Policies for Developing Economies

Finishing ‘Developing Economies’ with my A2 class and doing some last minute revision before they have an assessment on it. There is usually an essay question on this topic in the A2 CIE Paper 4. Below is a useful mindmap which has been sourced from Susan Grant’s CIE Revision Guide outlining Economic Development.

Policies for Developing Economies.

The solution is shown in the figure below, where foreign help, in the form of official development assistance (ODA), helps to jump-start the process of capital accumulation, economic growth, and rising household incomes. The foreign aid feeds into three channels. A little bit goes directly to households, mainly for humanitarian emergencies such as food aid in the midst of a drought. Much more goes directly to the budget to finance public investments, and some is also directed toward private businesses (for example, farmers) through microfinance programs and other schemes in which external assistance directly finances private small businesses and farm improvements. If the foreign assistance is substantial enough, and lasts long enough, the capital stock rises sufficiently to lift households above subsistence. At that point, the poverty trap is broken, and the figure comes into its own. Growth becomes self-sustaining through household savings and public investments supported by taxation of households. In this sense, foreign assistance is not a welfare handout, but is actually an investment that breaks the poverty trap once and for all. Adapted from Jeff Sachs – The End of Poverty.

The Role of ODA in Breaking the Poverty Trap

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