4.3. Strategies influencing growth and development Flashcards

Question

How does promotion of joint ventures affect development?

Answer 1

Allows access to higher value goods that a developing economy may struggle to produce alone - this should raise incomes and so increase GNI per capita and living standards

Answer 2

The imposition of restrictions and ownership rules may act as a disincentive to foreign companies If the joint venture is accompanied by significant regulations and rules on business practices then it may discourage FDI

Answer 3

Often farming or manufacturing subsidies to incentivise crop production and increase food security Manufacturing subsidies can provide support for emerging export markets

Answer 4

Subsidies create dependency and encourage inefficiency Government have limited resources, so money spent on inefficient subsidies takes money away from potential spending on education, healthcare and infrastructure Agricultural subsidies can lead to large payments to landowners - big transfer from taxpayers to the richest

Answer 5

Switch from inefficient subsidies to spending on infrastructurem health or education should raise the productive potential of the economy (removal of government subsidies) But subsidies are an injection, so removing them reduces AD and actual growth

Answer 6

If spending is focussed on health or education then it should lead to improvements in HDI

Answer 7

Levels of subsidies in LICs are often much lower than in MEDCs, so removing them may create an even greater competitive disadvantage Subsidies are an injection into the economy, so simply removing them would reduce AD which would reduce actual growth

Answer 8

Using minimum and maximum prices If the price falls below the price floor, the buffer stock agency buys stock to increase demand and raise the price above the floor If the price rises above the ceiling the agency sells stock to increase supply and lower the price below the ceiling Overcomes the issue of volatile prices for primary goods The aim is to reduce volatility by intervening to influence supply and demand in an industry If successful, stabilising prices encourages investment Prevention of sharp price falls may protect poor farmers

Answer 9

Greater price stability creates more certainty which means investment is more likely - has the effect of boosting AD (actual growth) and the productive potential (potential growth)

Answer 10

Minimum price creates greater guarantee of income which helps support the living standards of the poorest workers

Answer 11

Not very common Huge financial capital required to start and maintain a scheme This leads to a constant need to buy stocks in order to maintain the price – unsustainable in the long run Many schemes simply run out of money Thai rice buffer stock scheme led to huge government surpluses

Answer 12

Microfinance provides very small loans to individuals that otherwise would not get them Often community based with low interest rates and a shared sense of responsibility for proper repayment

Answer 13

Encouraging investment helps to expand the productive potential of the economy (potential growth) Investment also acts as an injection into AD (actual growth)

Answer 14

Giving poor individuals the opportunity to invest and generate income raises living standards (HDI) and can reduce inequality

Answer 15

Debt-trap A lack of regulation can lead to microfinance organisations exploiting individuals by pressuring them to take out loans beyond what they can afford to repay Once caught in a trap of needing further loans to repay past loans it can be difficult to escape

Answer 16

Selling-off state owned enterprises to the private sector The profit motive can lead to a greater incentive to increase efficiency by cutting costs and responding to market demand

Answer 17

Where privatisation leads to greater competition it can help to reduce costs - if privatised business is a key resource (e.g. electricity) it should reduce costs of production across the economy (increase SRAS) If firms become more internationally competitive then could also raise AD (actual growth)

Answer 18

Increased real output should lead to rising GNI per capita which increase the living standards dimension of HDI

Answer 19

Privatisation of an industry that remains a monopoly may not increase efficiency Corruption – nationally owned firm may be sold below market price for financial gain of the ruling party

Answer 20

Improving transport, energy, communications, healthcare, banking, education, sanitation, etc. Developing infrastructure improves productivity, mobility and access to foreign markets

Answer 21

Improvement in infrastructure make the economy a stronger option for FDI (link to actual growth) Improvements in energy infrastructure also have significant benefits to productivity and the productive potential of the economy (potential growth)

Answer 22

Improvements in productivity means the value that workers are producing increasing - this can increase incomes so increasing GNI per capita, improving living standards and HDI

Answer 23

Government may not have the funds to develop all the infrastructure necessary and may not complete infrastructure projects efficiently

Answer 24

Developing the quality and accessibility of education to raise skills levels in the economy Improving skills should increase productivity and the value of production Improving the access to education can also reduce inequalities by raising the earning potential of the poorest Human capital can also be fostered through improved health

Answer 25

Improvements in skills and productivity increases the quality of labour in the economy so should raise the productive potential of the economy (potential growth)

Answer 26

Greater access to education should increase the mean years of schooling in the economy - increasing the education dimension of HDI Higher skills means that workers can access higher value and therefore higher paid jobs - increasing living standards

Answer 27

Affordability problem for very low-income countries Can be a very long time lag before the impact is seen If there is a lack of suitable skilled jobs it may simply lead to a brain drain effect

Answer 28

Developing countries can achieve growth by transferring labour from the traditional agricultural sector to the modern industrial sector The traditional agricultural sector is low skilled and so low productivity and low wages The modern industrial sector is higher skilled and so higher productivity and wages The shift from agriculture to industry leads to higher value production, but also begins to raise the wages in agriculture as well, as the supply of available labour drops

Answer 29

Increasing the level of productivity over time should increase the productive capacity of the economy (potential growth)

Answer 30

Higher productivity and higher value goods should lead to higher wages which increases living standards

Answer 31

The model doesn’t suggest how the process should happen Should the government force the issue, or is it something that will happen organically as the economy develops? No guarantee that workers in urban sector will have higher productivity or income levels

Answer 32

Increased spending from foreign tourists creates an injection into the economy Can make use of existing natural assets (climate, landscapes, history) Labour intensive industry – creates a lot of jobs in relation to capital employed Relatively low skilled jobs which are accessible to poorer people Potential multiplier effect from tourist spending

Answer 33

Injection into the circular flow leads to a rise in AD leading to actual growth Creation of jobs creates the potential for multiplier effect

Answer 34

Job creation creates opportunity for higher incomes so improving living standards

Answer 35

Without suitable infrastructure tourism development may not be possible Environmental impact Pursuit of short term gains could be at the expense of long term degradation of landscapes/coastlines

Answer 36

Some countries with significant natural resources can develop these industries as a first step to development The funds from these primary industries are then used to diversify the economy and invest in infrastructure, education, etc.

Answer 37

Large export revenues from valuable primary resources create an injection and boost AD leading to actual growth If the revenues are reinvested into capital infrastructure it can increase LRAS leading to potential growth

Answer 38

The investment into infrastructure and diversification that follows allows production of higher value goods and services which raises incomes, so improving living standards and HDI

Answer 39

A strong commodity performance may lead to a strengthening of currency which could harm other industries Could lead to over-focus on commodities (PPD) Countries with high levels of corruption may not spend the revenues in a way that improves society’s welfare

Answer 40

Buyers agree to pay a group of farmers a guaranteed amount which is above the market price This raises farmer incomes and provides greater certainty which can help them plan and invest Fair trade also focuses on community development, working conditions and the environment

Answer 41

Higher prices paid means creates greater revenues in what are generally export industries, raising AD Where fairtrade focuses on community projects, like schools, it builds the skills (potential growth)

Answer 42

Raising the incomes of poor farmers should increase living standards + reduction in relative poverty Improving access to education should increase the mean years of schooling

Answer 43

Fairtrade doesn’t tackle the fundamental problem of producing a low value product: Farmers may be better off switching to a higher value crop rather than relying on fairtrade Fairtrade agreements are often with farmers – evidence that wage workers (the poorest) do not see the benefit of fairtrade

Answer 44

Lots of different types of aid and motivations for providing aid Aid can help overcome funding problems that a developing economy might otherwise have Aid which builds capacity (e.g. skills & infrastructure) tends to be more effective in the long run than emergency aid

Answer 45

Aid that targets infrastructure or education should improve the productive potential of the economy (potential growth) As it is likely to come from abroad it should provide an injection into the economy (actual growth)

Answer 46

Where aid enables production of higher value goods and services it should increase living standards Aid is often targeted at education and healthcare so should increase years of schooling and life expectancy

Answer 47

Corruption is a major problem – prevents the benefits being seen by those who really need it Information problem - do those providing the aid know what those receiving it actually need? Can lead to inefficient use of resources

Answer 48

Many countries have historic borrowing which has led to large levels of debt This leads to large interest payments which cannot be used for development Cancelling or restructuring debt should reduce the financial burden on developing economies Highly Indebted Poor Countries (HIPC) initiative led to some low-income countries having debt written off

Answer 49

Reducing debt interest payments reduces a leakage from the economy so more can be injected, raising AD Debt relief allows greater funds for developing infrastructure, healthcare, etc. - this should increase potential growth

Answer 50

By freeing up government funds that previously were spent on interest, more can be spent on education and healthcare which increases years of schooling and life expectancy

Answer 51

Dangerous precedent – moral hazard? Countries may be less cautious about borrowing, expecting debt relief in the future HIPC is criticised as imposing capitalist ideals on to developing economies Several countries provided with HIPC relief have later fallen back into debt unsustainability

4.3. Strategies influencing growth and development Flashcards

(75 cards)