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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  1. 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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  1. 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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  1. Reducing corruption
       * Reform institutions
       * Build professional civil service

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  1. 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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