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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?
Interventionist strategies
Aimed at:
1) The sectors of the economy in which the poor work (eg. agriculture and the informal economy)
2) The areas in which the poor live (eg. town ghettos or underdeveloped rural regions)
3) The FOP which the poor possess (ie. unskilled labour)
4) The products which the poor consume (eg. food)
Redistributive fiscal policies
Taxes earned is redistributed through transfer payments. However, the 'fiscal capacity' of developing countries is quite limited
Challenges
1) The large size of the informal economy is not taxed
2) There is heavy reliance on indirect taxes which generate lower revenues
3) Extensive tax exemptions and loopholes in the tax structure
4) High tax rates on high levels of income may give incentives to people to evade paying taxes
5)
Corruption in government causing people to not trust the government to use revenues
A weak sense of national identity
A lack of transparency in government on how tax revenues are used
Strategies
1) Strategies to mobilize informal workers and enterprises into the formal sector
2) Impose higher taxes on demerit goods and luxury goods which are consumed more by high-income people
3) Improve the tax structure
4) Lower rates of taxes at high incomes
5)
Commitments to reduce corruption
Provide access to details concerning government budgets
Public awareness campaigns by teaching people about the role of taxes and building a sense of national identity
Transfer payments
Conditional cash transfers (CCT): Transfer payments targeting low income people by making welfare programs conditional upon the actions of the person receiving the money (eg. children's school attendance, up-to-date vaccinations)
Minimum wages
Challenges
Workers in the informal sector do not receive minimum wages
It may be relatively easy for firms to play less than minimum wage and escape any form of punishment (Measures: better design of minimum wage policies, empowering workers to claim their rights through collective action, affective punishments, targeted labour inspections)
It will cause some employers to lay off workers
Provision of merit goods
Through domestic government investment, FDI, microfinance, social enterprise or from international cooperation through foreign aid
Debt relief
Importance
Frees up resources for social spending
Boosts social spending
Reduces debt service
Improves public debt management to combat vulnerability to shocks, particularly affecting exports
Foreign aid
= Any assistance that is given to a country that would not have been provided through normal market forces
Reasons
Help people who have experienced natural disaster or war
Help achieve economic development
Fill the savings gap that exist
Improve the quality of the HR
Strengthen institutions
Improve levels of technology
Fund specific development projects
As Aid-for-trade
Help meet the SDGs
Humanitarian aid
To save lives and alleviate suffering in response to emergencies
Essentially short-term but may be prolonged
Development aid
To alleviate systemic poverty and promote the economic, social, environmental or political development
Official Development Assistance (ODA)
= Government aid that promotes and specifically targets the economic development and welfare of developing countries
Must be
:
Provided by official agencies
Concessional (grant or soft loan)
Have the promotion of economic development and welfare as the main objective
Challenges
Aid may only be given to a small sector of the population or economy
Developed countries tend to give aid in countries that are of political or economic interest to them
Aid id often linked to the political views of the donor government
Tied aid = A country gives aid on the condition that the recipient country uses the money to buy G&S from the donor country. The G&S might be more expensive
Long-term provision of large quantities of food may force down domestic prices and make matters worse for domestic farmers
A country may become so dependent on aid that the government has little incentive to implement strategies of its own
Aid is often only available if the country agrees to adopt certain economic policies which might more in the interest of the developed countries and its MNCs
Repayments on financial aid may lead to massive problems of indebtedness for developing countries
NGOs
Diverse in size, purpose, outlook, nationality, income and success
Promote economic development, humanitarian ideals and sustainable development
May develop a much deeper understanding of the issues and challenges facing the poor than official aid donors do as they often work directly in the field
Operational activities
They plan and implement specifically targeted projects
Advocacy activities
They try to influence public policy in areas such as poverty reduction, workers' rights, human rights and the environment
Concerns and criticisms
What the NGO can or can't do may depend on where their funding came from and it may limit the effectiveness of what they do
There may be many NGOs operating in a developing country, resulting in uncoordinated and wasteful activities
NGOs may draw workers away from local government projects, and thereby undermine the local government's ability to determine how to address an issue
NGOs may have a political or religious bias that determine its activities and they may promote their own bias on people in other communities
NGOs are unaccountable as they are not elected by the people that they are representing
NGOs are sometimes accused of spending more money on advertising and promoting their activities rather than allocating money to the actual projects they are operating