Strategies influencing growth and development Flashcards
Explain buffer stock strategy (relating to primary product dependency issue)
Government sets price floor below the equilibrium price and ceiling above equilibrium price
Government purchases primary goods when supply is high to store and increase the price due to lower supply.
When supply worsens, the government then sells the stored goods to increase supply and decrease the price.
Overall, reducing the fluctuation in price of primary products, making its more investment-friendly, leading to more investment
Explain why buffer stock scheme is limited?
- Producers may overproduce knowing government will just buy the excess supply to maximise profit, very expensive to run, may lose other spending opportunities for economic development
Explain Lewis Model (industrialisation) to stop primary product dependency and promote development
Workers moving from agriculture to industrialisation.
Initially, there is only one manufacturing firms, thus had monopsony power for low wages -> more supernormal profit -> more investment -> demand for labour -> higher wages -> more workers attracted with higher income -> more consumption -> ad shift -> economic growth and development
Evaluate Lewis Model effectiveness on development
Firms may use transfer pricing to sell goods at a cheap price to their subsidiary companies to avoid corporation tax -> funding for development decreases (education, healthcare)
