Ch 31 -Strategies to promote economic growth and economic development 

• Trade strategies used to achieve economic growth and development:

  1. Import substitution:
  • Advantages:
    • ISI protects jobs in domestic market, protects the local culture and social habits
    • Protects the economy from the power and bad influence

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• Disadvantages:

  • ISI may only protect jobs in the short run. In the long run, economic growth may be lower in economy and the lack of growth may lead to a lack of job creation
  • ISI may lead to inefficiency in domestic industries
  • ISI may lead to high rates of inflation due to domestic aggregate supply constraints

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1. Export promotion:

   • Outward oriented growth strategy based on openness and increased international trade

2. Economic integration:

   • Developing countries have been involved in many preferential access schemes and regional free-trade agreements

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3. Market based policies impact economic growth and development:

   1. Trade liberalisation: removal of trade barriers that block the free trade of goods and services between countries

   2. Privatisation: sale of public government-owned firms to the private sector

   3. Deregulation: governments have placed many regulations on the operations of businesses which increases cost of production and reducing output in the economy

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• Social enterprises and economic development:

  • Social enterprises: are organisations that have specific social objects as their primary goal

  • When externalities in the free market result in less efficiency private benefits/costs which are not equal to social benefit/costs

  • May be non-profit, profit is a secondary goal

  • These enterprises promote economic development by overcoming local and global issued

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• How can institutional change impact economic growth?

  1. Improved access to the banking system
  • Microfinance: a financial service that is geared specifically to the poor
  • Example: Mobile phone banking

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2. Increasing women’s empowerment

   • Empowerment is the process by which women gain power and control over their own lives and have the ability to make strategic changes/choices

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3. Reducing corruption

   • Reform institutions

   • Build professional civil service

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4. Promote secure property rights and land tenure rights

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• How can transfer payments impact economic development:

  • Conditional cash transfers (CCT): are transfer payments targeting low income people
  • Aim to reduce poverty by making welfare programs conditional upon the actions of the person receiving the money
  • CCT’s do not create jobs, but they permit children more access to healthcare and education

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• Role of minimum wage in promoting economic development:

  • Establishment of minimum wage can be a valuable tool to reduce poverty and inequality
  • Minimum wage is not livable wage. Development strategy would be to increase minimum wage

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• Merit goods: provide many external benefit

• Development aid: is given by governments and nonprofit organisations to alleviate systemic poverty and promote the social, environmental or political development in recipient countries

• Humanitarian aid: is given to save lives and alleviate suffering in response to emergencies such as natural or human made cruises

• Non-governmental organisations: have a major role in promoting economic growth and economic development

  • Some NGOs promote economic development by aiding humanitarian and sustainable development

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