4.10 Econ growth and Economic development strategies Flashcards
Define Import Substitution
growth and trade strategy were a country begins to manufacture simple consumer goods for the domestic market to promote its domestic industry
Give an example of Import Substitution
Countries with large populations and relatively high incomes such as Brazil and Argentina were able to successfully utilise import substitution. From the 1930’s onward for example, Brazil implemented import licensing systems, quotas and tariffs on foreign goods and the government began to invest in key industries..
Evaluate the US of import Substitution in Brazil
Successes
1) allowed for increased manufacturing production (e.g motor vehicles) and considerable diversification in Brazil’s domestic industry
2) the Brazilian economy experienced rapid growth and considerable diversification. Between 1950 and 1961, the average annual rate of growth of the gross domestic product exceeded 7 percent.
Failures
1) . The institution of import substitution policies were not as effective in increasing GDP, and were insufficient to permit competitive integration of domestic industries into the international market. Thus, highlights how import substitution present a limited opportunity for growth in the long term
2) Critics also argued trade protection measures offered protection to nonessential consumer goods, exacerbated by the fact that these measures were inefficient and led to a wastage of the world resources and shifted production from efficient foreign producers to inefficient domestic producers.
3) Critics also argued trade protection measure offered protection to non essential consumer goods, excerberated by the fact that these measures
Define Export Promotion
A growth and trade strategy where a country attempts to achieve economic growth by expanding exports. (e.g through export subsidies or devaluing the currency)
Give an example of Export Promotion (Singapore)
The Asian Tigers including Hong Kong, Korea, Taiwan, and Singapore experienced rapid growth through exports promotion. For example, Singapore pursued export promotion in the 1960s through attracting foreign investment to invest in Singapore Manufacturing sector (foreign direct investment from foreign multinational companies (MNCs). This was done through fighting corruption, institituting low corporate tax rate as well as the government established an open policy towards foreign ownership and operations in Singapore with no foreign exchange controls. Furthermore, the government was willing to co-invest with foreign companies to foster domestic industries through supply skilled workers, and facilitating good transport systems. Singapore is now the world 3rd leading receipt of Foreign direct investment
Keynote: Good political governance in Singapore enabled Political stability in the long term which enabled economic policies be pursued effectively
Give another example of Export Promotion (Latin America)
In the early 1970s, it had become apparent that ISI was not the best development strategy, Some Latin American Countries pursued export promotion through devaluing their currency.
Evaluate the effective of Export promotion
Successs
1) Economic growth and development
Through learning from foreign companies, Singapore was able to diversify into electronics, chemicals and pharmaceuticals, and sophisticated service industries. Thus, between between 1965 and 1988 Singapore’s annual growth of exports was 7.6 percent in constant prices – twice that of the middle-income country as the country also export high levels of economic growth.
2) increased employment
Singapore to establish their production bases and to create employment opportunities, high levels of income and more consumer spending. Furthermore, national wage council ensured wage only increase in line with productively over the long term allowing exports to maintain a competitive age which increased and sustained levels of employment.
Failures
1), did not address economic inequality in Singapore as though the economic growth increased, one could argue economic development didn’t increase as it led to a wider disparity with regards to distribution of income. Income inequality in Singapore become increasingly apparently in the aftermath of the Asian financial crisis. Even though there was an increase in mean income and social welfare had increased in terms of better education, health and standard of living, the Gini coefficient rose from 0.44 in 1990, 1995 and 1997 to 0.45 in 1998 and 0.47 in 1999.
2) Excerberated economic problems
These countries became highly indebted, and the economy became stagnant in the aftermath of the Depreciation of currencies which negatively impacted foreign and domestic extractive industries in Latin American countries whose debt was often denominated in foreign currencies in the 1980s
Give a school of thoughts perspective on Export Promotion
market failures are the justification for export promotion policies and their
effectiveness may be judged by their effects in nations that adopted these policies
Define Diversification
Involves the reallocation of resources into new activities that broaden the range of goods and services produced.
Discuss the relationship between the growth and development of a country and the primary as well as the manufacturing sector
As a country grows and develops, its primary sector usually shrinks and its manufacturing sector expands due to diversification (exports and production are likely to become more varied).
Discuss the term value-added
refers to a value of a good that is added in each step of a production process
Discuss the trade-off between overspecialization and diversification
Overspecialization in a narrow range of primary commodities is a major barrier to growth and development (Countries that overspecialize are usually rich in natural resources e.g Zambia). It has been observed since the 1960s that resource-poor developing countries have been growing faster than resource-reach countries. Though specialization enables resource countries to utilize their comparative advantage, and use the world resources efficiently, specialization inhibits them from being able to diversify from primary commodities to manufactured goods.
Example
Illustration of specialization and diversification tradeoff dilemma
Sierra Leone is well known for its vast endowment in minerals which include diamonds, rutile, bauxite, gold, iron ore etc.Mining has been the mainstay of the economy since independence and the government has remained heavily dependent on mineral resources over the years. Mining contributed 0.7 percent to GDP, constituted 65 percent of export earnings, and 3 percent to employment in 2018. However, The economy of Sierra Leone one of the least developed countries with a gross domestic product (GDP) of approximately US$1.9 billion in 2009.
Give two benefits of Diversification
1) Development of New technology and skills
2) Sustained exports
(Use Singaopre as an example for both)
Define a Social Enterprise
A type of commerical organziation that aims to achieve particular social goals to improve the well being of people and promote social change. Social enterprises can be either profit or non profit organizations.
