4.3.3 Flashcards

Question

interventionist intervention strategies: what're some examples of joint ventures?

Answer 1

Examples of recent joint ventures: * (2017) Apple entered into a joint venture in China to open a new data centre to serve iCloud users there * Brilliance China Automotive Holding has a joint venture with BMW from Germany

Answer 2

* Buying up supplies when harvests are plentiful * Selling stocks onto the market when supplies are low

Answer 3

In theory, buffer stock schemes will be profit making, since they buy up stocks of the product when the price is low and sell them onto the market when the price is high. However, they do not work well in practice, many buffer stock schemes have collapsed, and they can only work effectively for storable commodities

Answer 4

Arguments for a buffer stock scheme: 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 Arguments against using buffer stock schemes: 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

Answer 5

In the long term, investment in capital goods such as irrigation and wider access to affordable insurance can be powerful * So too are policies to reduce dependency on any one particular crop

Answer 6

Arthur Lewis put forward a development model of a dual economy, consisting of rural agricultural and urban manufacturing sectors. Initially, the majority of labour is employed upon the land, which is a fixed resource. Labour is a variable resource and, as more labour is put to work on the land, diminishing marginal returns eventually set in: there may be insufficient tasks for the marginal worker to undertake, resulting in reduced marginal product (output produced by an additional worker) and underemployment. Urban workers, engaged in manufacturing, tend to produce a higher value of output than their agricultural counterparts. The resultant higher urban wages (Lewis stated that a 30% premium was required) might therefore tempt surplus agricultural workers to migrate to cities and engage in manufacturing activity. High urban profits would encourage firms to expand and hence result in further rural-urban migration. The Lewis model is a model of structural change since it outlines the development from a traditional economy to an industrialized one.

Answer 7

1. Whilst much manufacturing remains labour-intensive, the rapid adoption of robots and other automated processes can limit the scale of new job opportunities for people moving to urban areas where industries are concentrated 2. Successful manufacturing strategies often have close links back to farming and extractive sectors e.g. developing processing capabilities for farmers who grow fruit. Kenya has established a cut-flower processing industry that employs over 200,000 people and contributes more than $1 billion worth of exports each year 3. Light manufacturing does not always add a great deal of value added to production especially low-level assembly tasks. Countries might do better in the long run if they also invest in building human capital in industries such as research, engineering and design. 4. There are drawbacks from rapid urbanisation especially if a country does not have the infrastructure to cope with high rates of rural-urban migration.

Answer 8

Benefits of Tourism for Growth & Development 1. Employment creation, tourism is labour intensive industry. 2. Employs a significantly higher % of women helping to increase female labour market participation 3. Export earnings - tourism is a service industry – it helps to generate foreign exchange 4. An important source of diversification for many smaller countries – reducing primary dependency 5. Lifts aggregate demand – possibly creating local and regional income-multiplier effects. 6. Accelerator effects from investment in tourism infrastructure and services such as airlines and telecoms Critical Evaluation of Expanding Tourism 1. Exploitation of local labour by overseas TNCs, consider the rapid growth of sex industry in many countries 2. Many workers in tourism are migrants suffering from poor employment conditions such as low wages/long hours 3. Outflow of profits from foreign-owned tourist resorts, many resorts have few locally-owned hotels. 4. All-inclusive deals tend to ignore the local economy 5. Negative externalities from construction projects such as congestion, waste, pressure on the natural environment. 6. Rising property prices makes housing less affordable for local people. 7. Deepening pressures on local cultures from westernisation, the doubtful benefits of slum-tourism + concerns with security and health. 8. Tourism can be a highly cyclical industry vulnerable to global economic and political shocks

Answer 9

* 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

Answer 10

1. Impact on non-participating farmers: Some claim that by encouraging consumers to buy their products from Fairtrade sources, this cuts demand for farmers in poorer nations not covered by the Fairtrade label thereby worsening the risk of extreme poverty 2. Who captures the gains from Fair-Trade coffee? There is some evidence that a large part of the premium price goes to processors and distributors rather than the farmers themselves. 3. Others argue that the fundamental causes of poverty are not really addressed by Fairtrade. Greater investment needs to be made in raising farm productivity, reducing vulnerability to climate change, and reaching multi- lateral trade agreements between countries to reduce import tariffs and improve access for poor countries into the markets of rich advanced nations. 4. Other investment might be better targeted at encouraging farmers to establish producer co-operatives of their own and create their own branded products selling direct to consumers.

Answer 11

1. Bi-lateral aid: From one country to another 2. Multi-lateral aid: Channelled through international bodies such as the United Nations 3. Project aid: Direct financing of projects for a donor country 4. Technical assistance: Funding of expertise of various types including engineering / medicine 5. Humanitarian aid: Emergency disaster relief, food aid, refugee relief and disaster preparedness 6. Soft loans: A loan made to a country on a concessionary basis that offers a lower rate of interest 7. Tied aid: i.e. projects tied to suppliers in the donor country 8. Debt relief – e.g. cancellation, rescheduling, refinancing of a country’s external debts

Answer 12

Benefits of overseas aid 1. Helps to overcome the savings gap + aid can help stabilize post-conflict environments and in disaster recovery 2. Project aid can fast-forward investment in critical infrastructure – eventually leading to higher productivity 3. Long-term aid for health and education projects – this builds human capital and stronger social institutions 4. Targeted aid might add around 0.5% to the annual growth rate of the poorest countries - this benefits donor countries too as trade grows Risks / drawbacks from high levels of overseas aid 1. Poor governance - aid might leave the recipient country. It can finance corruption by ruling political elites 2. Lack of transparency – hundreds of $m is spent on aid consultants and developed country non-governmental organisations 3. Dependency culture – one aid paradox is that aid tends to be most effective where it is needed least – it may harm an entrepreneurial culture 4. Aid may lead to a distortion of market forces and a loss of economic efficiency and might cause higher inflation

Answer 13

* Debt relief involves the cancellation, rescheduling, or refinancing of a nation’s external debts. * Many of the world’s poorest countries have high levels of external debt owed to other governments, institutions such as the IMF and foreign companies, banks and individuals. * The Heavily Indebted Poor Countries Initiative (HIPCI) is an initiative to provide debt relief to heavily indebted low-income countries * Debt relief agreements are often conditional on the host country introducing structural economic reforms

Answer 14

The case for offering debt relief 1. High debt and the interest payments on debt can further impoverish the most vulnerable people in poor countries – debt relief is an appropriate form of aid for countries who lack access to global capital markets 2. Poor countries highly dependent on exports of primary commodities are exposed to global economic shocks which can damage their export revenues and take them further into external debt. There is a moral argument for helping. 3. Debt relief can be made partially conditional on governments introducing economic and social reforms Edexcel A-Level Economics Theme 4 Companion www.tutor2u.net/economics Page 91 SCHOOL LICENCE – Copyright Tutor2u Arguments against extensive debt relief 1. Moral hazard argument – governments will spend and borrow more – perhaps recklessly – if they know/expect that some of their debts will be written off in the future – this increases the risk of government failure 2. If governments ran better macroeconomic policies e.g. to control inflation and state borrowing, then the interest rates charged on new loans would fall making the repayment of debt less costly.

Answer 15

The World Bank: * Provides grants and low interest loans * Offers policy advice and technical assistance to developing countries * Co-ordinates projects with governments Critics of the World Bank argue that the institution is risk averse, hugely over-staffed and overly sensitive to criticisms of their flagship projects and with multi-million-dollar expense accounts in stark contrast to their original mission.

Answer 16

* IMF was founded at the Bretton Woods conference in 1944 * The IMF works to foster global monetary cooperation, secure financial stability, facilitate global trade, promote high employment and sustainable economic growth, and reduce poverty around the world * The IMF provides financing to its members when they are suffering economic difficulties * Financial assistance can come in the form of conditional loans or training * Emerging market countries argue that the IMF requires reform given the changing balance of power in the world economy. Key Roles for the IMF 1. Promote international monetary co-operation 2. Facilitate the expansion of international trade 3. Provide exchange stability 4. Make resources available to members experiencing balance of payments difficulties

Answer 17

An NGO is any not-for-profit voluntary group – it can operate on a local, regional, or international scale. NGOs often operate on a small scale in developing countries. They frequently work in the areas of environmental improvement, community development, and human rights – there have been notable interventions from NGOs in the areas of removal of landmines in previously war-torn countries (e.g. Cambodia), gender equality and women’s rights, and raising awareness of ‘blood diamonds’.

4.3.3 Flashcards

strategies influencing growth and development (41 cards)