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CHAPTER 31: STRATEGIES TO PROMOTE ECONOMIC GROWTH & DEVELOPMENT,…

- - - - Tariff escalation – rate of import tariffs on goods rises the more goods are processed
      - Need for highly qualified workforce – difficult to fund improving educational system, country is in poverty trap. Low education leads to low profit commodities, low income for govt, can’t fund education
- - - - Countries that adopt ISI strategy: Argentina, Brazil, Mexico, Chile
      - However, policies started to fail and does not seen to be a chosen option for economic growth
    - - Government adopts a policy of organising the selection of goods to produce domestically – labour intensive, low skill manufactured goods
      - Subsidies are made available – encourage domestic industries
      - Protectionist system with tariff barriers
    - - Protects jobs in domestic market – foreign firms are prevented from competing
      - Protects local culture by isolating economy from foreign influence
      - Protects economy from power of MNC
    - - Protect jobs in the short – long run, lead to lack of job creation
      - Countries don’t enjoy benefits from comparative advantage and specialisation – produce products inefficiently
      - Inefficiency in domestic industries
      - High rates of inflation due to domestic aggregate supply constraints
      - Other countries take retaliatory protectionist measures
  - - - Liberalised trade: gain access to foreign markets
      - Liberalised capital flows: reduce restrictions on foreign direct investment
      - Investment in infrastructure to enable trade
      - Deregulation and minimal govt intervention
    - - Emergence of China as an exporting powerhouse led to increased protectionism in developed countries against manufactured products from developing countries
      - If countries want to attract MNCs, MNCs might become too powerful within the country and may lead to problems
  - - - Larger export markets allow producers to gain economies of scale / encourage diversification
      - Opportunities for companies to invest in foreign countries
      - Consumers have access to less expensive imports
    - - Unemployment increases, less efficient companies can’t compete with cheap imports from other member countries
      - Trade becomes complicated with agreements with other blocs
- - - - Removal/reduction of trade barriers that block free trade between countries (tariffs, quotas, export subsidies and administrative legislation)
    - - Sale of public govt-owned firms (nationalised) to the private sector
      - Private-owned firms are more efficient, increases output
      - There are GNS that is needed to be provided by nationalised firms, if they are privatised, it might take basic human right from poor people like water and sanitation
      - But, process of privatisation is difficult and challenging in developing countries
    - - Reduction in regulations help increase AS, generate economic growth
      - Getting rid of red tape will increase investment
      - Drawback: if deregulation damages safety and rights of workers, then affect economic growth. deregulation relates to environmental laws, growth will be at the cost of sustainable development
- - - - Rich in natural resources
      - Costs of labour are lower, higher profits
      - Brazil, China and India are huge growing markets – MNCs have better access to potential consumers, high demand
    - - MNCs provide employment in the country – education and training, improve skill of workforce
      - Host government gain tax revenue from MNCs – used for health and education, economic growth
      - Provide more choice and lower price for consumers – provide essential goods that aren’t available domestically
    - - MNCs bring their own management teams – limits host countries to acquire new technologies
      - MNCs have too much power, gain large tax advantages and subsidies
      - MNCs damage environment of host country, exploit workers (low wage, poor working environment)
    - - Contribute to economic, environmental and social progress
      - Respect human rights
      - Provide full financial and operating information
- - - - Sunny Money, aims to provide solar powered products to rural communities in Africa (solar torches, solar lights, solar battery chargers)
- - - - Unavailability of savings account, debit cards, payment systems limit ability of business and household to save in developing countries – affects the purchase of GNS, limits entrepreneurs and firms to gain credit to start business
      - Possible improvements:
        
        Microfinance – small loans to individuals (micro-credit) to set up small-scale businesses (micro-enterprises), include knitting, market stalls, woodworking. Loans help families gain regular income and escape poverty
        
        Mobile phone banking – contributes to development, people can easily, cost-effectively, securely send remittances home using mobile bank services
    - - Strategies for women’s empowerment:
        
        i. Increase support for women’s education
        
        ii. Increase access to women’s healthcare
        
        iii. Create safe environment at home, workplace, society
        
        iv. Establish right for women to own property
    - - Corruption limits govt’s ability to grow economy – govt receive lower tax revenue because people avoid paying taxes
      - Measures to reduce corruptions:
        
        ii. Reform institutions – reforms to tax administrations have greater payoff of tax laws are simpler
        
        iii. Build a professional civil service – heads of agencies, ministries must promote ethical behaviour
        
        i. Invest in high levels of transparency and independent external scrutiny – citizen can monitor physical and financial progress of investment projects
    - - Legally protected property rights can develop world’s wealth and prosperity
      - Reforming legal structure to ensure property titles to allow the poor to use their small homes or land to borrow money and start business
- - - - a. Sectors of economy where poor work (agriculture, informal)
      - b. Areas that poor live (town ghettos, rural regions)
      - c. FOP that poor possess (unskilled labour)
      - d. Products the poor consume (food)
    - - Govt earn money taxes and redistribute through transfer payments
      - Developing countries can’t redistribute income this way because their fiscal capacity (ability to raise revenues from taxes) is limited, hence govt can’t provide transfer payments and finance merit goods (health service, education)
    - - Govt in developing countries struggle to allocate limited revenues – affect poverty, transfer payments
        
        Conditional cash transfers (CCT)
        
        i. Transfer payments targeting low-income people
        
        ii. Reduce poverty by making welfare programs, govt only transfer money if poor fulfil the conditions: children’s school attendance, vaccinations, visits to health facility
        
        iii. Can alleviate poverty and improve quality of human capital
        
        iv. CCTs don’t create jobs but allow kids to become more productive, lead to higher income, break poverty cycle
        
        v. E.g., CCT in Bangladesh allow girls to extend their education
- - - - given to save lives & reduce suffering during emergencies or crisis
      - response to medical crisis
      - Short term: may prolong if host gov is unable to handle or stabilise the situation
    - - given by gov/ multilateral org/ non gov org
      - alleviate systemic poverty
      - promote economic/ social/ environmental/ political development of recipient countries
      - Long term: response to systemic problems
    - - government aid that promotes and specifically targets the economic development & welfare of developing countries
      - given by gov
        
        official aids agency
        
        multilateral international institutions
        
        BILATERAL AID
        
        MULTILATERAL AID
      - eligibility requirements to measure a program's criteria met
        
        foreign aid must be provided by official agencies and must be "concessional"
  - - - a country give money for a particular aid project on the condition that the recipient country uses the money to buy goods & services from the donor country
      - donor country may pay more than selling in open market
        
        reduce possible trade between developing countries who may able to supply G&D at a lower price
      - real motivation?
        
        political influences
        
        not just a form of subsidy to the recipient country
- - - - plan specifically targeted projects in developing countries
      - advocate to influence public policy such as poverty reduction, worker's rights, human rights and the environment
        
        pressure governments and affect the amount of official aid given.
        
        influence buying patterns to promote better working conditions and the promotion of sustainable development
- - - - comprise of the
        International Bank for Reconstruction & Development (IBRD)
        and the
        International Development Agency (IDA)
        
        IRBD
        
        Lend money to countries in West Europe after WW2
        
        make loans to middle-income and credit worthy developing countries
        
        IRBD can lend at a rate below the rate that the countries would have to pay if they borrowed the money from other sources
        
        loan provided are generated from the issue of WB bonds in global capital markets
        
        IDA
        
        assist world poorest countries
        
        the poorer the country, the more favorable the loan conditions
        
        provide loans to large scale infrastructure projects: electricity generation & transportation
        
        focus on smaller projects that aim directly target & benefit the poorest people
      - provide financial support & technical assistance to developing countries
        
        reduce poverty
        
        supporting development
    - - ensure stability of the international monetary system
      - Responsibilities
        
        promote international monetary cooperation
        
        facilitating the expansion and balanced growth of international trade
        
        promoting exchange stability
        
        assistsng in the establishment of a multilateral system of payments
        
        making its resources available to member experiencing balance of payments difficulties
      - Practices
        
        surveillance
        
        financial assistance
        
        capacity development
      - offer technical assistance & training to member countries (FOC) especially in fiscal & monetary policy, exchange rate policy, banking & finance, statistics
      - When member country face problems (BoP):
        IMF provide loans
      - Provide concessional lending through Poverty Reduction & Growth Trust (no interest & debt relief under Heavily Indebted Poor Countries HIPC)
      - Created the Catastrophe Containment & Relief Trust.
        
        join international debt relief efforts to aid countries affected by natural disasters & public health crisis
    - - Both org were established in US which has been accused of promoting free market/ business-friendly policies that has helped companies in developed country & high-income people in developing country
      - Ho World Bank is appointed by US president. it creates concerns towards the bias of the policies implemented
      - Structural Adjustments policies (SAP)
        
        reflected free market thinking that dominated IMF & WB
        
        policies were known as Washington Consensus & included free market reforms
        
        trade liberalization
        
        encouraging primary commodities exports
        
        devaluing currency
        
        liberalized capital flows
        
        encouraging FDI
        
        privatization of nationalized industries
        
        elimination of subsidies & price controls
        
        austerity measures to reduce gov spending (education & health)
- - - - countries need to pursue cautious borrowing policies & strengthen public debt management
- - - - direct provision of merit goods
      - direct provision of public goods
      - regulations & legislation
      - consumer nudges
      - subsidies
      - tax & transfer policies
      - price controls (minimum wages & rent controls)
      - policies to reduce inequalities
      - interventionist supply-side policies
      - demand side policies(impacting short term macroeconomic outcomes)
      - trade protection
    - - policies to support competition
      - taxes & tradable permits
      - deregulation
      - privatisation
      - labour market policies
      - tax cuts
      - trade liberalization