what are some market based strategies to promote economic growth?
free market appraoch
- trade liberalisation
- promotion of FDI
- removal of government subsidies
- floating exchange rate system
- priviatisation
- microfinance
what are the gains in welfare from trade liberalisation?
- lower prices for consumers, higher consumer surplus, reducing inequalities
- makes domestic markets more competitive: lower prices increase allocative efficency, increased competition can drive higher productivity and further lower unit costs .
- firsm can benefit from specialisation nd economies of scale improving productive efficency
what are the losses of trade liberalisation?
- loss of government tarrif revenue
- risk of structural unemployment if demand moves from domestic to overseas firms
- short term rise in trade deficit
- enviroment exploitation
define FDI
investing in a firm overseas in order to gain control over firm
what are the benefits of FDI?
- economic growth by capital investment
- job creation
- transfer of knowledge
- infrastructure development eg: investing in transport/ telecommunications
what are the drawbacks of FDI?
- TNCs create poor working conditions
- profits are sent to different country
what are the advanatges of a free floating exchange rate?
- shock absporption
- dont need large foreign currency reserves
- more flexibility in conducting monetary policy
what are the drawbacks of a free floating exchange rate?
- exchnage rate volatility
- inflation pass through
define micro finance
provision of financial services such as loans and savings to those who may not have access/ be applicable to traditional banking
why is introducing micro finance beneficial?
include drawbacks
- increased access to credit
disadvanatges:
* high intrest rates
* bankruptcy
define privatisation
transfer of ownership of government owned assets to public sector
how may privatisation lead to development?
- improved efficency and produtvity
- reduced government burden so can spend elsewher
- increased investment and perhaps job opportunities
what are the drawbacks of privatisation?
- income inequality and regressive effects
- job losses
what are some interventionsit strategies to promote economic growth?
- development of human capital
- protectionism
- managed exchange rates
- infrastructure development
- buffer stock schemes
how may trade protectionst measures lead to economic development?
- infant indsutry protection
- revenue generation
- protecting jobs
what’s wrong with protectionist measures?
- retalitation tarrifs
- higher prices and inflation
- productive inefficency if firms cannot benefit from economies of scale
what are some development of human capital measures?
- conditional cash transfer programs
- financial support- scholarships
benefits
* less poverty
* more productive workforce, more FDI
* more innovation/ tecnhology advancement as more likley to engage with research & development
define managed exchnage rate
when exchnage is determined by supply and demand for currency but aloso deliberate interventions by central bank
what are the benefits of a managed exchange rate?
- export competitvness
- price stability and controlling inflation
- external shock adjustment
what is a buffer stock scheme?
stablising the price & supply of a commodity by creating a stockpile in times of high supply and then releasing in times of low supply
draw buffer stock diagram
why use a buffer stock?
- price stability which means stable predicted income for farmers
- producers can invest more confidently
what are limitations of a buffer stock?
- finance required as cost of buying ans storing may be high, so perhaps not viable in long term, potential budget deficit
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