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

Category: A-level课程, 教材笔记, 福利干货 Date: 2022年9月29日上午9:44

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 aid, grants & 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