Please enable JavaScript.

Coggle requires JavaScript to display documents.

TOPIC 31: STRATEGIES TO PROMOTE ECONOMIC GROWTH AND ECONOMIC DEVELOPMENT -…

- - - - Developing countries should produce goods domestically rather than import them
        
        The industries will be able to compete on world markets in the future > gain from economies of scale
        
        The opposite of export-led growth
      - Some necessary conditions :
        
        Government needs to adopt a policy of organizing the selection of goods to produce domestically > labor-intensive
        
        Subsidies are made available to encourage domestic industries.
        
        Government needs to implement a protectionism (tariff)
      - Advantages w/ ISI
        
        Protects jobs in the domestic market
        
        Protects local culture and social habits
        
        Protects economy from the power and bad influence
      - Disadvantages w/ ISI
        
        May only protect jobs in the short run
        
        Economic growth may be lower ( long run )
        
        The country does not enjoy the benefits to be gained from comparative advantage & specialization
        
        Lead to inefficiency in domestic industries ( no comp)
        
        Lead to high rates of inflation
        
        Cause other countries to take retaliatory protectionist measures
    - - export-led growth
        
        growth is achieved by concentrating on increasing exports
        
        lead to increasing GDP > higher incomes > growth in domestic
        
        country attempt to manage its exchange rate > keeping the rate low > exports more attractive
      - policies that a country need to adopt :
        
        liberalized trade
        
        liberalized capital flows
        
        a floating exchange rate
        
        investment in the provision of infrastructure
        
        deregulation & minimal government intervention
      - developing countries depend on the export of primary products
        
        however, overall trend in primary product prices has been downward for many years
        
        due to increasing supply & insignificant increases in demand for many commodities
        
        also with increased protectionism by developed countries
        
        usually focus on increasing manufacturing exports
        
        Asian tigers (Japan, South Korea, SIngapore) had a comparative advantage based on low-cost labour
        
        the type of product being exported tended to change from products that using labour-intensive production methods, requiring low skill levels from the workers to intensive production methods and more highly skilled workers
        
        improvement in education systems were essential.
      - Problems associated w/ export-led growth :red_flag:
        
        the success of "Asian tigers" > increase in protectionism against manufactured products > price increases (tariffs)
        
        tariff escalation reduced the ability to export processed goods
        
        government adopted policies where they protected domestic industries that were not able to compete with foreign firms
        
        others argue that state intervention in these economies actually slowed down growth rates
        
        MNCs may be too powerful within the country > problems
        
        free market may increase income inequality in the country
    - - Advantages/Opportunities
        
        larger export markets > gain economies of scale
        
        encourage diversification & reduce dependence on a narrow range of commodities
        
        provides opportunities for workers to work in other member countries if there is free movement of labour
        
        greater political stability & cooperation
        
        greater efficiency
        
        trade creation will benefit producers who can import inputs without tariffs
      - Disadvantages/Challenges
        
        role of WTO might be undermined since it allows member countries to look inwards
        
        trade can become more complicated with other trading blocs
        
        unemployment may arise as less efficient companies
        
        may encounter trade diversion
- - - - the large size of the informal economy, whose economic activity is not taxed
      - There is heavy reliance on indirect taxes, but indirect taxes tend to generate lower revenues. Furthermore, indirect taxes are regressive, so worsen income inequality.
      - Extensive tax exemptions and loopholes in the tax structure, which mean that high income people may not pay their fair share.
      - High tax rates on high levels of income may give incentives to people to evade paying taxes.
      - There are high levels of non-compliance, where people avoid paying taxes. Possible reasons for this include :
        corruption in government so that people do not trust the government to use revenues
        a lack of transparency in government so that people are not aware of how their tax revenues are used a weak sense of national identity
    - - strategies to mobilize informal workers and enterprises into the formal sector
      - impose higher taxes on goods such as alcohol, cigarettes which are consumed more by high-income people.
      - improve the tax structure to remove loopholes and ensure that the tax exemptions are meaningful
      - lower rates of tax at high incomes to encourage people to pay. The lower rate could be offset if more people pay their share.
      - Measures to overcome non-compliance include :
        commitments to reduce corruption so that people believe that the tax revenues will be spent appropriately
        provide access to details concerning government budgets, so that governments are accountable to the public about what happens with the taxes they pay
        public awareness campaigns to increase compliance by teaching people about the role of taxes and building a sense of national identity and responsibility
        empower people to engage in open discussions about the uses of taxes.