Development Strategies

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Market-Orientated Strategies to Promote Growth and Development

Market-orientated strategies can be used to promote growth and development in LEDCs.

Trade liberalisation

A special economic zone (SEZ) is an area in which business and trade laws are different from the rest of the country.
SEZs are located within a country's national borders.
Their aims include increased trade, increased investment and, job creation.
To encourage businesses to set up in the zone, financial policies are introduced.
These policies typically regard investing, taxation, customs and labour regulations.
Additionally, companies may be offered tax 'holidays' or breaks.

Promotion of FDI

Lower taxes, especially lower corporation tax, may encourage FDI to locate in the country, or indeed domestic firms to set up, which can lead to the LRAS shifting out.
FDI often creates positive multiplier effects through employment.
Multinational corporations (MNCs) can simply employ workers without providing any training, meaning that attracting FDI is less useful in the long-term.

Removal of government subsidies

By removing subsidies, suppliers are forced to cope with international competition.
This market orientated approach means suppliers will either survive or go under.
Removing protectionist policies stops suppliers being dependent and also reduces government expenditure.

Floating exchange rate systems

By using a floating exchange rate, the currency is determined by market forces.
This can help the country's balance of payments come to an equilibrium.
The depreciation of the exchange rate can stimulate export-led growth.
It also allow the government to focus on monetary policy.

Microfinance schemes

Microfinance schemes are designed to give financial support to local entrepreneurs.
- They can receive: micro-credit, micro-savings, micro-insurance and remittance management.
Microfinance schemes target women in particular (as they are less likely to gain access to mainstream finance).

Privatisation

Privatisation is when the government sells ownership of an enterprise to a private body.
Privatisation typically leads to a business becoming more efficient and competitive.
It also decreases government intervention and increases government revenue.
Privatisation is most effective in producing economic growth and development when it is properly regulated.

Export-driven development

Joe Studwell argues that the Asian nations that tried to build exporting businesses facing domestic competition performed better than protected national champions.
In Korea, the Kia and Hyundai car companies competed against other domestic champions. Loans, credit, and informal government support were given to nations that exported. Korea produced national champions in cars, technology (LG and Samsung).
In Malaysia, there was 1 domestic car company, Proton, that sold mainly in Malaysia. It failed to export and Malaysia failed to develop at the same speed.

Promoting Growth using Sectors/Industries

Development can involve changing the composition or structure of an economy. Allocating resources to primary industries is usually lower productivity than other industries.

Development of primary industries

Primary industries usually include farming (agriculture) and raw material mining.
The 'value-add' of labour in primary industries is usually low because they are low productivity. The value added by human labour is a lot less than in other sectors.
Many developing nations have rich mineral deposits and can extract these natural endowments of resources. Although the sectors may be a lower value-add, they will still generate employment and a nation may have comparative advantage in primary products.

Industrialisation and the Lewis model

Industrialisation helped Britain and the USA develop in the 18th and 19th century and helped China from 1970.
According to the Lewis model, industrialisation and growth in the industrial sector are the most important factor in development.

The Lewis Model

Because labour is low productivity in agriculture, the model assumes that there is no opportunity cost from moving that labour into the industrial sector.
This means the industrial sector of a nation can grow without the output in agriculture decreasing.
Because there is an excess supply of labour in agriculture, output in agriculture can stay flat, output in the industrial sector can rise and inflation can stay constant, as the economy grows.
Occupational immobility of labour and the assumption of no opportunity cost are two problems with this model.

Developing the tourism industry

Tourism has been notable in the development of many nations like Mauritius and nations in the Carribean.
Exports are goods and services sold primarily outside of the country of production. So tourism is an export.
Increasing exports will increase the X component of GDP.
Hotels and services for tourists are quite labour-intensive (need a lot of labour), so employment should rise.
Hotel chains like the Hilton or Marriott may invest in the countries, increasing their levels of FDI.
However, imports may rise in order to build the airport/hotel infrastructure needed for tourists and tourism is cyclical (because it is income elastic). Cyclical unemployment, although positive is not perfect.