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 base
Copper production in Zambia â over-reliance on
primary products whose prices are determined
would help avoid
by world demand can cause problems for
developing countries
over-reliance on
these commodities
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Agricultural Development
⢠Property rights â who has
the right of ownership?
⢠Land reform â part of the
process but not forced (i.e.
Zimbabwe)
⢠International agreements â
abolition of price controls
and trade
liberalisation, buffer stock
schemes
⢠Productivity improvements
Finding ways of improving agricultural
production and productivity may be one route â investment in
to promoting economic development. capital, quality seed, etc.
Copyright: Kippoad, stock.xchng
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Free Market Strategies
⢠Opening up developing countriesâ
markets to competition
⢠Improvement of the price
mechanism â aim to improve
efficiency in the allocation
of resources and the use of capital
and human resources
⢠But:
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Problems of market failure
⢠Externalities:
â Pollution
â Environmental Degradation
⢠Public goods/merit goods â
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 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
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Structural Change
⢠Loans from IMF â in return:
â Remove import controls
â Make exchange rates fully convertible â
often means devaluation of the currency
â Privatisation programme
â Cutting of subsidies
â Deregulation of markets
â Balancing national budgets
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Structural Change
⢠Problems:
â Prices tend to rise as subsidies
removed and currency devalues
â Cuts in government spending and rise
in taxes hits the most vulnerable
â Deflationary policies tend to cause
unemployment
â Social unrest can be common
â Living standards fall
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Harrod-Domar Model:
⢠2 sources of economic growth:
â Savings
â Investment to lower
the capital/output ratio
⢠Change in National Income (ΠY )=
Savings ratio(s)/capital output
ratio (k)
⢠ΠY = s/k
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