4.3.3 Emerging and developing countries (strategies influencing economic growth and development)

Question 1

What are market-oriented strategies?

Answer 1

strategies that create the conditions for private individuals and firms to pursue economic activity with the aim of maximising profit

Question 2

List the 6 market-oriented strategies you need to know

Answer 2

• Trade liberalisation
• Promotion of FDI
• Removal of government subsidies
• Floating exchange rate systems
• Microfinance schemes
• Privatisation

Question 3

How might promotion of FDI be carried out by the government?

strategy

Answer 3

by methods such as trade liberalisation, deregulation of capital markets, tax incentives, and making it easier and cheaper for global companies to build factories in developing countries

Question 4

What is the impact of removing government subsidies on firms?

strategy

Answer 4

• eliminates the inefficient allocation of resources, as the increased competition will incentivise firms to minimise costs and improve efficiency

Question 5

How is the adoption of a floating exchange rate system used as a market-oriented strategy to improve international competitiveness and promote growth and development?

strategy

Answer 5

• If a country has an overvalued currency then switching to a floating exchange rate system allows the market to naturally correct this by depreciating the currency down to its true value, improving international competitiveness

Question 6

Explain how privatisation positively impacts growth and development

strategy

Answer 6

• the profit motive and competition are strong in the private sector hence higher levels of efficiency than state-owned operations
• ↑ LRAS ↑competitiveness ↑profits

then finish chain of reasoning: ↑ gov revenue ↑ spending on education, healthcare, public merit goods

Question 7

What are microfinance schemes?

Answer 7

provide access to credit for the poor by way of small loans (micro credit), helping them with start-ups of expanding their small businesses

e.g. little book shops, bakeries

Question 8

How do microfinance schemes help reduce poverty?

Answer 8

• by helping people improve their incomes and access necessities like education
• reduces unemployment

helps mainly women, self-employed, small farmers, shopkeepers

Question 9

What are the negatives of microfinance schemes?

Answer 9

• have very high interest rates because they are deemed high-risk due to low success rates
• cost of servicing the loans limits profits/success so may remain in poverty with low SOL
• lack of education results in poor financial management and default on loans

Question 10

What are interventionist strategies?

Answer 10

Strategies put in place by governments to correct the failings of the free market and promote the welfare/development of its citizens

Question 11

List the 6 interventionist strategies you need to know

Answer 11

• development of human capital
• protectionism
• managed exchange rate systems
• infastructure development
• promoting join ventures with global companies
• buffer stock schemes

Question 12

What is meant by the development of human capital?

strategy

Answer 12

• investment in labour/human capital improving their skills, knowledge and talents hence improving the productive capacity of the economy

Question 13

What are the benefits of the development of human capital?

Answer 13

• attracts FDI due to lower training costs, so
  ↑productivity
• can increase international competitiveness

Question 14

What are the drawbacks of the development of human capital?

Answer 14

• tends to be expensive with high opportunity cost and significant time lag (18 year)
• parents may not be able to afford school fees
• brain drain

Question 15

What is brain drain?

Answer 15

When highly skilled/educated workers leave their home country (usually a developing one) to work in wealthier countries where wages and opportunities are better

Question 16

How does protectionism protect domestic producers?

strategy

Answer 16

it ensures profitability, job security and associated positive multiplier effects

Question 17

Explain the managed exchange rate system strategy.

strategy

Answer 17

• it allows the central bank to manage/manipulate the exchange rate e.g. depreciating the currency to increase competitiveness

Question 18

What are the benefits and drawbacks of the interventionist strategy ‘infastructure’?

Answer 18

benefits:
- improves productivity -> reduces geographical immobility
- lowers AC, as transporting raw materials is easier, ↓ COP ↑ IC

drawbacks:
- tends to be expensive with opportunity cost
- time lag

Question 19

List the 7 other strategies you need to know

Answer 19

• Industrialisation: Lewis Model
• Development of tourism
• Development of primary industries
• Fairtrade schemes
• Aid
• Debt relief
• International and Non-Governmental Organisations