Strategies influencing growth & development 4.3.3 Flashcards
rostow’s model
5 main stages
trad society based on agriculture, increase in capital for agriculture + mining, increased industrialisation and then diversified industry and higher levels of technology leading to mass consumption with strong service sector and high output levels
market orientated strategies
trade liberalisation promotion of FDI removal of gov subsidies floating exchange rate system microfinance scheme privatisation
trade liberalisation
export led growth
domestic industries are forced to become more efficient when removing trade barriers, resources are allocated to their best use where the country has the comparitive advantage
promotion of FDI
investment by one private sector company in one country into another private sector company in another country
if the investment fails, the country doesn’t owe them money
removal of gov subsidies
subsidies on essential/agriculture to increase output and investment
poorly targeted, essentials subsidised helps everyone, economic theory suggests cash payments for the poor
can lead to inefficiency
opportunity cost + high debt
corruption issues (venezuela subsidised fuel gets smuggled)
floating exchange rate system
market forces determine the currency, gov doesn’t intervene
makes currency volatile
microfinance schemes
gives poor households permanent access to financial services (loans etc) from MFI (microfinancing institutions) delivering small loans ‘opportunity’
group lending, implicit guarantee of access to future loans if present ones are repaid so borrowers can invest in businesses
usually targets those less likely to receive loans (women)
evaluate privatisation
ends corruption within a firm owned by the state, increases comp,selling off a loss making firm improves gov finances
if a firm is privatised as a monopoly there’ll be no competition and it can be associated with corruption as officials may sell the firm at a price below market price to their friends
evaluate microfinance schemes
south africa- became a method of financing consumption spending so they may not be able to repay it so they sell off family assets or borrow from friends which increases the informal economy
interventionist strategies
develop human capital protectionism managed exchange rate system infrastructure joint ventures with global companies buffer stock schemes
interventionist strategies
develop human capital protectionism managed exchange rate system infrastructure joint ventures with global companies buffer stock schemes
protectionism
import substitution
creates jobs
lose out from benefits of specialisation and comparative advantage, inefficiency
import substitution
deliberately replacing imports with domestic goods through protectionism
managed exchange rate
fixed against other exchange rates
how would fixing currency against a high exchange rate for essentials effect trade
price within the country of the essentials is low which reduces poverty
how would fixing currency against a high exchange rate for essentials effect trade
price within the country of the essentials is low which reduces poverty
don’t work in practice, leads to black markets +corruption (gov officials buy a currency at one exchange rate and sell it for profit at another)
however, a single exchange rate reduces volatility
infrastructure
suffers from free rider problem so the gov should provide them
gov may not have the funds can involve bribery & corruption &environmental damage
infrastructure
suffers from free rider problem so the gov should provide them
gov may not have the funds can involve bribery & corruption &environmental damage
joint ventures with global companies
gov may want firms setting up production plants to partner with a local firm & create a jointly owned company to keep some profits generated within the country
buffer stock schemes
gov imposes both max & min prices for goods, buy up stocks when there’s excess supply, sell off with excess demand
money raised from selling stocks is then used to buy the next set (self financing)
evaluate buffer stock schemes
used on commodities as their prices are volatile,stabilises price encouraging investment
requires stocks to go up and down (if it keeps rising they’ll go out of money if falls they run out of stocks)
start up + administration costs
storage, other countries may take advantage (free riders) global prices are kept stable
price setting is hard
other strategies
industrialisation tourism develop primary industries fairtrade schemes aid IMF NGOs debt relief world bank
industrialisation
lewis model assumes developing countries have dual economies-trad agricultural sector (low wages+productivity) + modern industrial sector which attracts workers from rural areas with higher pay, labour productivity is low in agricultural so workers leaving has no impact on output
tourism
income elastic so as global economy grows, demand for industry increases too vice versa in a recession
source of foreign currency-fills currency gap
investment from transnational hotel companies
jobs created (laborious)
tax revenue from higher incomes
develop primary industries
funds from it mean you can diversify but prices=volatile
corruption
fairtrade schemes
trading partnership for equity in international trade, agreements on buying a guaranteed amount of produce over some time at a price above market price so child labour isn’t used, it’s sustainable
aid
voluntary transfers/ loans
tier aid (conditions attached like commitment to buy from donor country)
bilateral (directly from one to another)
multilateral (given to international org who distributes it to other countries)
concessional loans (given n low/no interest rates)
reduces absolute poverty, fills savings & currency gap
IMF
provides loans to help countries when there are international exchange rate crises & insists on reforms for the country eg reducing imports so the exchange rate system works well
NGOs
offer direct assistance eg oxfam
acts as pressure groups to make gov adopt more prodevelopment strategies
they can’t solve it alone and may be anti-capitalist
debt relief
many countries suffer from high interest payments which limits growth, so it’s reasonable for it to be written off
moral hazard if all poor countries expect it
world bank
aims to bring about long term development & reduce poverty providing interest free loans etc
evaluate aid
dependency culture
money doesn’t always go where it’s meant to
