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Strategies to promote economic growth and development - Coggle Diagram
Strategies to promote economic growth and development
How can market based supply side policies impact economic growth and/or developments?
Trade liberalization
Definition: The removal or at least reduction of trade barriers that block the free trade of goods and services between countries
Eg: elimination of tariff barriers, quotas, export subsidies and administrative legislation.
Pros: It can increase world trade and allow MEDC to concentrate on the production of goods and services (comparative advantage).
Cons: Some countries lack the infrastructure and institutions that necessary to gain the full benefits from trade liberalizations
Threat:
Protectionist policies employed by MEDC countries can block other countries from exporting higher value manufacture goods can reduce the effectiveness of trade liberalizations
Subsidies can also damage the ability of producers from MEDC to compete in the international market.
Solution: underscore the need for international cooperation through aid-for-trade strategies.
Privatisation
Cons:
Risk of Inefficiency: Nationalized firms might prioritize accessibility and affordability over profit, and privatization could lead to higher costs or reduced services, especially in essential industries.
Social Impact: Privatization, if not carefully managed, can negatively impact low-income groups, making basic services like water unaffordable.
Loss of Public Goals: Privatized firms may close down non-profitable operations, leading to reduced access to essential services in isolated or low-income areas.
Threats:
Failure in Developing Countries: Privatization is complex and requires proper planning, regulatory infrastructure, and public communication, which are challenging in developing nations.
Lack of Competition: In industries like water supply, market forces alone may not ensure affordable access, and private monopolies could form, raising prices.
Social Inequality: Essential services might become unaffordable to lower-income populations, worsening poverty.
Pros:
Increased Efficiency: Private firms are typically more efficient as they focus on profit maximization, unlike nationalized firms that may prioritize other goals like employment maintenance or service provision to isolated markets.
Economic Growth: Privatization can boost economic output by encouraging competition and private sector investment, especially in sectors requiring significant capital.
Access to Resources: Private companies often have the necessary financial resources to undertake large infrastructure projects, such as water and sanitation services, which governments might struggle to fund.
Solution:
Careful Management: Privatization should be carried out with a well-planned process that includes designing regulations, assessing social impacts, and maintaining transparency.
Government Regulation: The government must regulate privatized industries, especially essential services like water, to ensure access remains affordable and equitable.
Definition: The sale of government-owned (nationalized) firms to the private sector. Free market economists argue that privately-owned, profit-driven firms tend to be more efficient than government-owned firms, thus increasing the economy's potential output.
Deregulation
Cons:
Worker Rights and Safety: Deregulation of labor laws might reduce worker protections, leading to potential exploitation and unsafe working conditions, negatively impacting inclusivity.
Debt-Driven Growth: If deregulation occurs in the banking system, it may lead to growth based on debt rather than sustainable industrial or infrastructural development.
Environmental Harm: Loosening environmental regulations can promote growth at the expense of long-term sustainability, harming ecosystems and undermining sustainable development goals.
Threats:
Inequitable Growth: Economic growth may not be inclusive, with benefits primarily accruing to businesses and investors, while workers and the environment suffer.
Long-Term Instability: Deregulation could lead to short-term growth but create long-term financial and environmental instability, especially if driven by unsustainable debt or environmental degradation.
Pros:
Lower Costs of Production: Reducing regulations decreases compliance costs for businesses, potentially increasing output and boosting economic growth.
Increased Investment: Simplifying the process of starting and operating a business, particularly in developing countries, attracts both domestic and foreign investors, leading to higher investment levels.
Improved Ease of Doing Business: Deregulation enhances the country's ranking in the World Bank Ease of Doing Business Index, fostering a more business-friendly environment.
Solution:
Balanced Approach: Implement a regulatory balance that promotes investment and growth while safeguarding worker rights, environmental sustainability, and long-term development.
Targeted Deregulation: Focus deregulation on specific areas that simplify business processes (e.g., reducing red tape) without compromising worker safety, financial stability, or environmental health.
Inclusive Growth Policies: Combine deregulation with policies that protect vulnerable populations and ensure the benefits of growth are widely shared, maintaining a focus on sustainable and inclusive economic development.
How can FDI impact economic growth and/or developments?
FDI
FDI = long term investment by private MNEs or MNCs in countries overseas.
FDI occurs in two ways:
Build new plants @ greenfield investment - expand facilities in foreign
Merge with @ acquire existing firms in foreign countries
Reasons why MNCs are attracted to developing countries:
Developing countries: rich in natural resources, while MNCs have the tech and expertise to extract it
Some are huge & growing markets, MNCs have better access to customers if located directly in the market.
Lower labour cost, lower cost of production, sell at lower price, higher profits.
Companies are easier to set up & lower production cost because of less severe gov regulations. Offer tax concessions (reduce corp tax) to attract FDI.
Possible ADVANTAGES associated with FDI:
Fills savings gap -> lead to economic growth
Provide employment, sometimes education and training too. Improve workforce skill level and managerial capabilities.
Greater access to RND, tech and marketing expertise -> enhance industrialization
Stimulate growth due to increased employment and earnings
Host gov may gain tax revenue from the profits of MNC - invest in infrastructure or improve public services to promote economic development
If MNCs buy existing firms in developing countries, inject foreign capital and inc AD.
Improve the infrastructure of the economy physically and financially.
Possible DISADVANTAGES associated with FDI
Although employment is provided by MNCs, they often bring in their own management teams; includes inexpensive low skilled workers with no training or education, for basic production.
MNCs have too much power; gain large tax advantages or subsidies; reduce potential government income in developing countries. Have too much power internationally; influences policy decisions
MNCs practise transfer pricing - sell G&S from one division of company to another division of company in DIFFERENT COUNTRIES - takes advantage of low tax rates on corporate profits
MNCs situate themselves in countries with ineffective legislation on pollution - able to reduce private cost while creating external costs; damages the environment of the host country; allows exploitation of local workers in terms of low wage levels & poor working condition
MNCs enter a country to extract resources like metals and stones, then leave; host country is affected because their profits from their resources are being sent out of country to foreigners
How might social enterprise promote economic development?
Social enterprise
Example: Sunny Money provides solar powered products to rural and off-grid communities in Africa
Principal objective and purpose is to overcome, or alleviate, a global or local issue eg poverty
Organisations that have specific social objectives as their primary goal
How can institutional change impact economic growth and/or economic development?
Improved access to banking system
Impacts of limited access to financial infrastructure in developing countries
Limits the ability of households and business to save
Affects the ability of people to buy and sell goods and services
Limits the ability of entrepreneurs and firms to gain credit to start and expand business
Areas of possible improvement:
microfinance: a type of financial service that is geared specifically to the poor.
micro-credit loans are given to enable poor people to start up cery small-scale businesses (micro-enterprises)
example: roadside kiosks, bicycle repair service
why? to give protection against unexpected occurrences and seasonal problems
women is the main recipient of micro-credit.
mobile phone banking: access to banking service has been increased in recent times in developing countries with the advent of mobile phone banking & mobile money. many mobile phone companies are taking over banking services in less developed countries.
increasing women's empowerment
empowerment is the process by which women gain power and control over their own lives and acquire the ability to make strategic choices.
strategies:
increase support for the education of females
increase access to healthcare for women
establish the right for women to own property and other assets
increase female involvement in decision making
Reduce corruption
corruption: -> limits gov ability to help grow economy
affect corruption : lower tax revenue (bribery to avoid tax/citizen avoid pay tax).
affect corruption on vulnerable populations, poor people and women.
anti-corrupting reforms are generated = higher GDP
Measure to reduce corruption:
invest in high transparency & independent scrutiny
reform institutions
build a professional civil service
keep pace with new challenges as tech for wrongdoings evolve
Ways to reduce gender and corruption problems
collect, analyse and disseminate gender disegregated data
recognise and address specific gendered forms of corruption
include women in anti corruption decision making
empower women
gender sensitive reporting mechanism
Promoting secure property rights and land tenure rights
7 KEY REASONS why legal reforms to improve property and land rights necessary for economic growth & development
Secure land rights:
are an important pillar for agriculture
are essential for urban development
Secure property rights:
help protect the environment
& access to land are crucial for private sector development and job creation
important for empowering women
help secure indigenous people’s rights
vital for keeping peace
7 KEY REASONS why legal reforms to improve property and land rights necessary for economic growth & development
Secure land rights
are an important pillar for agriculture
are essential for urban development
Secure property rights
help protect the environment
& access to land are crucial for private sector development and job creation
important for empowering women
help secure indigenous people’s rights
vital for keeping peace
Interventionist strategies
Aim: to ensure that the assets and capabilities of poor people are improved (Target the poor and allow poor people directly involved)
Focus towards areas directly associated with the poor
The sectors of the economy in which the poor work (agriculture)
The areas in which the poor live (town ghettos)
The factors of production which the poor possess (unskilled labour)
The products which the poor consume (food)
How can transfer payments impact economic development?
Conditional cash transfer (CCTs) - transfer payments targeting low income people
Reduce poverty by making welfare programs conditional upon actions of the person receiving the money
Increasing the immediate income of the poor
Positive impact upon socio-economic well beings of recipients
Alleviate poverty and improve human capital quality
Permit more access to education and healthcare
Role of minimum wages in promoting economic development
informal employment doesn't receive minimum wage
in formal sectors, there will be compliance and enforcement issues
risk of employers to lay off workers