4.3.3B - Interventionist strategies influencing development and growth Flashcards
Name 6 interventionist strategies
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
Pros of protectionism for development
- Allows infant industries ‘breathing space’ to develop and become competitive enough to export.
- Allows for dynamic efficiency gains
- create jobs in the short run and will allow the industry to develop, perhaps
to the extent where the barriers can be removed , and the industry can compete
globally. - south korea and uk used it for development
Cons of protectionism as a development strategy
- Ineffective without export discipline or other incentives to improve quality
- countries lose out from the benefits of specialisation and
comparative advantage and could cause inefficiency, since domestic producers
suffer from a lack of competition. Other countries are likely to retaliate.
define human capital
a measure of individuals’ skills, knowledge, abilities, social attributes, personalities and health attributes. These factors enable individuals to work, and therefore produce something of economic value.
external benefits of education
A more highly skilled workforce is likely to be more productive and innovative. Third parties benefit from this e.g. firms who hire these workers.
Benefits of developed human capital
● This would provide workers with skills and training and thus help them to be more efficient and improve productivity. Businesses struggle to expand where there are skills shortages and it also limits innovation.
● Human capital could be developed through schools or vocational training, whether this be apprenticeships or simply classes provided for business people.
● Higher skills would allow the country to develop from the primary sector to a
manufacturing sector, overcoming primary product dependency.
● Better education also improves quality of life.- better job, better income, meet basic needs, increase multiplier effect
● Both China and South Korea developed their human capital massively in order to
develop.
What do buffer stocks do
Reduce price volatility of primary products to stabilise the incomes of producers in these industries.
Describe buffer stocks
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.
pros of buffer stock
- used on commodities, where the prices are volatile providing stability and a predictable income for farmers as some may have limted access to crop and lviestock insurance
- it is beneficial because it stabilises prices and thus encourages investment since producers can plan for the long term. so new capital increasing yiled and quality, higher per capita incomes, reduces poverty
- also prevents sharp falls in prices, meaning that producers are kept from falling into absolute poverty,
- and prevents sharp rises in prices,
meaning that consumers are able to afford the food - and also there is adequate supply preventing food insecurity - It can solve some of the issues
relating to primary product dependency. - ensure that trade balance remains strong as producers keep on producing due to less instability
Evaluate buffer stocks schemes
- it requires stocks to go up and down ; if they keep rising, then the scheme will run out of money and if they keep falling, the scheme will run out of stocks. They require huge start-up costs , as well as administration costs and
problems of storage (perishable, security) - minimum prices may be set too high, encouraging producers to become inefficient. They will produce as much as they like and know they will be able to sell it anyway, meaning that supply is high and the government has to continually buy up the stocks.
- If the scheme is operating at a loss, the taxpayer feels the burden and government finances are worsened
+ risiing surpluses increas fiscal cost of scheme and therefore budget deficit rises
example of buffer stock scheme
The Ivory Coast and Ghana implemented a buffer stock scheme for cocoa in 2017
due to low prices
aims of buffer stock
- stabilise food prices
- ensure food supplies
- prevetnt farmers from going out of biz due ro falling world prices
- if dep on commodities, buffer stocks enusre trade balance is in a good state
drawback of buffer stocks
- hard to maintain a buffer stock large enough to impact market prices
- if floor price is set too high, propducers have incentive to grow more crops so they grow an excessive number of products. This would be inefficient as some would be wasted and resources directed away from other areas of economy
- expensive to buy up stocks representing an opportunity costs - could be spent on mobile technology to help farmer
- storage and tranportation costs, opp cost
- all producers have to be part of the scheme otherwise control over supply is limited so operators cannot control the market price
define buffer stock
a mechanism designed to stabilise the price and supply of a commodity, usually a raw material or agricultural product
- involves the creation of a stockpile of a commdoity during times of high supply which can be used to regulate makret in times of low supply
- can be owned and managed by gov, central agency or group of producers
alternatives to buffer stock scheme
- subsidies for fertilizser and seed
- agricultrual insurance against crop loss due to weather
- rural infrastructure
- market info systems to provide real time infor on prices, supply and demand
- farmer cooperatives which help famrers increase collective bargaining pwoer against monopsonistic buyers
