Strategies influencing growth and development Flashcards
What is foreign direct investment?
transnational companies setting up part of their production in the country
Give six potential benefits of foreign direct investment to a developing country.
- provision of capital and technology
- training and development of people
- employment
- tax revenue
- foreign exchange from exports
- potential income for local businesses from ex-pats
Give four potential costs of foreign direct investment to a developing country.
- taking labour from local businesses
- governments may have to offer incentives eg subsidies to attract TNCs
- TNC market power / economies of scale may mean local businesses lose sales
- may increase inequality as tend to locate in urban areas which are already more developed (unless eg mining)
What is transfer pricing?
when a TNC manipulates its balance sheet to ensure profits occur in countries with lowest costs through internal transactions being priced in most advantageous way
If a country has a fixed exchange rate eg against US$ and the rate is higher than equilibrium, what effect will move to floating exchange rate have on current account of balance of payments?
- Devaluation will mean more competitive exports so more demand for exports so increased surplus / reduced deficit, but …
- if supply is inelastic, then could result in demand-pull inflation and so reduced surplus / increased deficit in short run
What is microfinance?
schemes providing finance for small-sale projects in developing countries
Where and when was the Grameen Bank launched to provide microfinance?
Bangladesh in 1976
Why does over 90% of microfinance tend to be to women?
They are generally more in need, invest more carefully and repay more reliably.
What are ROSCAS?
microfinance in the form of rotating savings and credit schemes where groups pool their saving then take it in turns to take loan then pay it back for next person to use
What interventionist strategies can a government use to facilitate development of human capital?
- education and training
- healthcare, including vaccinations
What interventionist trade policies can a government use to facilitate development?
- tariffs to encourage import substitution (ie being domestic goods instead)
- export promotion, eg by subsidising certain economic activity
What is a buffer stock scheme?
scheme to stabilise price of a commodity by buying excess supply when supply high and selling when supply low
Name a buffer stock scheme that previously operated in EU.
Common Agricultural Policy
What issues were caused by the Common Agricultural Policy when it operated as a buffer stock scheme?
- Guaranteed prices encouraged farmer to produce more so ended up with huge surpluses of eg butter and wine which were expensive to store.
- There were adverse environmental impacts (hence CAP now reformed to encourage more environment-friendly farming).
Why might interventionist strategies to improve infrastructure, eg transport, communications, market facilities, be difficult for developing countries?
don’t have the funds to finance so have to borrow from overseas to do them
What is industrialisation?
process of transforming economy away from reliance on primary production by expanding manufacturing and other industrical activity
What is the Lewis Model?
model that argued that developing countries had two sectors, traditional and modern, and that labour could be transferred to modern to bring growth and development
What are the problems with the Lewis Model?
- training is needed to transfer labour from eg agriculture to industry
- can lead to focus on urban development, increasing inequality with rural areas
What are fair trade schemes?
schemes that aim to ensure that small producers in developing countries receive a fair price for their products
What is Official Development Assistance (ODA)?
aid provided to developing countries by OECD countries
What was the % of GDP each country in OECD agreed to devote to overseas aid in 1974?
0.7%
Do most OECD countries meet the overseas aid target of 0.7% of GDP each year?
No, each year only a handful meet it
What conditions are sometimes put on overseas aid that can limit the benefit to receipient countries?
It may be tied to trade deals or specific projects.
Name two institutions that developing countries may borrow from to finance development.
- World Bank
- International Monetary Fund
What is the International Monetary Fund (IMF)?
a multilateral institution that provides short-term financing for countries experiencing balance of payments problems
What is the World Bank?
a multilateral institution that provides long-term financing for development projects
What is the World Trade Organisation (WTO)?
a multilateral body that oversees the conduct of international trade, particularly reduction of tariffs and other trade barriers
What is the HIPC Inititative?
Heavily Indebted Poor Countries Initiative, which allows debt forgiveness in return for a commitment to “good” policies over a period of time
What’s the umbrella term for charities and other non-profit voluntary citizens’ groups (that may promote and support development in developing countries)?
Non-governmental organisations (NGOs)
