many developing countries too reliant on primary commodities subject to wide price fluctuations and...
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Many developing countries too reliant on primary commodities
Subject to wide price fluctuations and instability
Expansion of industrial base would help avoid over-reliance on these commodities
Copper production in Zambia – over-reliance on primary products whose prices are determined by world demand can cause problems for developing countries
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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 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
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Opening up developing countries’ markets to competition
Improvement of the price mechanism – aim to improve efficiency in the allocationof resources and the use of capital and human resources
But:
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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
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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
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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
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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
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Reducing the levels of protection Encouraging investment flows Publicising the country's trade and goods Economies of scale Competition stimulates efficiency
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Erect protective barriers Subsidise domestic producers Import substitution
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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