4.10 Economic growth and/or economic development strategies

Positive externalities of health

Reduces disease burden

Improves labor productivity

Enhances school performance and life expectancy

Appropriate technology

Technology suited to labor, skills, environment, and needs of ELDCs

Labor-intensive tech is better for ELDCs with abundant labor and limited capital

Importance of infrastructure

Supports transport, health, telecoms, energy

Enables competitiveness, gender equity, and economic diversification

Legal system and property rights

Lack of secure property rights reduces investment and credit access

Inhibits third-party land access and stifles entrepreneurship

Political instability

Creates uncertainty

Discourages investment

Encourages capital flight

Reduces both domestic and foreign investor confidence

Corruption

Reduces public trust

Wastes tax money

Misallocates resources

Undermines investment

Weakens institutions

Problems with trade in ELDCs

Over-specialization

Price volatility

Lack of diversification

Leads to unstable incomes, export earnings, and growth issues

Trade barriers against ELDCs

Tariffs and subsidies in EMDCs

Hidden protectionism

Limited access to markets

Suppressed export earnings

Export promotion

Encourages export growth using government support

Boosts employment, tech use, and diversification

Trade liberalization

Reduces tariffs to boost efficiency and consumer choice

Often harms ELDCs due to poor market access and weak institutions

Role of WTO

Supports trade liberalization and conflict resolution

Criticized for favoring EMDCs and weak protections for ELDCs

Regional/Bilateral trade agreements

Help ELDCs access markets and reduce tariffs

Risk unfair terms, power imbalance, and loss of competitiveness

Foreign direct investment (FDI)

Investment by MNCs in production facilities abroad

Can boost tech, exports, and employment if linked locally

FDI disadvantages

May not increase jobs, may cause environmental harm

Profit repatriation and imported inputs reduce local benefits

Foreign aid

Transfers of funds or goods for development purposes

Includes project, programme, bilateral, and multilateral aid

World Bank role

Provides long-term development loans and project support

Criticized for structural adjustment programs that harmed equity and sustainability

IMF role

Helps with short-term balance of payment crises

Policies often contractionary, linked to reduced spending on health and education

What is foreign debt?

Foreign debt is the amount borrowed by governments or private sectors from foreign sources

Often accumulated to finance current account deficits.

What causes the problem of foreign debt?

Interest and principal repayments must be made in foreign currency

Often requires export earnings or further borrowing.

What are major consequences of high foreign debt?

Reduced funds for development

Low private investment

Debt traps

Lower growth due to constrained government and private sector spending.

What is debt rescheduling?

Debt rescheduling means extending repayment periods with new loans at lower interest, easing the burden of older loans.

What is debt cancellation?

Debt cancellation means forgiving part of the debt

Stronger than rescheduling

Can help relieve unsustainable debt levels.

What is the HIPC initiative?

It is a World Bank and IMF program providing debt relief to highly indebted poor countries

Conditional on poverty-reduction efforts.

What are strengths of market-oriented policies?

Increase efficiency

Lower costs

Encourage investment and competition

Improve consumer and producer outcomes through better price signals.

What are weaknesses of market-oriented policies?

Often fail to provide merit goods, support institutions, or reduce poverty

Can worsen income inequality, unemployment, and social instability.

What are strengths of interventionist policies?

Address market failures

Fund merit goods

Support technology and infrastructure

Promote equity and stabilize the economy.

What are weaknesses of interventionist policies?

They rely on scarce budget funds

Risk inefficiency and corruption

May protect inefficient firms or lead to misallocation of resources.