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

  • 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

  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

  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

  • 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

  • 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

  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

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

  3. Promote secure property rights and land tenure rights

  • 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

  • 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

  • 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