strategies-influencing-growth-and-development

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Market-orientated Strategies

Market-orientated strategies are strategies that create the conditions for private individuals and 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 and incomes	More FDI increases output, employment and income	Subsidy removal can increase competition, efficiency, employment, profits and 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 and incomes

Interventionist Strategies

Interventionist strategies are put in place by governments to correct the failings of the free market and 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 and a slowdown in exports leading to long periods of growing income
Infrastructure	Joint ventures	Buffer Stocks
Developing infrastructure reduces the cost of business and makes economic activity easier. This increases FDI, output, employment and 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 and 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) and is still used extensively in different markets in India, Thailand (rice), Vietnam, Indonesia (rice and coal)

Buffer stock schemes

Buffer stocks are created when the government buys up supplies of agricultural products when harvests are plentiful, stores them – and then sells them when supplies are low
- It aims to support agricultural producers, consumers and stabilise the market price of agricultural products
While doing good, they create several problems, including
- Storage is expensive
- Transport to and from storage is expensive
- It is difficult to analyse and 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 and then selling i to the government at a profit in the buffer stock scheme

Graph showing price ceiling and floor with price fluctuations. Demand curve sloping downwards. Supply lines intersect at points A, B, F, G. — **A buffer stock scheme for rice in Vietnam with P2 as the floor and P3 as the ceiling**

Diagram explanation

The Vietnamese government has set a price ceiling (maximum price) and 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 and 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) and sells the rice
- This increases market supply and ensures that the price does not rise above the ceiling price

Other Strategies

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

Additional Growth and Development Strategies

Strategy	Explanation
Industrialisation: the Lewis model	Developed in 1955, the Lewis Model described economies as having two sectors – the rural agricultural sector and the urban industrial sector Productivity and 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 and 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 and 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 and 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 and market value added products
Aid	Three of the most common forms are humanitarian aid, grants and soft loans Aid has proven beneficial in times of distress Critics argue that aid breeds dependency, corruption and 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 and 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) and 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) and 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 and institutions so as to encourage economic reform and <span class=”popovers” data-content=”Removing the

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 and institutions so as to encourage economic reform and <span class=”popovers” data-content=”Removing the

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