Growth and Development Strategies Part 1 (Trade, FDI) Flashcards
(40 cards)
1
Q
Strategies to promote economic growth and development (Part 1 only)
A
2
Q
Export Promotion
A
Growth strategy focused on boosting export revenues to drive economic growth
3
Q
Advantages of Export Promotion
A
- Greater output generates higher EOS
- Greater output creates more employment
- Attracts foreign investment
- International competition → innovation and increased efficiency
4
Q
Cons of Export promotion
A
- Protectionism and trade barriers applied by developed countries
- Struggle to maintain low ER as demand for products and currency rises.
- May lead to over-dependence on exports
- Requires significant initial investment
- Vulnerable to global market fluctuations
5
Q
Import Substitution
A
- Countries manufacturing consumer goods domestically instead of importing them
- Are often protected by trade barriers (tariffs, quota)
6
Q
Advantages of Import substitution
A
- Protects and develops infant domestic industries
- Creates local jobs and industrial capacity
- Reduces dependency on foreign imports
- Helps conserve foreign exchange reserves
7
Q
Problems with Import Substitution
A
- Higher prices and less choice for consumers
- Possibility of retaliation from other countries
- Reduced access to foreign technology
- May create protected monopolies
8
Q
Economic Intergration
A
- Countries remove trade barriers between them to increase trade
- Can be regional (like ASEAN) or global (through WTO)
9
Q
Advantages of Economic Integration
A
- Access to more markets → more EOS with higher profits
- Increased effciency
- More political cooperation between countries
- Increase in investment → AD increases
- More employment opportunities
EU, USMCA, ASEAN, TTIP, CARICOM
10
Q
Drawbacks of Economic Integration
A
- Compromise of domestic policies
- Many states are locked out of opportunities to integrate
- No monetary policy in a monetary union (harder to fight inflation)
- Have to impose common trade restrictions which could cause import prices to rise
11
Q
Diversification
A
- Moving from primary products into several
- Changing the structure of an economy so that it does not rely on one volatile-priced good
China and South Korea
12
Q
Benefits of Diversification
A
- Reduces losses in recessions
- Solves over-specialization issues
- Creates jobs
- Lowers price fluctuation risks
- Increases efficiency
- Mitigates supply shocks
- Opens new markets
- Reduces import reliance
13
Q
Drawbacks of Diversification
A
- Long-term strategy
- Requires large investments
- Limited natural resources
- High failure risk
- Lacks expertise
- High initial costs
14
Q
Social Enterprise
A
- An organisation that focuses on meeting specific social objectives
- Many of these are “non-profits” or NGOs, charities
- Want to maximize social and environmental benefit for society
Oxfam, Khan academy, Open university, British Council, Operation Smile, ICAP
15
Q
Advantages of social enterpises
A
- Raises motivation, productivity and output
- Can create new employment opportunities
- Raises income within the communities
16
Q
Disadvantages of social enterprises
A
- Tend to be small as the funding is small
- Relies on commitment and passion of individuals
- Retained profit so less investment in cause
- Have to maintain transparent with accounting
17
Q
Interventionist
A
Redistribution policies including tax policies, transfer payments and minimum wages
socialist - intervening to help people
18
Q
Pros of Market led policies
A
- Promotes economic efficiency
- Attracts foreign investment
- Encourages competition
- Reduces government spending
- Increases consumer choice
19
Q
Cons of Market-led policies
A
- May increase inequality
- Can neglect public goods
- Might ignore environmental costs
- Often overlooks social welfare
- Can lead to market failures
20
Q
Trade liberalization
A
Removal or reduction of trade barriers that block free trade of goods and services
Important organizations:
- WTO
- World Bank
- International Monetary Fund
21
Q
Advantages of Trade Liberalization
A
- Increase efficiency
- More choice
- Lower prices for domestic consumer
- Access to bigger market
- More export → AD increase
22
Q
Cons of Trade Liberalization
A
- Vulnerable to external shocks
- Some countries have advantage with gov. intervention
- Competition → potential increase in unemployment
- Loss of gov. revenue (tariff)
23
Q
Privatization
A
Market based policy to sell or transfer public sector assets to private sector
24
Q
Advantages of Privatization
A
- Improve competition, efficiency, and productivity
- Attracts private investment
- Provides finance to government organizations
25
Disadvantages of Privatization
* Unemployment may increase as private firms cut wages to maximise profits
* Government assets are sold off cheaply at < market value
* Price tends to rise
* Can create private monopolies
* Quality may decrease as private firms focus on profit maximisation
26
Deregulation
* Removal of barriers or rules in an industry to make it easier to produce
* To create more competition and greater efficiency
27
Advantages of Deregulations
* Reduces inefficiencies from government control
* Speeds up resource allocation and decision-making
28
Disadvantages of Deregulations
* Markets are more exposed to uncertainties and fluctuations
* Often leads to increase in corruption
* May increase the quantity of negative externalities
* May allow foreign firms to monopolise industry within the nation = higher prices and less output
29
Advantages of Inverventionism
* Protection of Domestic Industries
* Job Security
* Reduced Income Inequality
* Economic Stability
* Encouragement of Industrialization
30
Disadvantages of Interventionism
* Inefficiency and corruption
* Higher costs for consumers
* Risk of market distortions
* Reduced innovation and global competitiveness
* Fiscal burden
31
Investment
Expenditure on capital goods
32
Foreign investment
Capital that originates abroad
33
FDI
an investment by a foreigner into another countries where the investor buy at least 10% of e.g a business.
34
Multi-national Corporation
Worldwide enterprise or firm that owns production units in more than one country
35
Why are MNCs/TNCs attracted to LEDCs?
* Supply of raw materials/natural resources
* Avoid protectionisms
* Large/new/growing market
* Locational advantages (less coporate tax, etc..)
* Reduce transport expenses by being closer to the market
* Regulations are less strict
36
Advantages of MNCs
* Creates job, boosts national income
* Regional market advantages
* Government makes tax revenues
* Improve education/training/skills
* Allows technological transfer
* Multiplier effect of employment
* Consumer choice and lower prices
37
Disadvantages of MNCs
* Labor exploitation
* Immense size and power of MNCs may influence governments of LDCs
* Profit generated are sent back, not for development of host country
* Local firms may struggle → unemployment
## Footnote
BHP, Australian gold mining company that set up in Papua New Guinea.
38
Provision of merit goods
* Education programs
* Health programs
* Infrastructure including energy, transport, telecommunications, clean water and sanitation
39
Advantages of Provision of Merit goods
* Improved Human Capital
* Reduced Inequality
* Positive Externalities
* Market Failure Correction
* Long-Term Development Gains
40
Cons of provision of merit goods
* High Fiscal Cost
* Potential Inefficiencies
* Opportunity Cost
