4.3.3 - Strategies influencing growth and development Flashcards
(27 cards)
Name some market based strategies that may influence growth and development
Also trade liberalisation is basically when you join a FTA
Explain what Microfinance is, what type of strategy it is and some evaluation points after explain how it may lead to development.
- Market based
Name some interventionist strategies to promote economic development
Evaluate why education and training may not lead to economic growth and development .
- Often times in developing countries, children don’t go to school as they have to work for their families.
- So if the gov investments in education, in the short run it would mean that children leave work to go to school.
- This will lead to a fall in output, this will affect household incomes.
- As a result they government will receive less in income tax revenues.
- This will affect the level of investment in the economy by the government.
- Addionatlly education may not help for development is inidvuals are educated in lower paying jobs e.g arts, drama etc. This may lead to unemployment or underemployment as individuals are educated in jobs in low demand.
- Brain drain : Economy will not benefit from higher skilled labour
- Opportunity cost
What do you understand about promoting joint ventures ?
Joint ventures are becoming common as firms want to benefit from collaborative work in reaching a mutually agreed strategic target e.g. a joint-research project to share the fixed costs of higher risk research.
For example: Disney and Fox created a Joint Venture and created a new streaming service called Hulu. Each company owns a 50% stake in the company.
What are buffer stock schemes.
- This is a price stabilisation scheme, to ensure that the prices of commodities remain stable. This is because their prices are usually volatile due to inelastic supply and demand.
How does the government implement buffer stock schemes ?
The gov intervenes by :
Maintains a stockpile of certain commodities by buying up commodities during surpluses when harvest is plentiful.
- They then sell these commodies onto the market when supply is low.
Why do the government implement buffer stock schemes ?
- To prevent prices from rising to high this would affect consumer surplus.
- To prevent prices from falling to low, which would affect producer revenues and therefore profits.
Draw a buffer stock diagram :
1) What the gov would do if demand increased for the commodity
2) If there was a plentiful harvest causing an increase in supply of commodities
- You should know this as it’s a causal S&D diagram which, only difference is, the price floor and ceiling,
- Econ plus dal vid : Link
Benefits of buffer stock schemes
- Prevents prices fluctions, which means incomes of farmers stay somewhat stable. It also means that there is food security and consumers aren’t vulnerable to ecxtremly high prices.
Downsides of buffer stock schemes .
- Storing commodities is expensive for government in developing countries.
- It requires all producers to participate honestly in the scheme, as in Vietnam :
- producers in Vietnam have been caught importing cheap rice from Thailand and then selling i to the government at a profit in the buffer stock scheme
What are other strategies influencing growth and development
How can a government promote FDI ?
- Tax cuts for cooperation tax
- Investestments in infrastructure - this would reduce transport cost for business
What is the Lewis model, what do you understand about it and how can it be used as a strategy to influence growth and development.
- The Lewis model is a dual-sector model. That allows us to understand how developing countries that focuses on producing agricultural goods can move towards manufactured goods. (Industrialisation of a country) To help their country develop.
- This is because there is an excess supply of unproductive labour in the agricultural sector.
- Moving these workers to from the agricultural sector to the industrial sector (where there are higher wages), would increase economic productivity, as well as help to increase the profits of firms in industry.
- Higher wages can lead to increase incomes, (income tax etc etc), helps to improve standards of living.
- Increase profs can be use to expand industry, allowing them to hire more workers from the agricultural sector which will help to shift the economy away from agricultural goods to manufactured goods.
- Summary : Idustrilastion will lead to development.
Limitations to the Lewis - model.
- Profs may not be re-invested and instead used for personal gains of owners of the company.
- Capital investment due to higher profits may replace labour leading to technological unemployment.
- This model also assumes there is no opportunity cost of moving labours form the agricultural sector to the industrial sector.
- Gov receives income tax but not copration tax due to transfer pricing of companies in that country.
-Technological then to structural unemployment. - Infmation failure they don’t know these jobs exits.
How can development of tourism lead to development ?
- Creates jobs for local residents (increasing employment)
- Helps increase foreign exchange reserves which can be used to import manufactured goods e.g medicines, which can be uses to improve healthcare.
- ## Increase in exporting more services.
How can tourism constrain development ?
- Increase waste, Pollution increased demand for currency may lead to currency appreciation
- Tourism fluctuates throughout, most tourists come during hotter sunnier months and less in winter moths which may lead to seasonal unemployment.
- Demand for housing goes up as tourist need a place to stay so they may rent out air b n bs which cause dmenad for poropteries to increase. Which means people living there cant afford houses. Leading to higher rates of poverty
Just cause it’s on the spec but like how would you explain how developing primary industries lead to development ?
What are fair trade schemes and how do they influence development ?
Fair trade schemes ensure that farmers receive a fair price for their goods.
- Thea prices are usually above the market equilibrium which help farmers since that have a guaranteed income and certainty about their sales, so they can plan for the future. 4
Over comes protectionism and monopsony power and volatile prices ( which will encourage investment because there is more business confidence and certainty)
It’s a minimum price which increase producer surplus, which helps to garuntee export revenues for farmers.
- The money is then reinvested into the the local area, to provide a positive multiplier.
Evaluating fair trade
Distrotts market price signals because they aren’t investing into more profitable production of goods. So they aren’t being as allocative efficient.
How can Aid influence development ?
FInacail assistance can be usd to fund infrastructure projects that ac ountry can not afford.
- It also can be used to help improve healthcare and address immediate needs
- This will help to promote long term development.
- Helps to reduce savings gaps
- Countries may become reliant
Edexcel economic diagram of buffer stock schemes
Industrial jobs vs Manufactimhg jobs
- Lower wages in agriculture
- Potential seasonal unemployment
