4.3.3 Strategies Influencing Growth and Development
Edexcel A-Level Economics (9EC0) | Theme 4.3.3
Market-Orientated Strategies
These strategies rely on free market forces and private sector activity to drive development.
| Strategy | Aim and Mechanism |
|---|---|
| Trade liberalisation | Removes trade barriers to boost exports, exploit comparative advantage, and attract FDI. |
| Promotion of FDI | Attracts foreign capital, technology, and expertise to increase productive capacity. |
| Privatisation | Sells state-owned assets to improve efficiency through profit incentives and competition. |
| Floating exchange rates | Allow the currency to adjust and potentially improve competitiveness if it depreciates. |
| Microfinance schemes | Provide small loans to entrepreneurs, often women, to start businesses and escape poverty. |
| Deregulation or subsidy removal | Reduces state intervention to encourage competition and market efficiency. |
Interventionist Strategies
These are government-led actions designed to correct market failure and direct development.
| Strategy | Aim and Mechanism |
|---|---|
| Investment in human capital | Improves education and healthcare to raise labour productivity and long-run output. |
| Investment in infrastructure | Develops transport, energy, and communications networks to lower business costs and attract FDI. |
| Protectionism | Uses tariffs or quotas to protect infant industries from foreign competition until they mature. |
| Managed exchange rates | Limits excessive appreciation to help protect export competitiveness. |
| Buffer stock schemes | Stabilise prices for primary commodity producers by buying surpluses and releasing stocks when shortages occur. |
| Joint ventures | Allow domestic firms or governments to partner with foreign firms to access technology and expertise while keeping some local control. |
How Buffer Stock Schemes Work
When supply exceeds demand, the buffer stock operator buys the excess, which supports the price. When supply is below demand, the operator releases stock, which increases supply and helps prevent prices from rising too high.
Other Development Strategies
Industrialisation
The Lewis model suggests development can happen by shifting labour from low-productivity agriculture to higher-productivity manufacturing.
A criticism is that the model assumes labour-intensive industry and may ignore urban unemployment.
Tourism Development
Tourism can provide foreign currency earnings and jobs, but it may create over-dependence and negative externalities. Ecotourism is a more sustainable alternative.
Primary Product Development
Countries may exploit their comparative advantage in commodities such as oil or coffee, but this can increase vulnerability to price volatility and over-specialisation.
Fairtrade Schemes
Fairtrade schemes guarantee minimum prices and producer premiums. They can raise incomes, but they may be limited in scale.
Foreign Aid
Aid can take the form of grants, soft loans, or humanitarian support. It can fund vital projects, but it may also create dependency, corruption, and misallocation.
Debt Relief
Cancelling debt can free up government revenue for spending on development projects.
Role of International Institutions
World Bank
The World Bank provides long-term loans and grants for development projects such as infrastructure and education.
International Monetary Fund (IMF)
The IMF provides short-term loans to stabilise currencies and address balance of payments crises.
These loans often come with structural adjustment programmes requiring free-market reforms.
Non-Governmental Organisations (NGOs)
NGOs often run small-scale, community-focused projects. They may be more flexible and better targeted than large institutions.
Exam Preparation
- Distinguish clearly between market-orientated and interventionist strategies.
- Draw and analyse a buffer stock scheme and evaluate whether it is effective.
- Analyse benefits and drawbacks of strategies such as FDI, tourism, Fairtrade, and aid.
- Compare the roles of the World Bank, IMF, and NGOs.
- Evaluate context by explaining that the best strategy depends on the country's structure and stage of development.