Market-orientated Growth and Development strategies

Question 1

Trade liberalisation

Answer 1

• lowering import tariffs and relaxing import quotas and other forms of protectionism
• more open to trade and investment

Question 2

Trade liberalisation (Macro effects)

Answer 2

• multiplier effects from higher export sales (develop comparative advantage)
• Lower inflation from cheaper imports (outward shift of SRAS)
• Risk of some structural + occupational immobility
• May lead initially to an increase in nations’ trade deficit
• No tariffs = reduction of cost of trading G+S

Question 3

FDI gains

Answer 3

• effect on AD + LRAS
• Improved infrastructure e.g. belt and road
• Higher capital intensity / capital deepening
• Better training for local workers
• Investment increases export capacity
• More competition in markets
• Creates new jobs leading to higher per capita incomes
• FDI can promote a shift o higher productivity jobs

Question 4

FDI policy drawbacks

Answer 4

• Multinationals wield power
• take advantage of weak laws on environmental protection
• bad working conditions
• Cash outflow
• Lower skilled jobs

Question 5

Floating exchange rate systems

Answer 5

• Floating exchange rates can be helpful for countries exposed to external economic shocks
• Central bank does not have to intervene (do not need large reserves)
• Capital controls will not be used to limit inflow + outflow of currency - more attractive to FDI
• Floating currencies are not necessarily volatile (currency reserves not used

Question 6

Microfinance schemes

Answer 6

• Micro-credit
• Micro-savings
• Micro-insurance
• Remittance management

Question 7

Microcredit Pros

Answer 7

• overcome the savings gap (limit entrepreneurship)
• encourages entrepreneurship especially social enterprises
• targeted at women
• high rates of repayment (based on trust)

Question 8

Microcredit cons

Answer 8

• High-interest rates often well above 10-15%
• Low success rate for new small businesses
• alleged forcible collection of debt
• relatively ineffective compared to others e.g. FDI

Question 9

Privatisation pros

Answer 9

• Profit incentive -> productively efficient
• Government gains revenue from sale of assets
• state monopoly replaced - extra contestability in industry
• competitiveness of Macroeconomy - higher investment + economies of scales

Question 10

Privatisation cons

Answer 10

• social objectives given less importance
• some activities best run by state e.g. water supply
• government loses out on profits
• Privatisation leads to job losses
• unless good regulations i.e. there is a risk of creating private monopolies