Correct Sectoral Imbalance Problems occur when growth is uneven between agriculture (primary), industry (secondary), & services (tertiary) If any are.

Correct Sectoral Imbalance

Problems occur when growth is uneven between agriculture (primary), industry (secondary), & services (tertiary)

If any are neglected, others can be pulled down

High dependency on one export can leave a country vulnerable (eg. tourism)

The Problems of Agriculture Low price elasticity of demand & supply –

(products supplied tend to be a small percentage of total production cost)

Low income elasticity of demand – as world income rises, agriculture is barely effected (primary products traded in perfect comp. but manufactured goods in monopolistic comp.)

Low productivity – low levels of mechanisation & degradation of land quality may even ↓ productivity

The Problems of Agriculture Cont’ Primary products are vulnerable to

technological replacements (eg. nylon replacing cotton, etc.)

Uneven tariffs/subsidies – tariffs tend to be 5x higher than on manufactured goods (subsidies cost developed countries £350B; aid to developing countries:£60B)

Declining terms of trade – export prices falling but import prices (highly skilled manufactured products) rising – keeps farmers in poverty trap & indebtedness

Policies to Develop AgricultureMust address market failure & capital

problems

Property rights extension

Disease control

Technological change

Help in provision of financial infrastructure

Abolition of marketing boards that fix prices below world prices

Raising human capital –education of women

Land improvement schemes

Industrialisation: Moving Away from Agriculture

Developing countries have adv. of lower wage costs

Move into more flexible markets of manufacturing (esp. clothing)

BUT:

Migration to cities may leave agriculture under-resourced

Value added is mostly at packaging & distribution stages – small margins at production stage

Tourism: A Service Based Strategy Attractive due to high YED; benefit from

rising world incomes

Tourist spending has multiplier effects – income passed on & creates tax revenue

Can attract foreign investment (hotels, etc)

Local infrastructure catering to tourists assists local businesses (roads, trains, etc)

Encourages the tertiary sector – may correct sectoral imbalance

Tourism: Problems Tourists demand imports goods (food, luxury gds,

etc) creating leakage – net gain can be much less than the total cost of the holiday

International tour operators may get all the windfalls

May threaten local culture & values

Negative externalities – litter, environmental erosion, etc)

Diversion of labour may lead to shortages elsewhere

Market may be very volatile (subject to fashions, political conditions, natural disasters, etc)

Inward Looking Policies High levels of protectionism (tariffs, quota’s

etc.)

Subsidies for domestic producers (encourage import substitution)

Prohibition of multinational activities

Encouragement of locally acquired skills

Inward Looking Policies: Benefits To encourage independency

To preserve individual culture

To nurture domestic industry while growing to compete on international market

Inward Looking Policies: Problems Domestic inefficiency can occur without int’l

competition Protectionism may lead to retaliation of

trading partners New industries cannot grow due to

requirement of imported inputs Tend to favour industry at expense of

agriculture (migration to cities)

Outward Looking Policies

Abolition of tariffs, quotas, etc

Elimination of subsidies

Encouragement of int’l capital flows & MNC’s

Allowing int’l labour mobility

Export promotion policies (eg. advertising, trade fairs, etc.)

Outward Looking Policies: Benefits

Evidence suggests that countries that are open and outward looking have higher growth:

Welfare gains from trade & comp. adv.

Benefits from int’l comp – both incentive & knowledge

Economies of scale from increased mkt size

Benefit from other countries’ growth

Outward Looking Policies: Problems

Short-term - loss of local jobs & businesses

May lose local culture & tradition

May lose special local skills / products

May lose biodiversity / environment

May adopt policies which suit larger wealthier nations rather than what is best for the individual nation

Could lead to civil unrest