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What strategies will enable the achievement of economic growth and/or…
What strategies will enable the achievement of economic growth and/or economic development?
Trade strategies
Import substitution
May be referred to as import substitution industrialization (ISI) and an inward-oriented strategy
= A developing country should, whenever possible, produce goods domestically, rather than import them
Not supported by by economists who believe in the advantages of free trade based on comparative advantage
Conditions
Adopt a policy of organizing the selection of goods to produce domestically
Subsidies as encouragement
A protectionist system with tariff barriers to keep out imports
Disadvantages
May only protect jobs in the short run. In the long run, economic growth may be lower which may lead to a lack of job creation
Does not enjoy the benefits to be gain from comparative advantage and specialization, so producing products relatively inefficiently
Inefficiency because of no competition to encourage R&D
High inflation rates due to domestic AS constraints
May cause other countries to take retaliatory protectionist measures
Advantages
Protects jobs in the domestic market
Protects the local culture and social habits
Protects the economy from the power and bad influence of MNCs
Export promotion
Often called export-led growth and an outward-oriented growth strategy
= Concentrating on increasing exports and export revenue
Policies
Liberalized trade
Liberalized capital flows
A floating exchange rate
Investment in the provision of infrastructure to enable trade to take place
Disadvantages
Increased protectionism in developed countries against developing countries
Some argue that state intervention is vital and others argue that state intervention actually slows down growth rates
MNCs may become too powerful within the country
May increase income inequality in the country
Economic integration
Preferential access schemes and regional free-trade agreements
Advantages
May allow producers to gain economies of scale
May encourage diversification and reduce dependence on a narrow range of commodities
Encourage regional cooperation in areas such as infrastructure
For landlocked countries, regional integration may offer vital links to ports and other infrastructure networks in neighbouring countries
A stimulus for inward foreign direct investment
If there is free movement of labour, this provides opportunities for workers to work in other member countries and send remittances home
If there is free movement of capital, this provides opportunities for companies to invest in other member countries
As part of a trading bloc, individual countries may increase their bargaining power in multilateral trade negotiations
Consumers may have access to less expensive imported G&S if trade diversion does not take place and new common external tariff does not make imported products more expensive
Trade creation will benefit producers who can import inputs without tariffs
Disadvantages
The role of the WTO might be undermined
Trade can become more complicated with agreements with other trading blocs
Unemployment may arise as less efficient companies may not be able to compete with lower priced imports from other member countries
There may be trade diversion
Diversification
= Move the production and export of primary commodities and replace these with those of manufactured and semi-manufactured products
Barriers
Tariff escalation whereby the rate of import tariffs on goods rises the more the goods are processed
The need for more highly qualified workforce
Market-based supply-side policies
Trade liberalization
= The removal or reduction of trade barriers that block the free trade of G&S between countries
Advantage
Enable developing countries to concentrate on the production of G&S in which they have a comparative advantage
Barriers
Requires the infrastructure and institutions necessary to gain the full benefits
Protectionist policies employed by developed countries
Subsidies given by developed country governments to their producers can damage the ability of producers from developing countries to compete in international markets
Privatization
= The sale of nationalized firms to the private sector
Advantages
More efficient than nationalized firms
Increase the potential output of the economy
Barriers
Requires careful designing and sequencing. the creation of regulatory infrastructure, assessment of possible poverty and social impacts and transparent public communication
Some G&S needs to be provided by nationalized firms in order to be accessible and affordable
Deregulation
Advantages
Increase aggregate supply
Increase domestic and foreign investment
Disadvantages
May damage the safety and rights of workers
May lead to debt-driven growth
May be sustainable development cost
Social enterprise
= Organizations that have specific social objectives as their primary goal
Aims
The creation of social wealth, a viable business model and environmentally responsible operation
To overcome or alleviate a global or local issue