Strategies Influencing Growth and Development - Market Led and Interventionist

Question 1

Get a pen and paper

Name and describe the 6 market-oriented strategies

(Give positives and negatives where possible)

Answer 1

1.Trade liberalisation
-removal of trade barriers
-resources will be allocated to their best use where the country has comparative advantage

2.Promotion of FDI
-FDI is the investment by one private sector company in one country into a private sector in another
-Transfer of knowledge
-Creates jobs
-Fill the savings gap
-Environmental damage
-exploitation of natural resources

3.Removal of govt subsidies
-Could lead to an increase in efficiency
-Could negatively affect infant industries
-Govt spending could be targeted towards other projects
-Politically unpopular

4.Floating Exchange rate systems
-Currency could become volatile
-Country doesn’t need to worry about its gold and foreign currency reserves
-Difficult to forward plan

5.Microfinance
-Giving poor households access to a range of financial schemes
-Targeted to groups like women
-High risk for no repayment of loans
-Allows borrowers to invest in start-ups

6.Privatisation
-End corruption in a state-owned company
-Increased competition, lower prices
-Government revenue
-However, the firm could be privatised as a monopoly

Question 2

Get a pen and paper

Name and describe the 6 interventionist strategies

(Give positives and negatives where possible)

Answer 2

1.Development of Human Capital
-Improve skills of workers
-improved productivity
-improved education and quality of life
-lower production costs

2.Protectionism
-protect infant industries
-protects domestic employment
-prevent dumping
-Countries may lose out on benefits from comparative advantage
-Lack of foreign competition
-reduction in choice for consumers

3.Managed exchange rates
-Fixed against a number of different exchange rates
-Can manipulate exchange rates to achieve different objectives
-Could result in corruption
-Black markets in foreign exchange could lead to a lack of effectiveness

4. Infrastructure development
   -Helps solve market failure
   -Lack of funds
   -High capital costs
   -Improved social welfare
   -Bribery and corruption
5. Promoting joint ventures with global companies
   -govt may insist setting up production plants in their country and find a local partner to create a jointly owned company with
   -reduces exploitation of countries through FDI
   -Profits generated can stay in the country
6. Buffer stock schemes, on its own flashcard

Question 3

Describe buffer stock schemes

Answer 3

Where the government imposes both a maximum and minimum price for goods (often commodities, agricultural products), buying up stock when there’s excess supply (when prices fall below the minimum) and selling them off when there’s excess demand (when prices rise above the maximum)

-stabilises prices-prevents large fluctuations
-helps solve some issues relating to primary product dependency
-Prevent price spikes and crashes

Question 4

Go on sketchpad to show the effects an when an increase in supply leads to a fall in price below the minimum when there’s a buffer stock scheme in place

Answer 4

Did you remember:
1. Price. y axis
2. Quantity, x axis
3. Supply and demand curve
4. Draw minimum and maximum prices
5. Show an outwards shift in supply
6.Price falls below minimum
7. Government buys up more stock which leads to an increase in demand
8. Price moves back up to the minimum