Low levels of human capital

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6
Q

How can FDI solve problems facing LEDCs

A

External funding through MNCs
MNCs are likely to train local workers and suppliers
MNCs are likely to bring advanced levels of capital

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7
Q

Advantages of FDI

A

Injection into circular flow

Potential for transfers of technology and skills

Higher economic growth

Capital inflows can be used to finance a current account deficit

Long therm FDI can lead take higher exports from the host country which improves the position on the current account

FDI generates tax revenue

FDI leads to higher wages and improved working conditions

Greater competition lowers prices

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8
Q

Disadvantages of TNCs

A

Many only hire local workers to a limited extent as low skilled work may be left to locals and high skilled work is done by expats

Amount of tax revenue generated may be small as LEDCs use tax breaks to generate revenue

TNCs can outperform local competition with better product - could lead to a monopoly

May take advantage of weak environmental regulation

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9
Q

What is a loan shark

A

Someone who charges large amounts of interests on loans

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10
Q

Microfinance features

A

Smaller scales
Women tend to be the main beneficiaries
People often borrow as a group which helps with repayment
Interest rates tend to be much lower than loan sharks

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11
Q

Advantages of Microfinance

A

Fills savings gap which leads to higher incomes and capital accumulation - higher economic growth and lowers poverty

Empowers women which lowers poverty and greater utilises available factors of production

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12
Q

Disadvantages of microfinance

A

Some lenders are profits orientated which leads to reckless lending and unsustainable debt

Some microloans have absurd interest rates - greater chance of failure

Impact per capita is likely to be low without increase in productivity and growth through industrialisation

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13
Q

How may LEDCs use subsidies

A

Be used to support infant industries - leads to economic growth and dynamic efficiency - subsidies can be removed once growth has occurred

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14
Q

Risks of privatisation in LEDCs

A

Price and quality may not improve if there’s a natural monopoly

LEDCs may lack the resources to regulate these industries - corruption may occur

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15
Q

Difference between a floating exchange rate and fixed exchange rate

A

Market forces determine exchange rates in a floating exchange rate system

Government sets the exchange rate in a fixed exchange rate

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16
Q

Advantages of a floating exchange rate

A

Government / Central Bank don’t need to hold large reserves of gold or currency to defend the currency

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17
Q

Disadvantages of a floating exchange rate

A

Countries lose a means of protecting their industries - deliberately maintaining a weak currency

Volatility can affect investment

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18
Q

Why is the use of Monetary Policy constrained by a managed exchange rate system

A

It is used to support the exchange rate

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19
Q

Define Protectionism

A

Any attempt by a country to impose restrictions on open trade in goods and services

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20
Q

Advantages of protectionism as a development strategy

A

Allows infant industries ‘breathing space’ to develop and become competitive enough to export

Allows for dynamic efficiency gains

21
Q

Disadvantages of protectionism as a development strategy

A

Ineffective without competition or other incentives to improve quality and efficiency

22
Q

Define Human Capital

A

A measure of individuals’ skills, knowledge, abilities social attributes, personalities and health attributes. These factors enable individuals to work, and therefore produce something of economic value

23
Q

External benefits of education

A

A more highly skilled workforce is likely to be more productive and innovative

24
Q

Buffer stock

A

Form of government intervention designed to reduce the volatility of primary products

25
Q

How can a buffer stock help to increase investment in LEDCs

A

Increasing the incomes of those operating primary product industries which would then increase the amount of savings available for investment

Price guarantees give producers greater certainty of future profits

26
Q

How will buffer stock affect productivity

A

It is likely to increase due to higher investment levels

27
Q

What does a buffer stock aim to do

A

Reduce price volatility of primary products to stabilise the incomes of producers in these industries

28
Q

How can a buffer stock help to increase investment in LEDCs

A

Increase the incomes of those operating in primary product industries which would then increase the amount of savings available for investment

Price guarantees gives producers greater certainty of future profits

29
Q

Advantages of Infrastructure

A

Increased productivity
Improved quality of life

30
Q

Disadvantages of Infrastructure

A

Opportunity cost

Risk that money is wasted if corruption is rife

Increase in foreign debt if financed through international borrowing

31
Q

What is a joint venture

A

An association of two or more businesses for the purposes of engaging in a specific enterprise for profit

The business involved remain separate entities

32
Q

Advantages of a joint venture

A

Potential for technology transfer
Likely to boost imports
Injection of foreign capital - helps overcome savings gap

33
Q

Disadvantages of a joint venture

A

Country may come to depend on foreign technology rather than develop its own if government aren’t proactive about technology transfer

34
Q

The Lewis Model of Industrialisation

A

Small scale household farming in LEDCs is characterised by excess supply of workers

Marginal workers in this sector have a marginal productivity of zero

The opportunity cost of transferring workers
from the agricultural or industrial sector it’s zero

The transfer of labour from the agricultural sector to the industrial sector facilitates industrialisation

35
Q

Lewis Model of Industrialisation Evaluation

A

Without state support and infant industry protection - countries have struggled to industrialise successfully

Improving efficiency thorough supply spiked policies in the agricultural sector

36
Q

Advantages of develop tourism for growth and development

A

A large tourism sector will provide ample foreign currency

Potential for inward FDI from MNCs in the tourist industry

Job creation

Tourism has a positive YED which can help prevent deteriorations in the terms of trade

37
Q

Disadvantages of Developing Tourism for growth and development

A

External costs
Gains in employment may be seasonal
Sector likely to decline in times of global recession

38
Q

Advantages of developing primary industries

A

It is a way of making efficient use of existing factors of production which can fund diversification of the economy

Revenue earned can bend used to fund a stabilisation fund or sovereign wealth fund

39
Q

Disadvantages of developing primary industries

A

No guarantee diversification will be successful or attempted - leads to primary product dependency

If there is a high degree of corruption - benefits of focusing on primary products will, be restricted to the elite

40
Q

What is a sovereign wealth fund

A

A government or state run fund usually created by profits of natural resources

41
Q

Define Aid

A

Overseas development assistance from one country to another

42
Q

What is official development assistance

A

Loans, grants, and technical assistance provided to developing countries

43
Q

What is bilateral aid

A

ODA from one country to another

44
Q

What it’s multilateral aid

A

ODA from a multilateral institution or group of countries to another

45
Q

What is Tied Aid

A

ODA from one country to another that must be used to purchase goods and services donated by another country

46
Q

What is external debt

A

Total debt which the residents of a country owe to foreign creditors

47
Q

What is debt relief

A

Cancellation or rescheduling a nations external debt

48
Q

What is the Multilateral Debt Relief Initiative and Heavily Indebted Poor Countries

A

World Bank and IMF led debt relief programmes to the poorest LEDCs

World Bank did HIPC

IMF did MRDI

Macroeconomics (45 decks)

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