Many developing countries rely too heavily on primary commodities whose prices fluctuate widely, causing economic instability. Diversifying industrial bases and improving agricultural productivity can help address this over-reliance. While opening markets and improving price signals can boost efficiency, developing countries face issues like market failures, externalities, and adjustment periods that harm populations. Structural adjustment policies aimed at balancing budgets and making economies creditworthy can be problematic if they raise prices, cut spending, and increase unemployment and poverty. Both outward-looking and inward-looking trade strategies carry risks and benefits that must be considered. Population control, encouraging savings and investment, and lowering the capital to output ratio are also important to economic growth.

1. Development Strategies

2. Development Strategies

3. Diversification of Industrial Base

4. Diversification of Industrial BaseMany developing countries too reliant on primary commoditiesSubject to wide price fluctuations and instabilityExpansion of industrial base would help avoid over-reliance on these commoditiesCopper production in Zambia – over-reliance on primary products whose prices are determined by world demand can cause problems for developing countries

5. Agricultural Development

6. Agricultural DevelopmentProperty rights – who has the right of ownership?Land reform – part of the process but not forced (i.e. Zimbabwe)International agreements – abolition of price controls and trade liberalisation, buffer stock schemesProductivity improvements – investment in capital, quality seed, etc.Finding ways of improving agricultural production and productivity may be one route to promoting economic development.Copyright: Kippoad, stock.xchng

7. Free Market Strategies

8. Free Market StrategiesOpening up developing countries’ markets to competitionImprovement of the price mechanism – aim to improve efficiency in the allocationof resources and the use of capital and human resourcesBut:

9. Problems of market failureExternalities:PollutionEnvironmental DegradationPublic goods/merit goods – who will provide if the state cannot afford to fill the gap?Period of time to adjustment might mean that large sections of the population would suffer

10. Structural Change

11. Structural ChangeStructural Adjustment Policies (SAPs)Plan for economic recovery to make the country creditworthy again and to put in place the conditions for sustainable economic growth

12. Structural ChangeLoans from IMF – in return:Remove import controlsMake exchange rates fully convertible – often means devaluation of the currencyPrivatisation programmeCutting of subsidiesDeregulation of marketsBalancing national budgets

13. Structural ChangeProblems:Prices tend to rise as subsidies removed and currency devaluesCuts in government spending and rise in taxes hits the most vulnerableDeflationary policies tend to cause unemploymentSocial unrest can be commonLiving standards fall

14. Trade Strategies

15. Outward lookingReducing the levels of protectionEncouraging investment flowsPublicising the country's trade and goodsEconomies of scaleCompetition stimulates efficiency

16. Inward lookingErect protective barriersSubsidise domestic producersImport substitution

17. Population Control

18. Encourage Savings and Investment

19. Harrod-Domar Model:2 sources of economic growth:SavingsInvestment to lower the capital/output ratioChange in National Income (Δ Y )= Savings ratio(s)/capital output ratio (k)Δ Y = s/k