ECON1157 - Economics of International Development: Model Application

This assignment delves into the economics of international development, focusing on the Harrod-Domar model and its implications for developing countries. It examines the required saving propensity to achieve targeted growth rates and explores alternative economic policies. The report analyzes the natural resource curse, its causes, and potential solutions, including efficient spending and privatization. Furthermore, it evaluates the balance of payments for developing countries, using Chile as a case study, and outlines steps to improve domestic policies and liberalization. The solution also discusses the impact of inflation, economic obstacles, and unfavorable balance of payments on national revenue and economic stability. Desklib offers this document as part of its collection of student-contributed assignments.

Economics of international
development

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
QUESTION 1...................................................................................................................................1
A Determining the required saving propensity to achieve the targeted growth rate..............1
B Determining the available alternatives for economic policies............................................1
C Analysing the Harrod Domar Model in terms with expected outcomes.............................2
QUESTION 2...................................................................................................................................3
Natural resource Curse and its various ways on which it will effectively materialise...........3
Causes of natural resources curse...........................................................................................3
QUESTION 3...................................................................................................................................4
A Evaluating the prototype balance of payments for developing countries...........................4
B Determining all sequence of steps for balance of payment which affect developing domestic
policies and Liberalization.....................................................................................................5
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................7

INTRODUCTION
To develop the business operations in an international market, there is a need to make
suitable analysis over the trade and finance, governmental policies and procedures in addition to
the economical level of such markets. Therefore, in the present report, there will be discussion
based on the operational ability of business in terms of meeting the financial requirements as
well as developing the industries at the international level. The report will evaluate development
model of Harrod Domar and ways to make appropriate development in the firm. There will be
analysis over the various steps in determining the balance of payment as well as bringing reforms
in economic development and promotion of liberalization.
QUESTION 1
A Determining the required saving propensity to achieve the targeted growth rate
Saving propensity:
This method is helpful in determining the increment in the incomer and the amount of
spending in consumption (Hochstein, 2017). Therefore, it is the proportional of additional
currency in context with household income. Therefore, it can be measured as:
MPS= Changes in savings/ Changes in income
In terms of determining the level of output the government is expecting 8% increment in
the economy and the coefficient of capital is 5. Therefore, it can be said that the expected output
will be=
5+8%= 5.4
thus, as to reach that level of output than there will be need to capital as:
5*5.4= 27 million of capital investment.
B Determining the available alternatives for economic policies
There has been various alternative economic policies which in turn helpful for the
country in terms of having the adequate national economic development such as Solow model,
Rostow model as well as various Foreign aid theories (Tarasova and Tarasov, 2016).
Solow Model: This model is helpful in determining the economic growth which usually
operates over three basic sources such as Knowledge, capital and GDP labour.
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Rostow Model: This economic growth model helps or operates in five stages such as
Traditional society, Preconditions for take-offs, Drive to maturity, take off and age of high
consumption in mass.
C Analysing the Harrod Domar Model in terms with expected outcomes
The model was developed to analyse the savings for the investment purposes which in
turn, depends over the rate of growth and the level of savings from such productive investments.
Therefore, the model was developed in context with facilitating satisfactory trade cycle in the
economic environment. It aims at having the suitable trade practices in the economic
environment and having the better return over such investment (Boianovsky, 2017). These
techniques are mainly useful for the developing nations in terms with determining the better
economic development. This method abundant the supply of laborious efforts which become the
big issue in the economic development (The Harrod-Domar Economic Growth Model (With
Assumptions), 2017). There has been lack of physical capital which in turn affect the economic
development which provokes the use of such investments in manufacturing the products or
having the higher earnings. Therefore, in this context people started focussing over income
generation in spite of economic development. Hence, with the help of such method which
indicates that the economic growth will require strong decision making, pre-planned policies,
technological development as well as lower capital output ratios. However, in relation with the
economic stability in the developed nation, the model has various criticism over its operations
and techniques such as:
 It is very complex in terms of identifying and stimulate the desired level of savings from
the domestic region (Agosin, 2017).
 It will be reason behind provoking the debt repayment obstacles which are due to saving
gap and borrowing from the overseas.
 There has been increment in the capital to output ratio due to diminishing marginal ratio
as well as less productive outputs (Economic growth and development Advantages and
disadvantages, 2015).
 There amount which were invested is just focusing over the single level of operations or
outputs such as Human resource development, supply side approach etc.
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 This model do not support of maintain the full employment in the economy as it assumes
that the investors are only attracted to the outcomes or results which is the not sufficient
for the economic growth and development (Auerbach, 2016).
QUESTION 2
Natural resource Curse and its various ways on which it will effectively materialise
In accordance with these terms which describes that, the countries who have the bunch of
natural resources such as fuel, raw material and various metals will have the low economic
growth and development in the country (Tietenberg and Lewis, 2016). Therefore, it has become
the curse over nation as it provokes poverty, inequality and deprivation in the economy. It will be
due to less revenue generation and inadequate earning in the economic environment that cause
such impacts over revenue generation. There has been various debates and criticism over it
which describes that most of the nations which are the abundance of natural sources tends to
have less economic growth. However, there will be various ways in which the country could
become able to overcome such obstacles as:
 There must be proper management over spendings or borrowings in context with trading
the natural resources (Williams and Le Billon, eds., 2017).
 There must be better price mechanism over such resources like fuel, petroleum products
etc.
 There are requirements of bring privatisation as the various natural plants must be
operated by the privet owners which in turn affect better polices, outcomes, revenue
retention as well as increment in the net income.
Causes of natural resources curse
There has been various reasons and causes which has provoked the natural resource curse
such as internal conflicts, democracy, higher rents, the imbalance balance of payment, balance of
trade and various external factors.
Democracy:
In terms of the nations which normally deals in facilitating the oil products has the
maximum governmental influences. These can affect the internal economy of the country such as
taxation, revenue gathering and lower rates over the products. Therefore, it can e said that if the
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country has bunched of natural resources so it will be affected by the internal competitions
(Dhillon and et.al., 2016). Therefore, in order yo retain the large amount of money there sellers
and buyer has the large bargaining power and they will go for the lower rates and the high
profitably. It can be said that such factors affect the revenue gathering as well as increment in the
compensation.
Conflicts:
To retain the maximum revenue from such resources there is always been a competitive
environment in the economy which turn invites various conflicts or obstacles such as financial,
income gathering, attracting buyers, rates over products (Frynas, Wood and Hinks, 2017).
Therefore, it will be huge obstacle for the country in terms of having the inadequate funds as
well as increasing financial problems.
Inefficient spendings or borrowings:
Government generate revenue through implicating the taxes and various duty charges
over natural resource manufacturing units. It is due to retain the large amount of profits form
such sources as well as increment in the revenue (Su, Wei and Tao, 2016). Therefore, it
proportionately provokes them to borrow as well as spend more over such natural resources.
Thus, it terms with such expenses they will not become able to over come such financial
obstacles as well as the country have to suffer from high debts.
Dutch disease:
In accordance with the effects of inflation over the production and revenue generation of
such nations which provoke the capital or labour to make switch to non resource location to the
resource area (The Resource Curse, 2017). It will be better in terms of attaining the higher profits
which is denoted as the Dutch disease.
QUESTION 3
A Evaluating the prototype balance of payments for developing countries
In terms with analysing the Chile table which reflects the macroeconomic variable for the
period of 1970s to 1980s. Therefore, there has been huge variation in the revenue retention of
such country over the period which in turn due to in appropriate balance of payments. However,
in terms of GDP rate of this nation in the year 1977 was 8.7 in 1987 it reduced to 7.5, in 1979 it
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was again risen as 8.7 while in 1980 it reduced to 8.1. Thus, it indicates that the country is facing
the huge variations in GDP rates. After 1980 in 1981 it has the continues downfall for 4.7, in
1982 it is -10.3 well this is the largest down fall as it reflect the negative balance of GDP rates.
While in 1983 it was -3.8 so it can be said that there as been imbalanced trade practices in nation
as well as various industries are not able to retain the amount of earning as it was expected.
B Determining all sequence of steps for balance of payment which affect developing domestic
policies and Liberalization
There will be various steps which in turn facilitating the balance of payment to the
domestic policies and liberalisation such as:
Step 1: The country must obtain the easy loans and grants from the foreign country as to
make the investments projects. This will be helpful in terms of generating the adequate amount
of capital funds which will bring ability to country to overcome with debts and liabilities.
Step 2: There is need to analyse the real Exchange rates between nations. It will be
helpful for development of fair trade practices among countries in the form of determine a fixed
exchange rates. Therefore, with the help of such analysis the parties which are making agreement
will be beneficial as well as acquire the goods and services on adequate rates.
Step 3: determine the efficiency of the investment to meet the operations of business.
There is need to make adequate analysis over the adequacy of such investments. Therefore, it
will help in measuring the profitability and the return through such investments.
Step 4: Influence of central bank which tries to maintaining the exchange rate. The
motive of such banks in maiataing the monetary system in country as well as implementing
various duties and rates over each transactions. Thus, there is need to have influences of such
governance.
Step 5: The foreign reserves must be close to Zero. This can be said that, there is need to
maintain the budgets at zero base because this will help in having flexibility of such techniques.
Therefore, the costs will be made as per the requirements.
CONCLUSION
To analyse the above report it has been concluded that, various countries are having their
own price mechanism as well as policies on which they make operational activities. There will
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be influences of various factors such as inflation, obstacle sin the economic conditions,
unfavourable balance of payments as well as various inappropriate changes that damages
national revenue or economic stability. Further, the report has mentioned all the factors which
are need to be analysed or managed by countries.
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REFERENCES
Books and Journals
Agosin, M., 2017. A Model of Diversification and Growth in Developing Economies (No.
wp455).
Auerbach, P., 2016. Education and Economic Growth: The Statistical and Historical Record. In
Socialist Optimism (pp. 161-190). Palgrave Macmillan UK.
Boianovsky, M., 2017. Modeling economic growth: Domar on moving equilibrium. History of
Political Economy. 49(3). pp.405-436.
Dhillon, A. and et.al., 2016. The Natural Resource Curse Revisited: Theory and Evidence from
India (No. 268). Competitive Advantage in the Global Economy (CAGE).
Frynas, J. G., Wood, G. and Hinks, T., 2017. The resource curse without natural resources:
Expectations of resource booms and their impact. African Affairs. 116(463). pp.233-260.
Hochstein, A., 2017. The Harrod-Domar Model in a Keynesian Framework. International
Advances in Economic Research. 23(3). pp.349-351.
Su, F., Wei, G. and Tao, R., 2016. China and natural resource curse in developing countries:
empirical evidence from a cross‐country study. China & World Economy. 24(1). pp.18-40.
Tarasova, V. V. and Tarasov, V. E., 2016. Memory effects in hereditary model Harrod-Domar.
Problemy Sovremennoj Nauki i Obrazovanija [Problems of Modern Science and
Education], (32), p.74.
Tietenberg, T. H. and Lewis, L., 2016. Environmental and natural resource economics.
Routledge.
Williams, A. and Le Billon, P. eds., 2017. Corruption, Natural Resources and Development:
From Resource Curse to Political Ecology. Edward Elgar Publishing.
Online
The Harrod-Domar Economic Growth Model (With Assumptions). 2017. [Online]. Available
through :<http://www.economicsdiscussion.net/harrod-domar-model/the-harrod-domar-
economic-growth-model-with-assumptions/14789>.
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Economic growth and development Advantages and disadvantages. 2015. [Online]. Available
through :<https://www.ukessays.com/essays/economics/economic-growth-and-
development-advantages-and-disadvantages-economics-essay.php>.
The Resource Curse. 2017. [Online]. Available through
:<https://resourcegovernance.org/sites/default/files/nrgi_Resource-Curse.pdf>.
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