What Are the Different Types of Economic Development Strategy?
Categories of economic development strategy include monetary strategy, fiscal strategy, and trade or commercial strategy. Each strategy is generally used to address a prescribed group of economic problems or symptoms, but some strategies fall into more than one category. In general, the government uses the various types of economic development strategies to address undesirable economic conditions like a listless economy or excessive price inflation. Growing businesses can use some of these same strategies to address economic development problems within a business. These strategies can be implemented within the country with the government in question, or in countries abroad that need assistance with economic adjustment.
Control of the flow of money can influence an economy. Monetary strategy in economic development uses monetary policy to correct a malfunctioning system. Techniques used within this strategy include adjusting debt interest rates, currency exchange rates, and the price of gold.
An example of this type of strategy might include changing loan interest rates to affect the rate of inflation. Establishing currency control in a developing country is also a policy used for monetary economic development strategy. A government assisting a developing country might also put money into the country's economic system in an effort to get it working relatively autonomously.
Fiscal economic development strategy uses a reallocation of government resources to positively affect a developing or ailing economy. Changes in this type of strategy can influence the tax levels paid by people and businesses and the funding and existence of government facilities and programs. An example of this type of economic development strategy might be reducing military spending to free up enough resources to better fund the educational system or adjusting taxes in an effort to narrow income disparities. Another example might include closing tax loopholes used by citizens who are underpaying their taxes.
Trade or commercial development strategies make changes to the way a country deals with other countries, mainly in a financial sense. This can include increasing or reducing aid to countries in need of economic assistance or changing policies, costs, and rules relating to international trade. Techniques used in this type of economic development strategy include limiting import amounts or setting tariffs to raise the cost of importing certain products and applying subsidies to promote the trading of desirable items. An extreme trade strategy might include an embargo, which is a policy that essentially cuts off trade with a certain country or governmental entity.
@serenesurface-- It's true that governments use these strategies when the economy isn't doing so well. Although the immediate results are good as you described, the long term effects of these strategies are usually negative. In the long-term, the extra money in the market will cause inflation to rise. Eventually this will result in increase in prices and people's spending power will decrease once again. Although it's tempting to use these strategies in an hour of need, policy makers must think about the long term consequences.
Economists much prefer that policy makers take decisions that will result in long-term economic growth and development even if those results will not be seen for some time. Investing in technology and innovation and attracting investors through unique products for example, are good ways to develop and improve the economy for the long term.
@discographer-- When interest rates fall and when money is printed, there is a great money supply in the market. This means that people have more money to spend and this stimulates the economy and encourages growth. Lower interest rates also mean that people will want to take loans for things like houses and invest more. This has a good effect on the economy too, stimulating growth. That's why these are popular development strategies for governments if the economy seems to be stagnant.
Can anyone talk a little bit about reducing interest rates and printing money as development strategies? I don't really understand how this works and how it benefits the economy.
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