Market Based Policies To Boost Development

Question 1

State + explain the macro effects of market based policies to boost development.

Answer 1

• Growth, Incomes, Living Standards, Poverty: trade liberalisation, promoting FDI, tax cuts, deregulation - boost economic growth (AD / LRAS) - higher incomes - higher living standards (material + non-material), poverty alleviation.
• Job Creation: L as a derived D - driving down unemployment.
• Tax Revenue Collection: higher economic growth - higher income tax rev / corporation tax rev / VAT rev / tariff rev - benefits gov’s fiscal position.
• Income Inequality: concerns about where growth has come from + type of market-based SSPs used.

Question 2

State + explain the micro effects of market based policies to boost development.

Answer 2

• Allocative Efficiency: policies can boost competition - get allocative efficient outcomes - lower P, higher quantities, greater choice, higher quality - good for development , those on low incomes + those in poverty.
• Dynamic Efficiency: higher profits through completion policy (deregulation, privatisation), trade liberalisation, FDI coming in. Higher profits can be re-invested - could boost productivity if new tech / better capital, more green production if I is in renewable sources.
• Market Failure: potentially worsening - privatisation, deregulation - environmental market failures, income inequality. Public goods may not be provided (e.g. infrastructure, education, healthcare).