Podcast
Questions and Answers
Which of the following practices was NOT mentioned as an inducement for private investment expansion?
Which of the following practices was NOT mentioned as an inducement for private investment expansion?
- Tariff protection
- Cheap loans
- Government grants (correct)
- Tax holidays
What was one reason the Pearson Commission Report found a weak correlation between aid and growth performance?
What was one reason the Pearson Commission Report found a weak correlation between aid and growth performance?
- High tariffs on imports
- Insufficient foreign exchange earnings
- Distortions in public-sector investment projects (correct)
- Excess capacity in the manufacturing sector
What is a consequence of import substitution policies in developing countries?
What is a consequence of import substitution policies in developing countries?
- Development of internationally competitive industries
- Reduction in manufactured goods imports
- Increased reliance on primary commodities
- Creation of excess capacity in manufacturing (correct)
What was the primary aim of the import substitution policy adopted by developing countries?
What was the primary aim of the import substitution policy adopted by developing countries?
What issue did developing countries face in the 1950s that influenced their economic policies?
What issue did developing countries face in the 1950s that influenced their economic policies?
Why did some industries in developing countries struggle to become internationally competitive after being protected?
Why did some industries in developing countries struggle to become internationally competitive after being protected?
Which economic concept describes the policy aimed at promoting local industries by limiting imports?
Which economic concept describes the policy aimed at promoting local industries by limiting imports?
What form of economic policy did developing countries generally implement to address their trade deficits?
What form of economic policy did developing countries generally implement to address their trade deficits?
What was a consequence of the extensive controls over private-sector activity?
What was a consequence of the extensive controls over private-sector activity?
What was required before factories could be expanded?
What was required before factories could be expanded?
Which practice resulted from political pressures on public-sector enterprises?
Which practice resulted from political pressures on public-sector enterprises?
What did the experience by the end of the 1950s reveal about developing countries?
What did the experience by the end of the 1950s reveal about developing countries?
What was a common view regarding the price mechanism in developing countries?
What was a common view regarding the price mechanism in developing countries?
What was one of the regulatory measures imposed on private-sector activity?
What was one of the regulatory measures imposed on private-sector activity?
How did the perception of foreign-exchange shortage influence economic views?
How did the perception of foreign-exchange shortage influence economic views?
What was a noticeable trend among farmers in developing countries according to the prevailing beliefs?
What was a noticeable trend among farmers in developing countries according to the prevailing beliefs?
What trend is indicated regarding the economic conditions of the 1970s?
What trend is indicated regarding the economic conditions of the 1970s?
Which of the following is a challenge faced by developing countries today?
Which of the following is a challenge faced by developing countries today?
What factor is contributing to the difficult economic prospects of developing countries?
What factor is contributing to the difficult economic prospects of developing countries?
What aspect contributed significantly to the spread of modern economic development?
What aspect contributed significantly to the spread of modern economic development?
What was the percentage of the world's population belonging to developed countries by the early 1970s?
What was the percentage of the world's population belonging to developed countries by the early 1970s?
Which of the following regions is mentioned as still needing to develop?
Which of the following regions is mentioned as still needing to develop?
Which policy is suggested for countries needing to restore creditworthiness?
Which policy is suggested for countries needing to restore creditworthiness?
Which country was not part of the early circle of developed nations in the late 19th century?
Which country was not part of the early circle of developed nations in the late 19th century?
What is the primary characteristic of the economic growth stage known as the 'take-off' society?
What is the primary characteristic of the economic growth stage known as the 'take-off' society?
According to Colin Clark, economic development progresses through successive domination of which production sectors?
According to Colin Clark, economic development progresses through successive domination of which production sectors?
Which factors are often regarded as critical for economic growth according to various theories?
Which factors are often regarded as critical for economic growth according to various theories?
In the context of economic growth, what distinction is made between economic growth and economic development?
In the context of economic growth, what distinction is made between economic growth and economic development?
What notable change occurs in the labor force as economies transition through growth stages?
What notable change occurs in the labor force as economies transition through growth stages?
What is the significance of the urban population trend during economic growth?
What is the significance of the urban population trend during economic growth?
What aspect of investment shifts in importance as economies grow?
What aspect of investment shifts in importance as economies grow?
In Rostow's stages of growth, which stage directly follows the 'traditional society' stage?
In Rostow's stages of growth, which stage directly follows the 'traditional society' stage?
What does the term 'production of knowledge' encompass?
What does the term 'production of knowledge' encompass?
What effect do large research and development budgets have on firms?
What effect do large research and development budgets have on firms?
How does the size of the capital stock affect efficiency?
How does the size of the capital stock affect efficiency?
What is the concept of economies of scale?
What is the concept of economies of scale?
Which sector has seen a notable shift of resources towards high productivity sectors?
Which sector has seen a notable shift of resources towards high productivity sectors?
Why is the growth of capital stock measured with quality improvements important?
Why is the growth of capital stock measured with quality improvements important?
What is implied by a radical change in productive techniques resulting from market expansion?
What is implied by a radical change in productive techniques resulting from market expansion?
What does reallocating resources from low productivity sectors to high productivity sectors indicate?
What does reallocating resources from low productivity sectors to high productivity sectors indicate?
Flashcards are hidden until you start studying
Study Notes
Public-Sector Investment and Economic Growth
- Public-sector investment projects often face inefficiencies, evidenced by the Pearson Commission Report (1969) noting a weak correlation between aid received and growth performance.
- In underdeveloped countries, both foreign and domestic investment disproportionately expands the manufacturing sector rather than improving overall economic diversity.
- Investments are often directed towards domestic markets due to government incentives like tariff protection and tax holidays, leading to excess manufacturing capacity.
Import Substitution Policy
- In the 1950s, most developing nations relied on primary commodities for foreign-exchange earnings, adopting import substitution strategies to foster industrialization.
- These policies included high tariffs and import quotas, often targeting industries incapable of global competition, resulting in high-cost production.
- Private sector controls were extensive, with regulations like price controls, import licensing, and capacity licensing, which stifled efficiency and innovation among entrepreneurs.
Consequences of Government Intervention
- Political pressures in public-sector firms led to inflated employment and operational inefficiencies, creating a fiscal burden that hampered investment opportunities.
- The belief in market failure justified significant government intervention, but this often resulted in misallocation of resources and slowed economic growth.
Lessons from Development Experiences
- By the late 1950s, different developing countries exhibited varying levels of success in transitioning away from restrictive policy frameworks.
- There was a recognition that past growth patterns from the 1970s may not be reproducible, necessitating structural adjustments for growth and creditworthiness.
- Future foreign lending would focus more on evaluating the economic conditions of recipient countries.
Historical Context of Economic Development
- Economic development began in Great Britain during the late 18th century, expanding through technological innovations in transport and communications.
- By the early 1970s, developed countries constituted about 34% of the global population but held 87.5% of the world’s GNP, indicating a massive disparity in economic wealth.
- Current developing countries face challenges such as low per capita income and rapid population growth, making comparison to earlier developmental phases difficult.
Theories of Economic Development Stages
- Economic growth theories suggest stages through which economies progress—ranging from primary (agriculture) to secondary (manufacturing) to tertiary (services).
- W.W. Rostow’s theory outlines growth as a transition from traditional to transitional societies leading to accelerated development stages, ultimately reaching maturity.
- Entrepreneurship and investment are critical in facilitating movement between these stages, distinguishing economic growth from mere economic development.
Structural Shifts and Urbanization
- A notable aspect of economic growth is the significant decrease in the workforce engaged in agriculture, coinciding with urban population concentration in core cities and suburbs.
- Early public utility investments were crucial, but over time, manufacturing investments became more significant as economies progressed.
Knowledge Production and Technological Progress
- The role of knowledge production—including education and research—is integral to technological advancement and economic growth.
- Industries investing heavily in research and development tend to experience faster technological progress, supporting the idea that innovation is vital for growth.
- Improvements in capital efficiency and economies of scale also contribute significantly to overall productivity and growth trajectories.
Reallocation of Resources
- Economic growth is influenced by shifts in resources from low productivity sectors (like agriculture) to higher productivity sectors, which cannot be captured solely by measuring input growth.
- Such reallocations enhance overall output growth, underlining the importance of sectoral development in economic progress.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
