Edexcel Economics Unit 4: 20th June 2012

Prebish-Singer Hypothesis.
anyone care to explain......what, when, why???

Retaliation from other countries.
Revenue for the government (in the case of tariffs).
X-inefficiency as firms don't face competition from international competitors.

Hard to remove barriers once they are in place,
correct BOP deficit
stable employment
increase tax revenue-> whatever they do with the revenue

Isn't it the effect on the "global economy" so retaliation, BOP and tax revenue wouldn't really apply?

How do you evaluate the factors that determine competitiveness?
e.g price, unit costs, tax rates, productivity, technology, inflation

Isn't it the effect on the "global economy" so retaliation, BOP and tax revenue wouldn't really apply?

please quote me when you do

http://flashcarddb.com/cardset/77929-edexcel-a2-economics-unit-4-flashcards

that stuff is at the top of these cards

What exactly do you need to do when a question refers to the 'effects on the global economy'?

oh wow that site looks amazing, thanks a lot.

What does the Prebisch-Singer hypothesis state?


That countries that export commodities would be able to import less and less for a given level of exports. Terms of trade for primary commodity exporters had a tendency to decline due to manufactured good's greater income elasticity of demand, making their prices rise more rapidly relative to primary product prices.

Strategies to promote growth and development

As promised

Aid

Advantages
• Reduces absolute poverty
• Injections into the savings gap
• Improves infrastructure
• Benefits globalisation
• Reduction in world inequality
• Improvements in aid

Disadvantages
• Dependency culture
• No evidence it works
• May go to corrupt governments
• Left wing view – Economic imperialism
• Right wing view – Distorts market forces
• Payments of interest

Debt Cancellation

Advantages
• More foreign currency
• Released money used on growth and development
• Reduces absolute poverty and injection savings gap

Disadvantages
• Time lags
• Governments may not pursue correct macroeconomic activities with released money
• Shareholders have to pay the burden
• Not has effective as reducing protectionism

Investment

Human Capital – Education and healthcare (primary education yields best results)
Agriculture – Use of countries comparative advantage

Lewis Model
• Move from agriculture to manufacturing
• Surplus of labour in agricultural
• Marginal productivity is 0 therefore no opportunity costs
• Investment is synonymous with manufacturing
• However there is evidence to suggest Lewis is wrong
• Also profits made may not be invested locally
• Reinvestment could be made in physical capital pushing people out of jobs

Tourism

Advantages
• Creates jobs
• Increases tax
• Preserves heritage
• Attracts FDI

Disadvantages
• Jobs are low skilled and seasonal
• Environmental impact
• Price inelastic
• Subject to changes in fashion
• High external costs

Inward looking strategies

• Diversify in a strong way
• Protects domestic growth
• Experiences economies of scale

Outward looking strategies

• Free trade
• Deregulation of financial markets
• Promotion of FDI

Interventionist approaches

After WWII the UK received many interventionist strategies by the government
• Import substitution
• Nationalisation
• Selling products to state controlled boards
• Price subsidies
• Over valued exchange rates

Criticisms
• Government failure
• No profit motives
• Lack of competition
• Corruption
• Increase in fiscal deficits
• Increase in BOP deficits
• Low rate of economic growth

Free market approaches

Public choice theory – Assumption that governments only use their power for self-interest
Free market analysis – Assumes the forces of supply and demand are efficient and is the best way to allocated resources

Characteristics
• Deregulation
• Increase in competition
• Supply side policies
• Market liberalisation

Criticisms
• Asymmetric information
• Markets not efficient
• Externalities
• Poor decisions
• Need for governments to invest in a market friendly way

Microfinance

A means of providing extremely poor families with small loans to help then engage in productive activities
• Insists on repayments
• Interest is charge to cover costs
• Focus’ and women and small businesses
• Questionable accountancy practices
• Over emphasis on this could result in a reduction of other assistance

Fair Trade

Advantages
• Producers receive higher price
• Extra money can be spent of human capital and infrastructure
• Smaller price fluctuations
• Better quality

Disadvantages
• Lack on incentive
• Inefficient – Only 10 percent of premium goes to producers
• Only based on normative views
• Dependency trap