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| What are the usual Strategies for International Development? | -Aid and Debt Relief
-Structural Change
-Policies for an Interventionist or Market Approach |
| What does Aid mean in Economics? | -The Transfer of Resources from one Nation to another |
| What is
1. Bilateral Aid
2. Multilateral Aid
3. Tied Aid | 1. When the Donor Nation directly sends Aid to the Recipient Nation
2. When Donor Nations gives the Aid to an Intermediate Agency (World Bank) when Distributes the Aid to the Recipient Nations
3. Aid sent on Conditions that the Money is Spent in a Particular Way |
| Is it Controversial to send Emergency Relief? Like USA giving Emergency Relief to Nepal after an Earthquake | -Not really. Emergency Relief can give out Immediate Assistance like providing Essential Supplies, as well as facilitating International Cooperation and Humanitarian Imperative
-It may be Politically Motivated, create a Dependency Culture, and also can be Ineffective, but it usually isn't all that bad |
| What are the Arguments that Favour Development Aid? | -Reduces Absolute Poverty
-If it Improves Health and Education, it improves the Nation's Human Capital
-Helps fill the Savings Gap and the Foreign Exchange Gap
-Multiplier Effect can exist - if the Aid Improves the Infrastructure, there is a Direct Increase in AD. An Increase in AD allows more Jobs to be created, and money to be Spent, leading to Further Expansions of AD |
| What is the Harrod-Domar Model? | -The Growth Rate of an Economy is Directly Linked to the
-Level of saving in the Economy
-Efficiency with which the Capital in the Economy can be used
-If either of them can be Increased, the Economic Growth should be Faster |
| What are the Disadvantages of Development Aid? | -Donor Nations can impost Conditions on how the Aid is used, meaning it could be used in an Inappropriate Way
-Aid misused by Corrupt Governments, meaning the Purpose isn't fully Recognised
-Aid is more at Securing Favours for the Donor Nations, rather than helping the Recipient Nations |
| Why can Large Debts hinder Economic Development? | -Large Debt means the Nation has to spend a Large Amount of its Income to Service that Debt
-For Low Income Nations, that can take a Large Chunk of their Total Income, leaving little for Healthcare and Education |
| What are the Pros of Debt Relief? | -Frees up Money to Improve Infrastructure and Public Services, like Healthcare and Education, allowing Long Term Economic Growth
-Nations saved by Developing Nation can be Invested to Capital Goods to allow the Expansion of its Economy
-Nations with lower Debts can Participate in Global Trade, giving an Advantage to the Global Economy |
| What are the Disadvantages of Debt Relief? | -Cancelling Debt can lead to Moral Hazard development, as well as a Dependency Culture. Nations can feel Future Debts will be Cancelled, so they Excessively Borrow
-Cancelling Debt of Corrupt Nations may mean More Money is Misused for Personal Gain or Oppression.
-Debt Cancellation can be seen as a Donor Nation seeking Influence in the Recipient Nation |
| Why can Developing the Agricultural Sector help Promote Growth and Development? | -The Agriculture Sector is seen as Low Productivity where there is Little Value Added to it
-But it can be worth it for a Nation, perhaps if the Nation has a Comparative Advantage in some Crops
-It can also be seen as a Stepping Stone towards other Sectors. Developing Agriculture leads to Greater Income that can Fund other Sectors, like Manufacturing |
| What is the Lewis Model? | -Assumes Excess Labour in the Agricultural Sector Exists, which thus means No Opportunity Cost exists if Agricultural Workers move to Industry to Abuse the Higher Wages offered there
-The Industry Develops without reducing Agriculture Output. And as long as Excess Labour in Agriculture exists, the Wages in industry will not rise - there won't be Inflation occurring.
-The Profits can be Reinvested to Capital Goods, leading to Higher Productivity
-Reduction in Labour in Agriculture means agricultural productivity Improves as well!
-Soon, an Equilibrium is Struck where Everyone is better off than they were, and Profits (Savings too) are Increased, allowing more Investment and Growth |
| What are the Problems with using the Lewis Model? | -It can be hard to Transfer Labour to Industry. Workers migrating from the Countryside leave Fewer People to do agricultural labour, while at Harvest Time, there may be No Spare Workers at all
-Investment in Education and Training needed to Develop the Human Capital for Expansion in Industrial Output
-If Profits aren't Reinvested Locally, then well the Project breaks down (TNC?)
-If Industrial Production is Capital Intensive, will it create many Jobs |
| What is the Advantages of Developing the Tourism Industry? | -Increasing Tourism allows a Nation to earn Foreign Currencies from Tourists, and also attract Foreign Investment and TNCs
-Employment may Increase furthermore, however, it is important to note Tourism is a Seasonal job, and TNCs may use their own Management |
| What are the Disadvantages of Developing the Tourism Industry? | -Increasing Tourism may Increase Imports (capital goods to Build the Hotels and Parks or Goods demanded by Tourists) which will Negatively Affect the Balance of Payments
-Extra Tourism leads to Environmental Damage or Disturbances for the Local population
-Demand in Tourism is Income elastic - It will Increase Quickly if People's Incomes rise. But during Economic Downturns, the Tourist Industry will suffer Poorly, as Demand falls quickly
-Finally, Tourist Destinations won't forever be Popular. Tastes can change Quickly |
| What are Inward-Looking Strategies? (Protectionism) | -Seeks to Protect Domestic Industries until they can Compete Internationally
The main Policy is to adopt Import substitution. Goods previously Improved are Replaced by Domestically Produced Goods. This can be done by Imposing Tariffs and Quotas on Imported Goods
-Subsidies can be Given to Domestic Producers to Sell their Goods at Competitive Prices, or on Necessary Products that Everyone Needs (even if Imported Abroad) allowing them to spend more of their income on Domestically Produced Goods
-Currency might be maintained at an Artificial High exchange rate, which can allow for some Selected Goods abroad to be Imported Cheaply (Raw Materials) |
| What is the Aim of Inward-Looking Strategies?
-What is wrong with this Strategy? | -Aim in the Short Term is to Create Jobs, Reduce Poverty and Improve the Nation's Balance of Payments
-In the Long Term, Domestic Industries will Growth, Benefit from Econ of Scale, and have the knowledge to Compete on Equal Terms with International Firms
-The criticism comes from Being Protected from Global Competition leads to inefficiency and a Nation's Resources not being Allocated Efficiently. Its Comparative Advantage may not be utilised fully. |
| What are Outward-Looking Strategies? (Free Trade) | -They acknowledge and Utilise Free Trade, Deregulation and Promoting Foreign Investment.
-Firms are Pushed to Invest and see new Exporting Markets
-Benefits and Costs of Outward-looking Strategies is what you expect from Greater Free Trade. Efficiency, Competitiveness, Economic Dependency... |
| What are Interventionist Strategies, and why were they Popular in the Past? | -Interventionist Strategies, which are Similar to Inward Looking Strategies, use Import Substitution, Subsidies and High Exchange Rates.
-They may also use Nationalisation, and Forcing Producers to Sell Goods Government ran Distributions to Keep Prices Down
-They were Popular in the Past because of the 'Dependency Theory' claiming that Developing Nations are held back due to the Exploitation they received from Richer ones.
-When they were used, there were problems with Economic Growth, Balance of Payments, Government Deficits, Corruption and thus Inefficiency
-But there are still some Strategies from Interventionist Popular today! like Boosting Education or Healthcare or allowing Joint Ventures between Global and Local Firms/Governments |
| What are Free Market Strategies more Common Today? | -From the 1980s, Free Market Strategies (Market-oriented) have become Popular. They want Less Government Intervention and want Further Expansions of Free Trade. There are Benefits and Costs to that
-They are similar to Outward-Looking Strategies, by Increasing Efficiency by Freeing the Market
The floating Exchange Rate System is an example of a Free Market Strat. Allowing the Exchange Rate to be determined by the Market has its Costs (Currency Fluctuations) and Pros (Efficiency and Productivity because the Market reacts to International Demand) |
| What is Microfinance? | -This is Providing Loans to Small Firms and Low Income Individuals to allow a more Financial Independent Environment, either by Developing Businesses, or for education
-It can work for Some People, but reducing Poverty on a Large Scale isn't very clear yet |
| What are Fair Trade Schemes? | -They offer Individual Farmers (or Small Producer Groups) in Developing Nations a Guaranteed Minimum Price for their Goods
-In Return, the Producer has to Accept a Standard of Quality, Techniques and Ethics |
| Why are Fair Trade Schemes Beneficially and Costly? | -They can allow Long Term Planning to be Easier for Producers, as it Removes the Large Fluctuations in Price that is often seen in Primary Products
-But Distorting the Market Price may lead to Overproduction. Farmers may fail to Recognise that Low Prices are a Signal for them to Grow a Different Crop. When Prices are Low, Farmers may Flood the Market and Drive the Price down Further, negatively affecting Farmers who aren't on the Fair Trade Scheme |
