Unit 4: Development Strategies

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Unit 4: Development Strategies

  1. 1. http://www.bized.co.ukDevelopment Strategies Copyright 2007 – Biz/ed
  2. 2. http://www.bized.co.ukDevelopment Strategies Copyright 2007 – Biz/ed
  3. 3. http://www.bized.co.ukDiversification of Industrial Base Copyright 2007 – Biz/ed
  4. 4. http://www.bized.co.uk Diversification of Industrial Base • Many developing countries too reliant on primary commodities • Subject to wide price fluctuations and instability • Expansion of industrial baseCopper production in Zambia – over-reliance onprimary products whose prices are determined would help avoidby world demand can cause problems fordeveloping countries over-reliance on these commodities Copyright 2007 – Biz/ed
  5. 5. http://www.bized.co.ukAgricultural Development Copyright 2007 – Biz/ed
  6. 6. http://www.bized.co.uk Agricultural Development • Property 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 schemes • Productivity improvementsFinding ways of improving agriculturalproduction and productivity may be one route – investment into promoting economic development. capital, quality seed, etc.Copyright: Kippoad, stock.xchng Copyright 2007 – Biz/ed
  7. 7. http://www.bized.co.ukFree Market Strategies Copyright 2007 – Biz/ed
  8. 8. http://www.bized.co.uk Free Market Strategies• Opening up developing countries’ markets to competition• Improvement of the price mechanism – aim to improve efficiency in the allocation of resources and the use of capital and human resources• But: Copyright 2007 – Biz/ed
  9. 9. http://www.bized.co.uk Problems of market failure• Externalities: – Pollution – Environmental Degradation• Public 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 Copyright 2007 – Biz/ed
  10. 10. http://www.bized.co.ukStructural Change Copyright 2007 – Biz/ed
  11. 11. http://www.bized.co.uk Structural Change• Structural Adjustment Policies (SAPs)• Plan for economic recovery to make the country creditworthy again and to put in place the conditions for sustainable economic growth Copyright 2007 – Biz/ed
  12. 12. http://www.bized.co.uk Structural Change• Loans from IMF – in return: – Remove import controls – Make exchange rates fully convertible – often means devaluation of the currency – Privatisation programme – Cutting of subsidies – Deregulation of markets – Balancing national budgets Copyright 2007 – Biz/ed
  13. 13. http://www.bized.co.uk Structural Change• Problems: – Prices tend to rise as subsidies removed and currency devalues – Cuts in government spending and rise in taxes hits the most vulnerable – Deflationary policies tend to cause unemployment – Social unrest can be common – Living standards fall Copyright 2007 – Biz/ed
  14. 14. http://www.bized.co.ukTrade Strategies Copyright 2007 – Biz/ed
  15. 15. http://www.bized.co.uk Outward looking• Reducing the levels of protection• Encouraging investment flows• Publicising the countrys trade and goods• Economies of scale• Competition stimulates efficiency Copyright 2007 – Biz/ed
  16. 16. http://www.bized.co.uk Inward looking• Erect protective barriers• Subsidise domestic producers• Import substitution Copyright 2007 – Biz/ed
  17. 17. http://www.bized.co.ukPopulation Control Copyright 2007 – Biz/ed
  18. 18. http://www.bized.co.ukEncourage Savings and Investment Copyright 2007 – Biz/ed
  19. 19. http://www.bized.co.uk Harrod-Domar Model:• 2 sources of economic growth: – Savings – Investment to lower the capital/output ratio• Change in National Income (Δ Y )= Savings ratio(s)/capital output ratio (k)• Δ Y = s/k Copyright 2007 – Biz/ed

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