Strategies influencing growth and development 4.3.3

Question 1

Strategies influencing growth and development part 1

Answer 1

• Trade liberalisation (free trade) like singapore
• FDI = jobs, multiplier, tax, knowledge
• Removal of subsidies and protectionism – opportunity cost + inefficiency
• Protectionism (tariffs, quotas, embargos, etc)

Question 2

Strategies influencing growth and development part 2

Answer 2

• Development of human capital (education and training)
• Developing infrastructure
• Exchange rate systems

Question 3

The LEWIS model – industrialisation - part 1

Answer 3

• Before industrialisation, many workers in agriculutural sector are underemployed, which causes productivity to be low.
• Therefore, marginal productivity of labour in the sector is close to 0.
• this allows workers to transfer from the agricultural sector to manufacturing without causing a reduction in agricultural output.

Question 4

The LEWIS model – industrialisation - part 2

Answer 4

• At initial stages of industrialisation, manufacturing tends to be labour intensive/ therefore a large supply of workers coming in boosts output and boosts profit
• if this is invested into capital goods, industrial firms can technologically advance and eventually move into more profitable sectors like steel and chemicals

Question 5

evaluation of lewis model

Answer 5

no guarantee, to move beyond labour intensive might need invest into education and training to enhance human capital

Question 6

Strategies influencing growth and development part 3

Answer 6

• Development of tourism
• Aid
• Debt relief
• Role of international institutions

Question 7

Market-orientated strategies:

Answer 7

o Trade liberalisation
o Promotion of FDI
o Removal of government subsidies
o Floating exchange rate systems
o Microfinance schemes
o Privatisation

Question 8

Interventionist strategies:

Answer 8

o Development of human capital
o Protectionism
o Managed exchange rates
o Infrastructure development
o Promoting joint ventures with global companies
o Buffer stock schemes

Question 9

Other strategies:

Answer 9

o Industrialisation: the Lewis model
o Development of tourism
o Fairtrade schemes
o Overseas aid
o Debt relief

Question 10

Awareness of the role of international institutions and non-government organisations (NGOs):

Answer 10

o World Bank
o International Monetary Fund (IMF)
o NGOs

Question 11

Micro effects of trade liberalisation:

Answer 11

• Lower prices for consumers / households which then increases their real incomes.
• Increased competition / lower barriers to entry attracts new firms.
• Improved efficiency – both allocative & productive.
• Might affect the real wages of workers in affected industries.

Question 12

Macro effects of trade liberalisation:

Answer 12

• Multiplier effects from higher export sales.
• Lower inflation from cheaper imports – causing an outward shift of short run aggregate supply.
• Risk of some structural unemployment / occupational immobility.
• May lead initially to an increase in the size of a nation’s trade deficit.

Question 13

Benefits of micro-credit

Answer 13

• Helps overcome the savings gap which limits entrepreneurship.
• Encourages entrepreneurship especially social enterprises.
• Targeted at women entrepreneurs.
• High rates of repayment because the system is built on social capital / trust.

Question 14

Disadvantages of micro-credit

Answer 14

• High interest rates often well above 10-15%.
• Low success rate for new small businesses.
• Alleged forcible collection of debt in many villages – this is hard to monitor.
• Perhaps relatively ineffective compared to the impact of migrant remittances & foreign direct investment.

Question 15

Buffer stock schemes seek to stabilize the market price of agricultural products by

Answer 15

• Buying up supplies when harvests are plentiful to prevent a steep fall in market prices
• Selling stocks onto the market when supplies are low to prevent a large spike in market prices

Question 16

Arguments for a buffer stock scheme:

Answer 16

1. Lower risk of extreme food poverty for poorest consumers.
2. More stable incomes and profits for farmers.
3. Helps macroeconomic stability / investment.
4. Buffer stock ought to be self-financing.

Question 17

Arguments against using buffer stock schemes:

Answer 17

1. Buffer stock may not be large enough to change the market price.
2. Setting a high price for farmers often causes rising surpluses – i.e. a misallocation of resources.
3. High costs of storage and falling quality of product (which might then have to be sold at discounted prices).
4. Many buffer stock schemes fail because of poor administration/corruption.

Question 18

The key aims of Fairtrade are to:

Answer 18

• Guarantee a higher / premium price to certified producers.
• Achieve greater price stability for growers.
• Improve production standards. A grower will be able to receive a Fairtrade licence if it can improve working conditions, better pay and guarantees of environmental sustainability.

Question 19

Floating exchange rate systems:

Answer 19

● In these systems, market forces determine the currency. The country does not have to worry about their gold and foreign currency reserves and the government does not intervene.
● However, there are problems with this. It means that the currency can be volatile which makes it difficult for exporters/importers to make decisions about the future and can cause large changes in macroeconomic variables, including economic growth.

Question 20

Protectionism

Answer 20

● Protectionism allows domestic industries to grow by keeping foreign goods out and protects them from strong competition.
- jobs created and industry develops
- but negatives of no CA and specialisation + retaliation

Question 21

Promoting joint ventures with global companies:

Answer 21

reduce exploitation of countries due to FDI would be set
up joint venture. gov may insist firms setting up production plants in their country find a local partner to create a jointly owned company with. will help to keep some of the profits generated within the country, which can be used in investment.

Question 22

Buffer stock schemes:

Answer 22

This is where the government imposes both a maximum and minimum price for goods, buying up stocks when there is excess supply and selling them off when there is excess demand. As a result, it should be self-financing: money is raised when selling the products, which allows the government to buy the next lot of stocks.

Ivory Coast and Ghana implemented a buffer stock scheme for cocoa in 2017 due to low prices

Question 23

benefits of buffer stock schemes

Answer 23

• stabilises prices, which encourages investment and FDI
• solves some of the issues relating to PPD

Question 24

negatives of buffer stock schemes

Answer 24

• requires stocks to go up and down to finance
• huge startup and admin costs = opp. cost
• where set min price - information
• taxpayer burden

Question 25

Fair Trade Schemes

Answer 25

• agreements made to buy a guaranteed amount of produce over a period of time above market price = producer stability
• no child labour
• insignificant impact on developing world
• reduces incentive to diversify and keeps farmer engaged in low profit activities

Question 26

IGOS

Answer 26

world bank
IMF