The methods in which many developed nations took to be where they are today have been studied and noted over the past centuries. However, to what extent can we assume that a successful method may work in developing countries today? What kind of strategies exist and what countries utilize them? Let’s see!
1) HARROD- DOMAR GROWTH MODEL
In the Harrod-Domar growth model, growth depends on level of saving and productivity of investment. With an increase in investment ——> increased savings ———–> generate advances in technologies.
2) STRUCTURAL CHANGE/DUAL SECTOR MONITOR.
Through economic development ——-> incomes rise. This will lead to increased demand for agricultural products, but due to low income elasticity of demand. On the other hand the demand for manufactured goods will have somewhat higher income elasticity of demand. So a structural change will lead to changes in demand for particular types of products: primary/secondary/tertiary.
3) TYPES OF AID
Aid can be given in several forms to excite the economy. It can be given through bilateral (one nation—->another) or multilateral loans (loan through agency. IMF ——-> developing country). It can be given in the form of humanitarian aid meaning a country/organization intervenes by sending people/soldiers or even food aid.
4) EXPORT-LED GROWTH – OUTWARD ORIENTED STRATEGIES
By increasing exports, a nation will be able to attract more investments and further more achieve economies of scale, less unemployment, more equal income distribution and increased competition.
5) IMPORT SUBSTITUTION – INWARD ORIENTED GROWTH – PROTECTIONISM
Countries will work to substitute for imports by producing their own and following a protectionist economic policy. By doing a country will let go of it’s foreign exchange that which it holds. Protectionism can lead to trade disputes and furthermore trade wars if countries only focus on their own manufacturing sectors.
6) COMMERCIAL LOANS
Firms will usually get loans from banks and other financial organisations. Thereby it increases funds and can potentially increase economic growth. Issues of debt however as well as dependence on loans can stunt economic development in a country as it forces firms to rely solely on this method of increasing economic growth.
7) FAIR TRADE ORGANIZATIONS
Fair trade organisations have only been around for some time now. But what they do is they assure farmer producers a ‘fair’ price for their products. The price covers their production costs thereby this allows a surplus that they can reinvest in business and that can guarantee a somewhat ‘reasonable’ standard of living.
8) MICRO-CREDIT SCHEMES
These are schemes that lend small amounts to the poor in a poverty-filled developing country. One argument is that these are an excellent way to stimulate economic growth and development, however it has been argued that it might not be enough to cause great changes.
9) FOREIGN DIRECT INVESTMENT
Multinational corporations that can have productive capacity in other nations. The profit and income flows that they create are part of the foreign capital out flows of countries. As countries adopt more open, outward-oriented/export-led approaches to economic growth and development. MNCs becomes more important as countries become more outward-oriented.
10) SUSTAINABLE DEVELOPMENT
Development which wont have such a bad effect on future generations and which involves measures to limit the use of non-renewable resources.
1) Harrod-Domar Model in Rwanda
Rwandans are not strong savers because of the low income they receive and more investment is needed in the country in order to employ and benefit from the Harrod-Domar Model. Once Rwandans receive higher incomes then perhaps it will be easier to see growth.
2) Structural Change/ Dual Sector Model
Rwanda is still at the beginning stage with coffee as one of its main exports. Manufacturing has not yet arrived at the Rwandan industries. Therefore a structural change will not take place soon.
3) Rwanda receives many loans from banks as well as particular countries as well. Although some of these loans have not been able to uplift Rwanda from its poverty. Some are small loans for poverty-struck individuals and some are for the government spending. Rwanda also receives food aid from organizations.
4) Export-led Growth
Rwanda’s main export partners: China 9.1%, Thailand 8.6%, Germany 7.3%, US 4.5%, Belgium 4.1% (2008). Its main exports are coffee, tea, and tin ore. Exports need to further help Rwanda’s economy, and Rwanda can do so only if there was more investment.
5) Import-led substitution
Rwanda’s main export partners are: Kenya 15.2%, Uganda 13.3%, China 6.3%, Belgium 5.3%, Germany 4.5% (2008) and it imports mainly foodstuffs, machinery and equipment, steel, petroleum products, cement and construction material.
6) Commercial Loans:
Rwanda receives commercial loans as well. Howevery some of these loans have placed Rwanda in great debt because of the interest rates and Rwanda’s dependence on them.
7) Fair Trade
Rwanda has received help from Fair Trade organizations. This has helped Rwanda’s coffee farmers and has benefitted the industry allowing them to grow their coffee export industry. Here is a link to a site for Rwanda’s coffers: http://www.paramountcoffee.com/brand/rwanda.php
8) Micro-credit schemes
Rwanda has been helped with micro-credit schemes. Women have been provided with these schemes.
9) Foreign Direct Investment
Rwanda has in the past few years received increasing investments.
10) Rwanda has only been involved in some efforts to curb pollution but it has not however done so to a great extent.
In conclusion, Rwanda has been strongly involved with aid, export-led growth, commercial loans, foreign direct investments, fair trade and micro-credit schemes to improve its current condition. Aid has been somewhat helpful but not enough to stimulate the economy. Fair trade has really helped Rwandan farmers and more strategies that way may pave the road for future developments in the economy. More foreign direct investment is needed because otherwise there will be no increase in productivity nor income. Rwanda overall needs to work on developing it’s industries through these methods. The best probably being the fair-trade scheme.