4.3.3 Strategies Influencing Growth & Development- ERH - Copy.pptx

Economics A Level Theme 4: Global Perspective
4.3.3 Strategies Influencing Growth & Development

1. Edexcel A Level Economics  Theme 4: A Global Perspective 4.3.3 Strategies Influencing Growth & Development

2. DO NOW (Independently in your books, 5 minutes) Name 3 barriers to development: Define Primary Product Dependency . Why would exporting basic commodities make a country  'dependent'  on other countries and  'vulnerable' in terms of trade ? Edexcel A Level Economics  Theme 4: A Global Perspective Previous Topic was: 4.3.2 Factors Influencing Growth & Development

3. DO NOW (Correct and complete your answers in green pen , 5 minutes) Name 3 barriers to development: *Primary export dependency  *Conflict *Corruption *inequality of income distribution *Lack of education/ specialisation    *Lack of savings  *Lack of competition in the global markets   Primary Product Dependency is heavy reliance on agriculture or mining of a few main commodities (raw materials). This makes them vulnerable to volatile global prices and puts them at a disadvantage in Terms of Trade.

4. DO NOW (Correct and complete your answers in green pen , 5 minutes) Why would exporting basic commodities make a country  'dependent'  on other countries and  'vulnerable' in terms of trade ? Basic commodities (such as iron ore, oil, copper, cocoa beans) have  little differentiation regardless of who produces it. Like all assets, commodity prices will ultimately be determined by supply and demand , so if another country produces it at a cheaper price, the buyer would prefer that producer . This would impact the  Terms of Trade negatively , as potential exports will decrease. Inability to export but having a heavy reliance of import on finished goods will worsen their economy. 

5. 4.3.2 Factors Influencing Growth & Development LEARNING OBJECTIVES: Understanding market-oriented vs interventionist strategies that governments can adopt to support their growth & development Understanding the benefits and costs of FDI .

6. Starter Discussion: Remembering the LA 4.1.5 Trading Blocs and WTO, we discussed liberalisation   (removing barriers to free trade) on one side and protectionism (restrictions on international trade) on the other side, what was the role of the government in these 2 versions?

7. Market-led Strategies vs Interventionist Strategies to Growth & Development Market-led strategies: Trade Liberalisation Promotion of FDI Removal of government subsidies Floating Exchange rate systems Microfinance schemes Privatisation Interventionist strategies: Development of Human Capital Protectionism Managed Exchange rates Infrastructure development Promoting joint ventures and global companies Buffer stock schemes Power = private enterprises Power = Government

8. 4.3.3 Market Led Development Strategies Market-led (market-driven/ market- oriented development strategies, are approaches that prioritize the role of markets, private sector activity , and market-based mechanisms as key drivers of economic growth and development . These strategies emphasize the importance of allowing market forces to allocate resources, promote competition, and drive innovation. 

9. 4.3.3 Market-Led Approaches to Growth & Development  Estonia (in East Europe)  has followed a free market approach Chile (in South America) has adopted a free-market development agenda

10. 4.3.3 Examples of Market-led Strategies influencing growth & development  Trade Liberalization:  Governments reduce trade barriers , such as tariffs and import quotas, to open their economies to international trade. This promotes the export of domestic goods and services and encourages foreign investment. 

11. 4.3.3 Examples of Market-led Strategies influencing growth & development  Examples of Trade Liberalization:  • Reducing Import Tariffs (revenue related) • Eliminating Import Quotas (volume related) • Removing Non-Tariff Barriers Question:   Explain how can trade liberalisation  support growth & development? (4 marks) (answer independently, in your books, 3 mins) Point & Explain : 1 Mark for Knowledge, 2 Marks for Application 1 Mark for Analysis (no diagram required)

12. 4.3.3 Examples of Market-led Strategies influencing growth & development  2) Privatization: Governments sell or transfer ownership and management control of state-owned enterprises to private entities. 

13. 4.3.3 Examples of Market-led Strategies influencing growth & development  3) Financial Sector Reform: Governments improve the regulation and competitiveness of the financial sector. This can include the establishment of private banks, the introduction of credit bureaus, and the liberalization of interest rates. India's financial sector reforms, beginning in the early 1990s, helped modernize the country's banking and financial system. 4) Farm Reforms: Market-oriented strategies in agriculture involve reducing subsidies and price controls and facilitating access to credit for farmers . China's rural reforms in the late 1970s, which allowed farmers to sell surplus produce on the open market, contributed to increased agricultural productivity and rural income.

14. Trade is important to developing countries. In spite of the arguments in favour of `free-trade`, developing countries may not always gain by opening up to global competition.  Question: Give an example of a non-tariff barrier that may make it difficult for a developing producer to compete in the global market. (In your books, 5 mins) Remember !  Non-Tariff Barriers (n): measures imposed by a government that have the effect of inhibiting international trade Hints: Technical specification requirements Quality standards (ISO, CE etc certification) Environmental/material standards

15. Foreign Direct Investment (FDI) Foreign Direct Investment (FDI) refers to the investment made by a company or individual in one country into business interests in another country . FDI involves acquiring ownership or a significant degree of influence or control over foreign enterprises. It is a key component of international economic integration and plays a vital role in the global economy.

16. Examples of Foreign Direct Investment (FDI) China investing overseas in metals and minerals such as nickel & lithium Vietnam has attracted much FDI in a range of manufacturing sectors

17. Application: AO2 marks Country of Focus: Foreign Direct Investment (FDI) in  Vietnam  In 2019, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) went into effect, and Vietnamese officials approved the EU-Vietnam Free Trade Agreement (EVFTA) in late 2020. Such agreements ease FDI inflows into the country, offer better market entry for Vietnamese exports, and promote reforms that assist all foreign investors. The main strengths of the country's economy are: Steady and stable growth estimated at around 7-8% over the next ten years  A young, inexpensive, skilled and fast-growing workforce S ocio-political stability A government that seeks to liberalise the economy and introduce free-market reforms Agricultural and energy production sectors that can rely on abundant resources but are still largely under-exploited A strategic location (sharing borders with China, located in the centre of Southeast Asia and a long coastline) The main obstacles to the development of the country are: Weak health and transport infrastructure Weak financial structures and in particular the banking sector. A non-transparent legal framework : the judicial system is subject to political influences, and commercial disputes often take years to resolve High risks of corruption Great disparities of development and poverty in many regions Recurring tensions with China on the subject of sovereignty in the South China Sea

18. AD: Aggregate Demand LRA: Long-run aggregate supply

19. Application: AO2 marks Question : Explain the potential benefits  of foreign direct investment (FDI) to a developing country? (6 marks) (6 marks) (In your books, 6 minutes)

20. Drawbacks of FDI to a developing/emerging country:

21. Application: AO2 marks Question :  Explain the main risks and drawbacks of foreign direct investment (FDI) to a developing/emerging country? (6 marks) (In your books, 6 minutes)

22. Policies designed to attract FDIs Attractive rates of corporate taxation Staff loans and tax reliefs/subsidies Trade & Investment agreements Flexible labour force and skilled workers Creation of Special Economic Zones High quality critical infrastructure Open capital markets for remitted profits Attraction of relatively low unit labour costs

23. Removal of Government Subsidies Economists in favour of government subsidies: Subsidies => improve farm incomes => higher capital investment => innovation in farming technologies => improved efficiency and productivity in the long run. Economists against government subsidies argue that: Subsidies distort the work of the price mechanism .  Subsidies can stiffle innovation  because producers are not motivated to invest in innovation as a way of getting more competitive. Producers/ growers can become ` subsidy-dependent `. Subsidies lower the incentive for producers to improve efficiency in limited areas, rather they are motivated to increase their farming area, or overuse pesticides, or fertilisers which leads to de-forestation and a loss of bio-diversity.

24. Floating Exchange Rate systems: a system in which the exchange rate is permitted to find its own level in the market Economists in favour of floating exchange rate systems argue that: Government/ central bank is not using up foreign currency reserves to defend a fixed exchange rate. Capital controls will not be used to limit the inflows and the outflows of investment. Example : Poland   Poland operates with a floating currency ( the Zloty ) inside the EU single market. When the global financial crisis erupted in 2007-08 the wider European economy went into recession however Polish zloty depreciated heavily against the Euro and the US dollar this helped the Polish economy in contrast Greece was locked into the single currency (Euro) and could not rely on at depreciation to restore some lost competitiveness.

25. Microfinance Schemes Microfinance refers to a large number of different financial products such as: Micro credit :  the provision of small scale loans to the poor  Micro savings:  voluntary local saving clubs provided my charities Micro insurance:  especially for people and businesses not served by commercial insurers Remittance management:  managing remittance payments sent from one country to another Question: How can micro-credits help entrepreneurship in developing countries?

26. TUTOR2U.NET/ECONOMICS ECONOMIC DEVELOPMENT Model Answer:  Micro-credits help with the savings gap that limits entrepreneurship. A country which has more small and medium enterprises can stay more economically stable, rather than a having a few major players only that dominate the market. Microcredits encourage women entrepreneurs so they can also contribute to the household income and improve quality of living standards. More girls can continue their education.  

27. TUTOR2U.NET/ECONOMICS ECONOMIC DEVELOPMENT Examples of Micro Finance: 1. Bangladesh: The Grameen Bank, founded by Muhammad Yunus, pioneered the concept of microfinance in Bangladesh in the 1970s and 1980s. Today, the Grameen Bank , serves millions of low-income individuals and small businesses. 2. India: Today, there are several microfinance institutions in India that provide financial services to low-income individuals and small businesses, including the Self-Employed Women's Association (SEWA) and the Sa-Dhan network of microfinance institutions. 3. Peru: FINCA Peru provides financial services to low-income individuals and small businesses.

28. Privatisation : the transfer of business, industry and services from public to private ownership. Benefits of  privatisation : ​ Private companies have a profit incentive to cut costs and be more productive ​ Government gains revenue from the sale of assets and no longer has to support a potentially loss-making industry. ​ The competitiveness of the macro economy may also improve especially if  privatisation   leads to increased investment. Drawbacks of  privatisation : ​ Social objectives are given less importance because privately owned firms are driven by profit motive. ​ Some industries would better remain with the government ownership for strategic reasons such as water supplies, railways etc. ​ Public sector assets are often sold out cheaply and  privatisation  process may suffer from corruption.  ​ Privatisation leads to job losses as firms increase their efficiency.

29. List of Major Privatisations in the UK British Airports Authority:  British Airways: fully privatised since 1987 British Coal: since 1994 British Energy: Electricity since 1990 under Margaret Thatcher's government British Gas: since 1986 under Margaret Thatcher's government British Leyland British Nuclear Fuels Limited (BNFL) British Petroleum: since 1987 (£ 7.2 billion ) British Rail : since 1994 British Shipbuilders and Harland and Wolff British Steel Corporation British Sugar Corporation British Telecom: since 1984  Buses Royal Mail : since 2014  Short Video: (2 minutes) Privatisation | UK Examples for A Level Economics Students (youtube.com)

30. 4.3.3  Strategies  Influencing Growth & Development Continued... DO NOW (Independently in your books, 5 minutes) Name  3 types of market-led strategies to development. Define  Interventionist strategies Explain one drawback of FDIs? 

31. 4.3.3  Strategies  Influencing Growth & Development Continued... DO NOW (Independently in your books, 5 minutes) 3 types of market-led strategies:  trade liberalisation , promotion of FDIs, floating exchange rate systems, privatisation Interventionist strategies  is when the government takes action to control development. Inequality of profits being disproportionately being distributed among the power elites, TNS tax avoidance, monopsony power of TNCs who can negotiate very low prices to the farmers/local producers.