4.3.3

• trade liberation - reduction or removal of barriers to international trade
• removing trade barriers means that domestic industries are forced to become as efficient as world producers - resources are allocated to their best use where the country has a comparative advantage
• trade liberation - domestic firms forced to become efficient - encourages competition and innovation - lower prices for consumers
• firm usually partake in FDI because production costs are lower in developing countries - allows them to access a new market
• FDI creates jobs and creates a multiplier effect - labour productivity increases and wages are higher
• FDI involves the transfer of knowledge from one country to another - brings in production and staff training - benefits that country on a whole
• foreign investors usually repatriate their profits (send it home) - the developing country will be exploited as the foreign investor would offer lower wages and poorer conditions than in a developed country
• market oriented strategies influencing growth:

  • trade liberalisation
  • promoting FDIs
  • removal of government subsidies
  • floating exchange rate systems
  • microfinance schemes
  • privatisation
• producers can become over reliant on subsidies and become inefficient
• removal of subsidies minimises poverty and maintains a good standard of living
• removing or reducing government subsidies leads to a more efficient allocation of resources in the economy
• subsidies represent a large amount of government spending - often leading to opportunity costs and high debts
• removing subsidies reduces market distortions - encourages innovation - improves fiscal sustainability
• floating exchange rate system is where the value of currency is determined by the supply and demand of the currency in the foreign exchange market
• if demand for a currency increases - its value appreciates
• if supply for a currency increases - its value deappreciates
• demand for a currency increases due to high exports
• supply of a currency increases due to more imports
• using a floating exchange rate system means that the currency can be very volatile - difficult to predict and make decisions - impacts economic growth
• microfinance - financial services provided to small firms or individuals in low income, developing countries
• microfinance schemes aim to give poorer households a permanent access to a range of financial services
• microfinance schemes tend to target groups who would be less likely to receive loans from the bank
• advantages of microfinance:

  • encourages entrepreneurship
  • gender equality
  • improves living standards
• limitations of microfinance:

  • high interest rates from Microfinance Instituitons (MFIs)
  • repayments
  • not always effective at reducing poverty
• privatisation is the process of transferring ownership of a business from the public sector to the private sector
• selling of a firm, especially if it making loss will improve government finances and reduce levels of debt
• privatisation can end the corruption when owned by the state - makes it more competitive and efficient if its owned by private sector
• advantages of privatisation:

  • improved efficiency
  • increased competition
  • reduced government borrowing
  • less political interference
• limitations of privatisation:

  • monopoly problems
  • rules and regulations
  • excessive profit motive
• EUSFTA - EU/Singapore free trade agreement in a signed treaty
• human capital - the skills, knowledge and health of individuals which makes them productive in the economy
• development of human capital means investing in education, training and healthcare to increase the productivity and employability of the workforce
• improving human capital is a key supply side policy - promotes economic growth - reduces inequality - enhances productive capacity
• limitations of developing human capital:

  • time lags
  • opportunity cost
• protectionism - policies that restrict international trade to protect domestic firms from foreign competition
• methods of protectionism:

  • tariffs
  • subsidies
  • quotas
• protectionism allows domestic firms to grow by keeping foreign goods out
• firms can use a policy of import substitution - deliberately attempt to replace imported goods with domestically produced goods
• advantage of protectionism:

  • infant industry protection
  • protection of jobs and domestic employment
  • improvement in the current account
  • prevention of dumping
• limitations of protectionism:

  • higher prices so lower consumer welfare
  • trade wars
  • loss of comparative advantage
  • inflationary pressure