Edexcel A Level Economics A:复习笔记4.3.3 Strategies Influencing Growth & Development

Market-orientated Strategies

  • Market-orientated strategies are strategies that create the conditions for private individuals & firms to pursue economic activity with the aim of maximising profit

Market-orientated Strategies

Trade Liberalisation Foreign Direct Investment Subsidy Removal
More trade increases output, employment & incomes More FDI increases output, employment & income Subsidy removal can increase competition, efficiency, employment, profits & income
Floating Exchange Rate Systems  Microfinance Privatisation
Appreciation can generate higher incomes as the cost of imported raw materials reduces possibly leading to higher income An extremely successful policy in many countries, especially Bangladesh. Microfinance helps to break the poverty cycle May increase competition leading to an increase in output, employment & incomes

Interventionist Strategies

  • Interventionist strategies are put in place by governments to correct the failings of the free market & promote the welfare/development of its citizens

Interventionist Strategies

Human capital Protectionism Managed exchange rates
Policies aimed at developing human capital raise the potential output of the economy which leads to an increase in income This can intervene in natural market forces which lower wage rates. Protecting employees can lead to higher levels of income In a floating exchange rate mechanism, rising exports will lead to currency appreciation which, in time, will lead to a slowdown or fall in exports. Managing currency prevents appreciation & a slowdown in exports leading to long periods of growing income
Infrastructure Joint ventures Buffer Stocks
Developing infrastructure reduces the cost of business & makes economic activity easier. This increases FDI, output, employment & income Some countries (e.g. India) block foreign ownership of firms (FDI). Joint ventures (JV's) are a way that firms can get around that. JV's can increase trade, output, employment & incomes e.g Tata Starbucks allows Starbucks to sell their product through an Indian global steel giant, Tata This is explained in more detail below. Price stability ensures income stability. It also results in excess production which increases levels of employment. It was used extensively in Europe post second world war (Common Agricultural Policy) & is still used extensively in different markets in India, Thailand (rice), Vietnam, Indonesia (rice & coal)

Buffer Stock Schemes

  • Buffer stocks are created when the government buys up supplies of agricultural products when harvests are plentiful, stores them - & then sells them when supplies are low
    • It aims to support agricultural producers, consumers & stabilise the market price of agricultural products
  • While doing good, they create several problems, including
    • Storage is expensive
    • Transport to & from storage is expensive
    • It is difficult to analyse & control market forces
    • It requires all producers to participate honestly in the scheme e.g. producers in Vietnam have been caught importing cheap rice from Thailand & then selling i to the government at a profit in the buffer stock scheme

4-3-3-buffer-stock-scheme

A buffer stock scheme for rice in Vietnam with P2 as the floor & P3 as the ceiling

Diagram Explanation

  • The Vietnamese government has set a price ceiling (maximum price) & price floor (minimum price) in the market for rice
  • The equilibrium is initially at P1Q1
  • If the price of rice drops below P2, the government will purchase large quantities & store it (FG)
    • This will reduce market supply, preventing the price from falling below the minimum price (P2)
  • If the price of rice rises above P3, the government releases it from storage (AB) & sells the rice
    • This increases market supply & ensures that the price does not rise above the ceiling price

 

Other Strategies

  • Numerous other strategies are also available to increase growth & development
  • Contextual factors can influence the effectiveness of any of these strategies & some that work well in one context may be entirely ineffective in another

 

Additional Growth & Development Strategies

Strategy Explanation
Industrialisation: the Lewis model

 

  • Developed in 1955, the Lewis Model described economies as having two sectors - the rural agricultural sector & the urban industrial sector
  • Productivity & incomes are higher in the industrial sector so Lewis argued countries should transform their structure
  • Critics argue that many developing countries have high unemployment in urban areas; the theory also assumes that manufacturing will be a labour intensive task when in reality it is often capital intensive
Development of tourism  

  • For many developing countries this is an excellent source of employment, revenue & income
  • Rising global incomes have increased demand for tourism
  • Ecotourism is developing as a response to negative externalities of consumption that tourism creates. e.g. increased waste, noise, use of scarce resources (drinking water)
Development of primary industries  

  • Some countries have successfully developed as a result of GDP growth that has been driven by relatively few primary industries e.g Zambia has benefitted from the copper industry; most Middle East countries developed entirely due to oil; Ethiopia depends on coffee & cut flowers
  • Developing these primary product industries is lucrative due to their comparative advantage
Fairtrade schemes  

  • Many developed countries use protectionism to shift profits from developing nations to developed nations
    • E.g. the USA has no tariff on cocoa beans imported into the USA from Ghana, but does place a tariff of 12% on cocoa powder. It want manufacturers in the USA to benefit from processing cocoa beans
  • The price of many commodities is set far away from where the farmers are - the Chicago Board of Exchange. Here, prices are set months in advance & determine the price buyers will pay sellers on a particular day in the future
  • Fair trade schemes aim to bypass these restrictions by connecting ethical buyers directly with the farmers in developing countries
    • They pay them higher prices
    • They often help them to develop & market value added products
Aid

 

 

  • Three of the most common forms are humanitarian aidgrants & soft loans
  • Aid has proven beneficial in times of distress
  • Critics argue that aid breeds dependency, corruption & disincentivises individual responsibility
Debt relief

 

 

  • Many developing nations have borrowed significant sums of money in the past which have to be repaid (with interest) over a long period of time
  • The opportunity cost of these repayments is significant & often includes
    • Loss of infrastructure development
    • Inability to create a welfare system
    • Investment in human capital/education
  • Countries began to default on their loans in 1982 (Mexico was the first) & this has led to restructuring of these loans to make it more affordable
  • More recently there has been significant progress in writing off the entire debt of the most heavily indebted poor countries (HIPC) so that they can focus on building their economies

 

International Institutions & NGOs

  • The World Bank, International Monetary Fund (IMF) & many non governmental organisations (NGOs) play an active role in economic development

An Explanation of Organisations That Assist in Development

Organisation Explanation of what they do
 

World Bank

 

 

  • Founded in 1944 as the International Bank for Reconstruction and Development to fund postwar redevelopment
  • They provide reconstruction loans to countries devastated by war
  • They provide loans to developing countries to aid in their development
  • They provide loans to countries to assist with the development of infrastructure
  • They work with governments & institutions so as to encourage economic reform & trade liberalisation
 

International Monetary Fund (IMF)

 

 

  • Founded in 1944 with the aim of establishing a stable global financial system that could help with postwar reconstruction efforts & better deal with challenges such as the Great Depression of the 1930's
  • John Maynard Keynes was one of two founders
  • They aim to facilitate a stable global financial system
  • They oversee exchange rates & the system of international payments that occurs between nations & individuals
  • They monitor country policies & national, regional & global economic & financial developments through a formal system known as surveillance
  • They provide member countries with currency to help deal with balance of payments problems
 

NGOs

 

 

  • These are typically voluntary, community based organisations which do not aim to make a profit but seek to meet a need or provide a service
  • They operate locally, nationally and/or internationally
  • With a community based emphasis, they are able to
    • Engage in small scale projects giving control to community stakeholders
    • Draw on local skills
    • Encourage sustainability & remove the need for aid
    • Tackle environmental sustainability using local knowledge & resources

 

 

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