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CHAPTER 20 (Part 1) strategies to promote economic growth and economic…
CHAPTER 20 (Part 1)
strategies to promote economic growth and economic development
international trade strategies
increasing international trade helps to increase economic growth and development
import substitution
increase production and output by moving consumers away from imports by using tariffs or quotas to increase import prices, so they'll buy locally
advantages
lessdependence on imports
may increase employment in the country
support local firms
disadvantages
higher prices and less choices for consumers
possibility of retaliation from other countries
may raises cost for manufacturer who depend on imported components
distorts the efficient allocation of resources as more inefficient domestic firm increase production
export promotion
increase the level of exports through subsidies of facilitating international trade fairs at which local firms can connect internationally
advantages
greater output generates higher economic of scale
greater output creates more employment
national specialisation increases
international competition leads to innovation and increase efficiency
disadvantages
somefirms may be unabel to compete internationally and fail
the is an opportunity coat to the government for supporting firms through export promotion
economic integration
A process in which countries become more interdependent as they form an agreement which decreases barriers to trade (tariffs, quotas etc.) and increasing common fiscal and/or monetary policies
disadvantages
someloss of national sovereignty may occur
some integration requires common barriers to be erected to third part nation which may limit other opportunities for increasing trade
advantages
decreases prices and increases choice
accessto a wider range of technology
more political coorperation between countries
expands markets for domestic firms
generates higher efficiency in the global allocation of resources
diversification and social enterprise
divercification
advatages
reduce the problem associated with over specialisation
create new employment opportunities
reduce the risk of failure during recessions or periods of economic slowdown
disadvantages
firms may fail to compete as global competitors may be well established
it takes time and money to create new industries
occurs when a country is able to increase the number of products that it offers for export and reduce the risk
social interprise
focus on meeting specific spcial objectives
(etc: providing equal ownership)
disadvantages
tend tobe small and very localised
difficult for the to generate economic of scale or to compete internationally
advantages
raises motivation , productivity and output
create new employment opportunities
raises income within the communities
market-based policies
create conditions for private individuals and firms to pursue an economic activity with the aim of maximising output and profit
trade liberalisation
removing barriers to international trade such as tariffs, quota
advantages
more trade, increase output, employment and incomes
lower costs of production for firms
lower price for consumer
more efficient global allocation of resources
disadvantage
global competition intensifies and some firm may fail
may be an element of structural unemployment as inefficient industries die out
privatisation
- encourages new firms to enter market and compete, increasing the totalsupply in the economy
government firms are usually so big that private enterprise refrains from trying to conpete with them
disadvantages
govern assets often sold cheaply below fair market value
quality may deteriorate, firm focus on profit maximisation/
unemployment may increase, pribvate firm cut wages to maximise profit
price may rise as firm provide a monopoly service
advantages
may increase competition -> increase in output, employment and incomes
tprivate firms may be more efficient than govern firms
results in cheaper prices
money from sales can be used for more merit and public goods
deregulation
process of removing govern controls/ laws from market in order to increase competition
advantages
decreases cost may results in greater supply
more innovation and more enterprise in an economy
disadvantage
may create an environment of corruption leading to inefficiency
increease quantity of negative externalities
allow foreign firm to monopolise industry -> higher prices and less output
interventionist policies: redistribution and provision of merit goods
put in place by governments to correct the failings of the free market and promote the welfare/development of its citizen
tax policies
progressive tax system - redistribute from those with higher income to those with lower income and reduce income inequality
disadvanatges
benefit from the tax are eradicated by the penalties imposed through multiple regressive taxes
tax burden istoo high may become a disincentive to work
advantages
starts with free education and healthcare paid for from tax revenue
tax revenue provide the means of supporting poorer households and the unemployed
transfer payment
given to the poorest and most vulnerable people in society
unemployment and disability payments, pension, etc
advantages
poorest household is supported
generates consumption in the economy an increase aggregate demand
disadvantages
poorest countries has less money to support the poor
opportunity cost for the government associated with each transfer payment
politically unpopular
minimum wages
set above the free market rate and firms are not allowed to pay anyone less that the legal rate
disadvantages
cost of production increase -> less international competitiveness
output may fall leading to increased unermployment
advantages
wirkers receive higher wages, have more disposible income
consumption increase -> increase agregate demand
standard of living increase with higher income
foreign direct investment and multinational corporations (MNCs)
Inward FDI occurs when investment by foreign rms results in more than a 10% share of ownership of domestic firms
potential to generate significant economic growth as more economic activity, employment and output is generated
potential to raise household income which helps to break poverty cycle
advantages
can be a major source of finances in LEDCs
increase employment opportunities
helps generate ectra national income - increase level of savings
govern may receive higher tax revenue
govern may develop new infrastructure
disadvantages
poor working conditions, increase negative externality's of production
profits tend to move off-shore or returened to the home country
multinational firms often pay very little tax to host nations, use sophisticated corporate practices
local firms may struggle to copete with multinational firms
firm have the power to keep wages low