Economics Policies by Adam

MEASURES TO PROMOTE GROWTH AND DEVELOPMENT
TYPE
EXAMPLES
Trade Liberalisation
Promotion of FDI
DEFINITION
The removal or reduction of

restrictions or barriers on the
free exchange of goods
between nations. This includes
the removal or reduction of
both tariff (duties and
surcharges) and non-tariff
obstacles (like licensing rules,
quotas and other
requirements).
A foreign direct
investment (FDI) is a
controlling ownership in a
business enterprise in one
country by an entity based in
another country.
IMPACTS
APPLICATION
With the help of a selectively
liberal import strategy, Korea has
Trade liberalisation allows countries to specialise been able to develop a highly
in producing the goods and services where they competitive manufacturing sector
have a comparative advantage (produce at
that offers its own brand-name
lowest opportunity cost). This enables a net gain manufactures of increasing
in economic welfare.
sophistication, ranging from cars
to TV and now high technology
goods.
Lower prices. The removal of tariff barriers can
lead to lower prices for consumers. E.g. removing
food tariffs in West would help reduce the global
price of agricultural commodities. This would be
particularly a benefit for countries who are
importers of food.
Trade liberalisation has been a

factor in encouraging the UK to
concentrate less on
manufacturing and more on the
service sector.
Increased competition. Trade liberalisation

means firms will face greater competition from
abroad. This should act as a spur to increase
efficiency and cut costs or it may act as an
incentive for an economy to shift resources into
new industries where they can maintain a
competitive advantage.
When Mexico liberalized, firms

put under pressure by import
competition rationalized their
activities to the point that they
became export competitive. In
fact, they looked to export
Economies of scale. Trade liberalisation enables markets to achieve a scale that
greater specialisation. Economies concentrate on would allow them to be
producing particular goods. This can enable big competitive.
efficiency savings from economies of scale.
FDI allows the transfer of capital. FDI leads to an

immediate increase in the resource available
within the country. In the short term, it will lead
to a multipler effect but in the long run it pushes
the production possibilitiy frontier outwards and
lead to higher growth.
Asia retains its place as the

continental grouping with the
most FDI, with its $426bn inflows
making it worth almost 30% of
worldwide investment. Most of
this was due to rising investment
in China, the Republic of Korea
and Taiwan.
EVLUATION
In the short run, it can lead to

unemployment in industries that are
not exposed to foreign barriers. In the
long run, jobs can be found but newer
jobs would be paid less than the old
ones
Greater trade means greater use of

natural resource. This could cause
environmental problems
FDI is not only a transfer of ownership

from domestic to foreign residents but
also a mechanism that makes it possible
for foreign investors to exercise
management and control over host
country firmsthat is, it is a corporate
governance mechanism. The transfer of
control may not always benefit the host
country because of the circumstances
under which it occurs, problems of
adverse selection, or excessive leverage
Promotion of FDI
TYPE
EXAMPLES
Removal of Governement
TradeSubsidies
Liberalisation
MARKET
ORIENTATED
A foreign direct
investment (FDI) is a
controlling ownership in a
business enterprise in one
MEASURES
TO PROMOTE GROWTH AND DEVELOPMENT
country by an entity based
in
DEFINITION
IMPACTS
another
country.
Recipients of FDI often gain employee training in
the course of operating the new businesses,
which contributes to human capital development
in the host country.
Profits generated by FDI contribute to corporate
tax revenues in the host country.
Subsidy savings, instead of supporting
consumption, can be directed to productive
spending such as education, R&D, healthcare and
public transportation
Removal of a sum of money Enhancement of the efficiency of the economy.
granted by the state or a
between nations. This includes As we move closer to market prices, supply and
public body to help an
demand becomes more market-responsive and
industry or business keep the are driven by price signals. Non-subsidised prices
price of a commodity or
for goods and services will force resources to be
service low.
obstacles (like licensing rules, allocated with minimum wastage.
quotas and other
More resilient economy, strengthened by lower
requirements).
fiscal deficit and government debt to achienve
the resources to engage in counter-cyclical
spending
APPLICATION
Although Latin America and the
Caribbean saw overall positive
growth in FDI inflows, it was
mostly due to Central American
growth
EVLUATION
Footloose Capitalism - They have the
power to move production from
country to country to maximise profits.
not
exposed
foreign
In the
It
can
lead toto
short
termbarriers.
cost-push
long
run,and
jobsreduction
can be found
but newer
inflation
in growth
rates
ones
Energy subsidies are costly and

weigh heavily on already
stretched government budgets in
a number of energy-importing
unemployment in many industries. In
countries across the region,
the long run, jobs can be found but
including Egypt and Jordan.
newer jobs would be paid less than the
old ones

TYPE
EXAMPLES
MARKET
ORIENTATED
Privatisation
DEFINITION
IMPACTS
It is argued governments make poor economic

managers. They are motivated by political
pressures rather than sound economic and
business sense. For example a state enterprise
may employ surplus workers which is inefficient.
The government may be reluctant to get rid of
the workers because of the negative publicity
involved in job losses. Therefore, state owned
enterprises often employ too many workers
restrictions or barriers on the increasing inefficiency
both
tariff (duties
and selling Private companies have a profit incentive to cut
Privatisation
involves
costs and be more efficient.
surcharges)
andassets
non-tariff
state owned
to the
obstacles
(like licensing
rules,
private sector.
This is often
quotas
andthrough
other listing the
achieved
requirements).
new private company on the
stock market. In the 1980s and
1990s, the UK privatised many
A government many think only in terms of next
previously state-owned
election. Therefore, they may be unwilling to
industries
invest in infrastructure improvements which will
benefit the firm in the long term because they
are more concerned about projects that give a
benefit before the election.
APPLICATION
EVLUATION
Impressive labour productivity

performance has been achieved
by companies such as Associated
British Ports, British Airways,
British Steel and BT which were
privatised in the 1980s and which
operated in competitive markets,
or markets which were opened up
to competition following the
transfer of nationalised industries
to the private sector.
Privatisation would just create a private

monopoly which might seek to set
higher
pricesrun,
which
exploit
In the short
it can
lead consumers.
to
Therefore
it is better
to havethat
a public
unemployment
in industries
are
monopoly
rather
than
a
private
monopoly
which
thenewer
long
run, jobs
cancan
be exploit
found but
consumer.
ones
Many of the privatised companies in the

Privatisation in British rail industry UK are quite profitable. This means the
led to increased output and
government misses out on their
efficiency gains
dividends, instead going to wealthy
shareholders.
There are many industries which
perform an important public service, e.g
health care, education and public
transport. In these industries, the profit
motive shouldnt be the primary
Throughout the post privatisation objective of firms and the industry. For
period has been especially strong example, in the case of health care, it is
in British Aerospace, Associated
feared privatising health care would
British Ports and British Telecom. mean a greater priority is given to profit
Significantly, the improvement in rather than patient care. Also, in an
BTs performance has been
industry like health care, arguably we
greatest since 1989, when it began dont need a profit motive to improve
to face far greater competition
standards.
from new entrants into the
Privatisation creates private
Often privatisation of state owned monopolies
marketplace.
monopolies, such as the water
occurs alongside deregulation i.e. policies to
companies and rail companies. These
allow more firms to enter the industry and
need regulating to prevent abuse of
increase the competitiveness of the market. It is
monopoly power. Therefore, there is
this increase in competition that can be the
still need for government regulation,
greatest spur to improvements in efficiency.
similar to under state ownership.

TYPE
EXAMPLES
DEFINITION
A country's exchange
rateregime where its currency
is set by the foreignfree exchange of goods
exchange market through
supply and demand for that
Liberalisation
FreelyTrade
Floating
Exchange Rate particular currency relative to
other currencies.
Thus, floating exchange
rates change freely and are
quotas and other
determined by trading in the
requirements).
forex market.
IMPACTS
APPLICATION
EVLUATION
Floating exchange rates may aggravate
existing problems in the economy. If the
country is already experiencing
economic problems such as higher
Floating exchange rates are also seen as an
inflation. For example, if the country
automatic stabiliser. In the event of either a
In the short
it can
lead to
suffers
fromrun,
higher
inflation,
negative demand or supply side shock affecting
unemployment
in industries
thatdrive
are
depreciation of its
currency may
an economy, the exchange rate will fall as
not inflation
exposed rate
to foreign
the
higherbarriers.
becauseInofthe
currency traders sell the currency, leading to a
long
run, jobs
can be
but newer
increased
demand
forfound
its goods;
fall in export prices and an automatic increase in
jobs
would
be
paid
less
than
theaccount
old
however, the countrys current
competitiveness
onesalso worsen because of more
may
Switzerland would have had to
expensive imports. unemployment,
spend more than $100 billion this
floating exchange rates may make the
month alone if it had continued
situation worse.
efforts to hold down the value of
The fact that a currency changes in
its currency. SNB thinks the franc
value from day to day introduces
is no longer as overvalued as it
instability or uncertainty into trade.
was in 2011, so the cap can go.
Sellers may be unsure of how much
In a floating exchange rate regime, the
money they will receive when they sell
macroeconomic fundamentals of countries affect
abroad or what their price actually is
the exchange rate in international markets,
abroad. Of course the rate changing will
which, in turn, affect portfolio flows between
affect price and thus sales. In a similar
countries. Therefore, floating exchange rate
way importers never know how much it
regimes enhance market efficiency
is going to cost them to import a given
amount of foreign goods. This
uncertainty can be reduced by hedging
the foreign exchange risk on the
forward market.

TYPE
EXAMPLES
Microfinance Schemes
DEFINITION
IMPACTS
It can reduce the credit constraints that often

face potential entrepreneurs in poor
communities, and that preclude enterprise
The lending of small amounts development
of money at low interest to
The removal
or reduction
new businesses
in theof
restrictions
or barriers
developing
worldon the
between nations. This includes While traditional financial institutions cannot
provide small loans due to the high cost of small
transactions, lack of traditional collateral and
high risk of small agricultural business,
obstacles (like licensing rules, microfinance can be tapped for meeting such
quotas and other
demands
requirements).
Improved education will allow workforce o
become more effcient as they become more
skilled in a particular field
APPLICATION
The Grameen Bank, launched in
1976 by Mohammed Yunus in
Bangladesh, pioneered the shift in
focus to group loans. Today, the
Grameen Bank consists of more
than 2.4 million clients. The
scheme has also made a
significant contribution to the
economy as 48% of the poor
families which have obtained
credits have managed to
overcome the poverty line
EVLUATION
The social necessity to repay microloans

In the short
run, it microenterprises
can lead to
attached
to failed
can
unemployment
that are
strip the poor ofinallindustries
their remaining
assets.
ones
Microfinance programs in
Uzbekistan have already drawn
Access to credit does not mean that
more than 70, 000 clients, with
investment from th poor will become
nearly 200, 000 persons employed ruitful or produce the desired results
in supplementary activities.
Theodore Schultz: The social rate
of return on investment in human
The return on investment can only be
capital in the US economy was
seen in the long run and can fail due to
larger than that based on physical
brain drain
capital such as new plant and
machinery.
Singapore and Jamaica: both

former British colonies, with
populations of 1.6m and a similar
GDP/capita ($2,200, roughly).
Human capital is the quality of
Whilst Jamaica chose invest its
Development of human capital
Developing human capital in all genders can help
labour
resources in the agricultural and
economic growth significantly. A larger
mining industries (along with
proportion of money earned by women is likely
It imposes a large opportunity cot to the
tourism) Singapore chose a
to be spent on nutrition and education than that
governement as the cost to educate
different route. It focused on the
of an earned by men. Thus increasing the
may be too high
importance of education and
amount of available and efficient working labour
developed advanced technology.
in the future.
The two outcomes, in terms of
prosperity and standard of living,
show which route was best. Today
Singapores GDP per capita is over
seven times the level of Jamaicas

TYPE
EXAMPLES
DEFINITION
IMPACTS
To protect sunrise industries (new industries).
Enable industries to have chance to develop,
grow and become globally competitive
Protectionism
GOVERNMENTLED
Managed Exchange Rate

Protect non renewable resources. Limit the
restrictions or barriers on the production in short term through production
quotas to conserve the resources
Deliberate attempt to limit
imports and promote exports
by putting up barriers of trade.
quotas and other
requirements).
Protect sunset industries. Protect firm (declining
industries) which need some supports to enable
them to decline slowly and avoid some negative
effects of the decline.
A country can obtain the benefits of a free

floating system but still has the option to
An international financial
intervene and minimize the risks associated with
arrangement, whereby central
a free floating currency. If a currency's value
banks interveneto stabilize
increases or decreases too rapidly, the central
volatile fluctuations in foreign
bank can intervene and minimize any harmful
exchange rates.
effects that might result from the radical
fluctuation.
APPLICATION
In Malaysia, imported cars are
imposed tariffs. These taxes cause
a foreign car to cost almost three
times or 300% more than the
original price.very high duties and
EVLUATION
Domestic producers will have no

incentive to cut the cost or improve the
quality of the product since they have
less competitors.
EU Common Agricultural Policy
(CAP). Despite reforms and some long run, jobs can be found but newer
reduction in tariff rates, the EU
still impose substantial tariff rates ones
on many agricultural markets. The
aim is to increase prices for
domestic European farmers in
That country will experience lower
order to increase their income.
growth rates than other countries if
Argentina food tariffs. Argentina
they are of small countries because that
has increased imports duties on
country cannot get the benefit from
100 products, including over a
specialisation
dozen agricultural goods under
the Mercosur Common External
Tariff (CET). In this example, tariffs
on the import of milk powder
were increased to 9% after record
levels of imports and fears
Argentinian farmers would suffer
falling incomes.
If the central banks are too quick to
respond or if the amount of
intervention is inappropriate, their
India has a managed float
actions may be further destabilizing.
exchange regime. The rupee is
This increased instability has a tendency
allowed to fluctuate with the
to dampen international flows and
market within a set range before
contract world trade. If they wait too
the central bank will intervene.
long, permanent damage may be done
to some countries' trade and
investment balances.
GOVERNMENTLED

TYPE
EXAMPLES
Infrastructure Development
DEFINITION

both
tariff (duties
andphysical
Developing
the basic
surcharges)
and non-tariff
and organizational
structures
obstacles
(like licensing
rules,
and facilities
(e.g. buildings,
quotas
and other
roads, power
supplies) needed
requirements).
for the operation of a society
or enterprise.
IMPACTS
Infrastructure investments can similarly
accelerate economic development in less
developed nations and emerging markets.
Nations that invest in infrastructure are better
positioned to attract direct foreign investment,
stimulate commerce and support local
businesses. Their citizens are more likely to enjoy
better health care, sanitation and other markings
of well-being
Support trade and transport facilitation, such as
through efforts to reduce border crossing
problems including rationalisation of
procedures and elimination of illegal or semilegal checkpoints on roads and increase the
efficiency of multi-country operations in other
network industries, such as railways and
electricity.
Removing bottlenecks in the economy which
hurt poor people by impeding asset
accumulation, lowering asset values, imposing
high transaction costs and creating market
failures. Eliminating these bottlenecks allows the
poor to contribute to growth directly through the
employment and income opportunities created
by the construction, maintenance and delivery of
infrastructure services, and indirectly through
better services
Generating distributional effects on growth and
poverty reduction through poor peoples
increased participation in the growth process
for example, by increasing their access to factor
and product markets, reducing risk and
vulnerability, enhancing asset mobilisation and
use, and promoting their empowerment
APPLICATION
China, South Korea and Taiwan
owe their economic successes in
part to infrastructure investments.
India plans $1 trillion in
investments over the next five
years to modernize its economy.
EVLUATION
Requires a lot of finanacing. Evaluate

the various ways of financing; Debt and
FDI
ones
Economic growth in China

increased from 7.5% from 1970 to
1999 to over 10% per annum
Success can only be seen in the long term.
between 1999 to 2008 mianly
driven by sustained increase in
gross domestic capital formation
Infrastructure development
certainly helped export-led
economic growth in China. The
Chinese government responded to
the 2008 crises with a large
economic stimulus package
designed to boost domestic
demmand by investing in
infrastructure and public services
to help sustain the economy.
There is a possibility that infrastructure

fails to generate the desired outcome
thus increasing the amount of debt that
a government has to shoulder. Example
Greece. Greece has various
infrastructure development such as the
stadium but it does not generate
income for thee country

TYPE
EXAMPLES
DEFINITION
IMPACTS
APPLICATION
It provides support for business and commercial
associations composed by companies from the
same core business. With those associations it is
possible to contact companies facing similar
Malaysian Carmaker, Proton
challenges or problems and find common
working together with a Japanese
solutions that would be much more difficult to
Automobile TNC, Mitsubishi.
A business arrangement in be solved without information sharing. The
which two or more parties programme creates and develops actions to
Promoting Joint Ventures with
agree to pool their resources strengthen SMEs in a competitive market
TNC
for theor
purpose
of of
The removal
reduction
environment
accomplishing
a specific
The programme creates and
restrictions
or barriers
ontask.
the
Major benefits of linkages with TNCs: economies develops actions to strengthen
SMEs in a competitive market
between nations. This includes of scale, new markets
environment, and it works in more
Lower costs (cheaper local resources and labour, than 800 municipalities in all
replacing imported material by locally produced Brazilian States with
inputs) and increase in flexibility
approximately 40,000
quotas and other
requirements).
EVLUATION
Main challenges for linkages:

management capacity and deficit of
management
training
In the short run,
it canoffers,
lead to
technological
constraints
andthat
access
unemployment
in industries
are to
finance
ones
Only certain support is received. Few
SMEs received support from TNCs for
technological upgrading

TYPE
EXAMPLES
DEFINITION
IMPACTS
Certainly the biggest advantage of
industrialization is that it eases the daily
responsibilities and tasks of people by placing
most of the bulk of tasks on technology and
other resources
Industrialisation

The period of social and
economic change that
transforms a human group
quotas and other
from an agrarian society into
requirements).
an industrial one.
Industrialization also opens the door to lots of

employment opportunities which, in turn, also
open the door to establishing businesses to
satisfy the needs of those employed by the
industry.
APPLICATION
EVLUATION
Using the Lewis 2-Sector Model
Environmentally, industrialization both

pollutes the environment and depletes
its resources. Industry requires huge
amounts of inputs such as ores and
petroleum
fuel.
Its lead
outputs
In the shortfor
run,
it can
to (in the
form
of waste chemicals
andthat
such)are
are
unemployment
in industries
major
pollutants.
Using the Harrod-Domar Model

Deterioration
quality
lifethe
dueold
to
jobs would be of
paid
less of
than
urbanization
which
are
generally
more
ones
crowded than rural areas. This leads to
many problems for the individual and
the society including psychological
disorders, crimes and other social
problems. Urbanization also leads to
environmental pollution such as
destruction of forests and extinction of
many varieties of animals and plants.
As labour costs increased in Hong

Kong and China liberalized its
economy, manufacturers opened
new plants in Guangdong,
Increases productivity, which enable production including Guangzhou. As the
of a large variety of products and service
largest city in one of China's
Evaluate the Lewis 2-Sector model and
economically. This in turn leads for improved
wealthiest provinces, Guangzhou
the Harrod Domar Model
standards of living for the entire society or the
attracts farmers from the
economy.
countryside looking for factory
work. Cantonese links to overseas
Chinese and beneficial tax reforms
in the 1990s contributed to the
city's rapid growth.
OTHER

TYPE
EXAMPLES
DEFINITION
OTHER
IMPACTS
Higher employment due to labor intensive, few
administrative positions and little upward
mobility
Development of Tourism
The commercial organization

and operation of holidays and
visits to places of interest.
Countries that become tourist destinations can
gain export earnings and diversify economies
Development of Primary
Product Industry

quotas and other
requirements).
APPLICATION
EVLUATION
Cultural destruction due to
Travel receipts account for over a modernization (world mono-culture),
third of all invisible exports for
freezes culture as performers, loss of
Third World countries.
language, religion, rituals and material
culture.
In the local
shortinhabitants
run, it can lead
to
Make
feel inferior
unemployment
in industries
that
arein
they cannot afford
lifestyle on
offer
not hotels
exposed
foreign
barriers.
In the
the
to to
First
Worlds
tourists
Growth in tourism increasing since 1970
long
run, impact
jobs canonbeenvironment
found but newer
Negative
local
jobs would
paid lessbythan
the old
shore
line isbe
damaged
building
of
ones
hotels
Saudi Arabias trade remains

Often developing countries have a comparative heavily dependent on the oil and
advantage in producing primary products. This is petroleum-related industries,
because many developing countries are rich in
including petrochemicals and
resources, but poor in capital and education.
petroleum refining. Oil export
Therefore, they can mine and export primary
revenues have accounted for
products to gain revenue.
around 90% of the total Saudi
export earnings
Developing the sector of an

economy making direct use
of natural resources. This Jobs are created easily as it does not require high
includesagriculture, forestry, fi levels of training for mining.
shing and mining.
Important source of export revenue that incurs

little import revenues and development allows
for stability to prices
Between 1975 and 2004 Latin

Americas share of global markets
in metals expanded by 175%.
During this time the share of ores
and unwrought metals doubled,
but that of worked products
increased eightfold
Resource-based services with high
logistical and technical
requirements include tourism,
which has for some years been the
fastest-growing export for SubSaharan Africa (SSA) -- it now
represents the equivalent of over
10% of merchandise exports -- and
IT-related exports
As income increases, demand for many

food stuffs, doesnt really increase. As
incomes increases, demand for tea,
coffee and sugar dont increase that
much. Therefore, countries who rely on
primary products may have lower
income growth than countries
producing manufactured goods, with a
higher income elasticity of demand.
Primary products like metals, oil and gas
are finite resources. Therefore, there is
always a danger that when these
resources are exhausted, the economy
will lose its main export revenue.
The price of primary products tend to
be much more volatile. e.g. they can
be influenced by weather and
speculation. These prices changes
can be damaging to countries. If
prices fall and demand is price
inelatic, then producers can go out of
business and the country loses its
main form of export revenue.

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MEASURES TO PROMOTE GROWTH AND DEVELOPMENT

The removal or reduction of

Trade liberalisation has been a

Increased competition. Trade liberalisation

When Mexico liberalized, firms

FDI allows the transfer of capital. FDI leads to an

Asia retains its place as the

In the short run, it can lead to

Greater trade means greater use of

FDI is not only a transfer of ownership

Energy subsidies are costly and

MEASURES TO PROMOTE GROWTH AND DEVELOPMENT

It is argued governments make poor economic

Impressive labour productivity

Privatisation would just create a private

Many of the privatised companies in the

MEASURES TO PROMOTE GROWTH AND DEVELOPMENT

MEASURES TO PROMOTE GROWTH AND DEVELOPMENT

It can reduce the credit constraints that often

The social necessity to repay microloans

Singapore and Jamaica: both

MEASURES TO PROMOTE GROWTH AND DEVELOPMENT

Managed Exchange Rate

The removal or reduction of

A country can obtain the benefits of a free

Domestic producers will have no

MEASURES TO PROMOTE GROWTH AND DEVELOPMENT

The removal or reduction of

Requires a lot of finanacing. Evaluate

Economic growth in China

There is a possibility that infrastructure

MEASURES TO PROMOTE GROWTH AND DEVELOPMENT

Main challenges for linkages:

MEASURES TO PROMOTE GROWTH AND DEVELOPMENT

The removal or reduction of

Industrialization also opens the door to lots of

Using the Lewis 2-Sector Model

Environmentally, industrialization both

Using the Harrod-Domar Model

long run, jobs can be found but newer

As labour costs increased in Hong

MEASURES TO PROMOTE GROWTH AND DEVELOPMENT

The commercial organization

The removal or reduction of

Saudi Arabias trade remains

Developing the sector of an

Important source of export revenue that incurs

Between 1975 and 2004 Latin

As income increases, demand for many

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