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.

1Microeconomics

1.1Competitive Markets: Demand & Suply

1.1.1Markets & Demand

1.1.2Diminishing Marginal Returns

1.1.3Supply

1.1.4Market Equilibrium

1.1.5Price Mechanism

1.1.6Consumer & Producer Surplus

1.1.7IB Multiple Choice - Demand

1.1.8IB Multiple Choice - Supply

1.2Elasticity

1.2.1Elasticities of Demand

1.2.2Factors Affecting Price Elasticity of Demand

1.2.3Elasticity of Supply

1.2.4Price Elasticity of Supply

1.2.5IB Multiple Choice - Price Elasticity of Demand

1.2.6IB Multiple Choice - Price Elasticity of Supply

1.2.7IB Multiple Choice - Other Elasticities

1.3Government Intervention

1.3.1Indirect Taxes & Subsidies

1.3.2Application Question - Taxing Prices or Quantities

1.3.3Subsidies & Price Controls

1.3.4Deadweight Loss & Government Intervention

1.3.5Elasticity & Tax Incidence

1.3.6IB Multiple Choice - Government Intervention

1.4Market Failure

1.4.1Types of Market Failure

1.4.2Introduction to Externalities

1.4.3Negative Externalities

1.4.4Policy for Negative Externalities

1.4.5Positive Externalities

1.4.6The Deadweight Welfare Loss of Externalities

1.4.7Case Study - The Externalities of Education

1.4.8Public Goods & the Free-Rider Problem

1.4.9Asymmetric Information

1.4.10End of Topic Test - Market Failure

1.4.11Application Questions - Market Failure

1.5HL: Theory of the Firm & Market Structures

1.5.1Theory of the Firm & Market Structures

2Macroeconomics

2.1The Level of Overall Economic Activity

2.1.1The Circular Flow of Income

2.1.2Defining GDP

2.1.3Limitations of GDP

2.1.4IB Multiple Choice - Economic Indicators

2.1.5Business Cycles

2.1.6Output Gaps

2.2Aggregate Demand & Aggregate Supply

2.2.1The Aggregate Demand Curve

2.2.2Components of Aggregate Demand

2.2.3Shape of the Aggregate Demand Curve

2.2.4Shifts in Aggregate Demand

2.2.5IB Multiple Choice - Aggregate Demand

2.2.6Short & Long-Run Aggregate Supply

2.2.7Alternative Models of LRAS

2.2.8Equilibrium in the AD-AS Model

2.2.9Output Gaps & the AD-AS Model

2.3Macroeconomic Objectives

2.3.1Introduction to Unemployment

2.3.2Limitations of Unemployment

2.3.3Types of Unemployment

2.3.4Causes & Impact of Unemployment

2.3.5Defining Inflation

2.3.6Measuring Inflation

2.3.7Use of Index Numbers

2.3.8The Consumer Price Index

2.3.9Consequences of Inflation

2.3.10Causes of Inflation

2.3.11Inflation & Unemployment Tradeoff

2.3.12The Short-Run Phillips Curve

2.3.13The Long-Run Phillips Curve

2.4Economic Growth, Poverty & Inequality

2.4.1Measuring Economic Growth

2.4.2Determinants of Productivity

2.4.3Economic Growth & Productivity

2.4.4Absolute & Relative Poverty

2.4.5Inequality

2.4.6Inequality 2

2.4.7Lorenz Curve

2.4.8Government Policy on Poverty

2.4.9End of Topic Test - Poverty & Inequality

2.4.10Application - Inequality & Poverty

2.5Fiscal Policy

2.5.1Introduction to Fiscal Policy

2.5.2Fiscal Policy and AD-AS Model

2.5.3Fiscal Policy Lags

2.5.4Automatic Stabilizers

2.5.5IB Multiple Choice - Fiscal Policy

2.6Monetary Policy

2.6.1Objectives of Monetary Policy

2.6.2Monetary Policy Implementation

2.6.3Monetary Policy & AD-AS Model

2.6.4Monetary Policy Lags & Pitfalls

2.7Supply-Side Policies

2.7.1Supply-Side Policies

2.7.2Supply-Side Policies 2

3The Global Economy

3.1International Trade

3.1.1Globalisation

3.1.2Globalisation for LEDCs

3.1.3Globalisation for MEDCs

3.1.4Comparative Advantage & Trade

3.1.5Protectionism

3.1.6Arguments for Protectionism

3.1.7Arguments Against Protectionism

3.1.8End of Topic Test - Globalisation & Trade

3.1.9Case Study - Globalisation & Trade

3.2Exchange Rates

3.2.1Floating Exchange Rates

3.2.2Fixed Exchange Rate

3.2.3Effect of a Stronger & Weaker Dollar

3.3The Balance of Payments

3.3.1Balance of Payments

3.3.2Balance of Payments 2

3.3.3FDI & Reducing a BoP Deficit

3.4Economic Integration

3.4.1Customs Unions & WTO

3.4.2Merged Currency

3.5Terms of Trade

3.5.1Absolute & Comparative Advantage

3.5.2Gains from Trade

3.5.3Terms of Trade

3.5.4IB Multiple Choice - Comparative Advantage & Trade

3.6Economic Development

3.6.1Factors Influencing Growth & Development

3.6.2International Institutions

3.6.3Measures of Development

3.6.4Barriers to Development

3.6.5Case Study - The Bottom Billion

3.6.6End of Topic Test - Emerging & Developing

3.7The Role of Domestic & International Factors

3.7.1Interventionist Strategies

3.7.2Development Strategies

3.7.3Development Promotion Policies

3.7.4End of Topic Test - Growth & Global Development

3.7.5Application Questions -Growth & Global Development

3.8The Role of International Trade

3.8.1International Institutions

3.8.2End of Topic Test - Globalisation & Trade

3.9The Role of Foreign Aid

3.9.1Aid

3.9.2Limitations of Aid

3.9.3Support for Aid

3.9.4Application Questions - Developing Countries

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