Strategies to promote growth and development

Strategies to promote growth and development

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Strategies to promote growth and development

There is a range of strategies that could be used by countries to promote growth and development.

Strategies for growth and development in countries will be different depending on their social, economic, political and cultural environment. The strategy mix will be different in developed countries compared to developing countries.

It’s likely that all countries will require a mix of a number of strategies to promote growth and development. 

Growth vs Development

Growth is associated with an increase in real GDP whereas development is associated with an increase in the standard of living.

The main strategies for growth and development in a country

  1. Aid
  2. Debt 
  3. Microfinance
  4. Fairtrade
  5. Infrastructure
  6. Education/ Training
  7. Tourism

Aid

Foreign aid is money that one country voluntarily transfers to another, which can take the form of a gift, a grant or a loan. 

What are the three most popular types of Aid provided?

1. Tied Aid

This is aid with conditions attached e.g. there might be a requirement to give something back e.g. provide specialist skills and expertise in healthcare.

2. Bilateral Aid

Aid is given directly from one country’s government to another country. This is normally with no conditions attached to this.

3. Multilateral Aid

This type of aid involves providing money to an external agency that then distributes it to countries that are in need of this aid when required.

What are the arguments for aid?

  • Promotes the reduction of absolute and relative poverty
  • Creates a positive multiplier and an increase in AD in the recipient’s country 
  • Improves human capital through promotion of healthcare and education
  • Contributes to increasing globalisation and trade
  • Reduces international inequality
  • Tied aid would also provide benefits for the donor country e.g. Interest earned.

What are the arguments against providing aid?

  • Dependency culture creates a moral hazard as countries might get used to receiving aid and become less self-sufficient in the long run
  • Due to corruption aid might not get to the people that are in need of it the most
  • There is no concrete evidence that aid helps to significantly reduce absolute or relative poverty
  • Tied aid is not always given in the best interest of the recipient who might be exploited through desperation

Tourism

There are many examples of countries that have developed through investment tourism e.g. Dubai, Greece.

Advantages of Tourism

  • Attracts inward FDI from businesses e.g. hotels
  • Encourages further infrastructure improvements
  • Helps to create employment
  • Provide extra tax revenue to the government
  • Attracts further aid and development
  • Increases the country’s Aggregate demand curve and Real GDP

Disadvantages of Tourism

  • Tourism can only be seasonal income for some countries
  • Tourism is vulnerable to shock in the economy e.g. floods, hurricanes, virus pandemics
  • Increases environmental pollution
  • It could paint a fake conception of the country
  • Increase in foreign currency and imports
  • It could lead to further income inequality
  • Profits are sent back to the company’s headquarters abroad

 

Microfinance 

Microfinance was introduced by Muhammad Yunus from the Grameen Bank of Bangladesh to empower those in poverty to start small business enterprises. He noticed that the poor were unable to get access to finance in order to start a small business and grow. They had no assets they could provide banks as a guarantee to minimise the risks of lending them credit.

He, therefore, provided banks with the guarantees required and provided small tiny loans (Microcredit) to help the poor engage in productive business activities to grow their small businesses such as selling lemonade or selling essential items door to door.

The main clients of microfinance were women who were self-employed and household-based entrepreneurs in small rural areas. Examples of business include small shopkeepers, street vendors, door to door sales.

Criticisms of Microfinance

  • Collection and accounting methods have been questionable
  • Interest charged on microfinance can be high
  • Microfinance could lead to other methods of finance provided by the government to decrease e.g. aid or development assistance

 

Ted Talks – Muhammad Yunus – Grameen Bank of Bangladesh

https://www.youtube.com/watch?v=6UCuWxWiMaQ

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