Strategies Influencing Growth and Development Flashcards
Why is Trade Liberalisation likely to result in greater trade
Makes trading goods and services between nations easier - amount of trade taking place should increase
Advantages of Trade Liberalisation for firms
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
Disadvantages of trade liberalisation for firms
Greater level of corruption
Risk of dumping
What can lead to higher rates of economic growth
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
Problems facing LEDCs
Foreign exchange gap
Savings gap
Low levels of technology
Limited tax base
Limited capital stock
Low levels of human capital
How can FDI solve problems facing LEDCs
External funding through MNCs
MNCs are likely to train local workers and suppliers
MNCs are likely to bring advanced levels of capital
Advantages of FDI
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
Disadvantages of TNCs
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
What is a loan shark
Someone who charges large amounts of interests on loans
Microfinance features
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
Advantages of Microfinance
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
Disadvantages of microfinance
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
How may LEDCs use subsidies
Be used to support infant industries - leads to economic growth and dynamic efficiency - subsidies can be removed once growth has occurred
Risks of privatisation in LEDCs
Price and quality may not improve if there’s a natural monopoly
LEDCs may lack the resources to regulate these industries - corruption may occur
Difference between a floating exchange rate and fixed exchange rate
Market forces determine exchange rates in a floating exchange rate system
Government sets the exchange rate in a fixed exchange rate
Advantages of a floating exchange rate
Government / Central Bank don’t need to hold large reserves of gold or currency to defend the currency
Disadvantages of a floating exchange rate
Countries lose a means of protecting their industries - deliberately maintaining a weak currency
Volatility can affect investment
Why is the use of Monetary Policy constrained by a managed exchange rate system
It is used to support the exchange rate
Define Protectionism
Any attempt by a country to impose restrictions on open trade in goods and services
Advantages of protectionism as a development strategy
Allows infant industries ‘breathing space’ to develop and become competitive enough to export
Allows for dynamic efficiency gains
Disadvantages of protectionism as a development strategy
Ineffective without competition or other incentives to improve quality and efficiency
Define Human Capital
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
External benefits of education
A more highly skilled workforce is likely to be more productive and innovative
Buffer stock
Form of government intervention designed to reduce the volatility of primary products
