How Specialising In a Copper Will Allow Sustainable Development

2 c) Comment on the extent to which specialising in a commodity such as copper will allow sustainable development. Done well on the whale. 8/10. Key issues came with focusing on ONLY specialisation (economies of scale etc) as opposed to specialisation in a commodity. Evaluation tended to be good on this: Prebisch-Singer and Dutch Disease. The Advantages could at times be a little more tangential. Again this needed a definition of sustainable development. DISADVANTAGES a) The obvious is the Prebisch-Singer. Even if it doesn't apply to Zambia, still explain it. Draw a diagram. Link to terms of Trade and development. (Recall primary goods income inelastic, manufactured income elastic-> therefore when incomes rise, price of manufactured increase more than primary-> worsening terms of trade over time-> same exports buy less imports-> fall in development) b) Dutch disease. Primary product will lead to higher exports and appreciation of currency. Appreciation prevents diversification into price elastic infant industries. May leave dependent on primary products (perhaps these will deplete). Will leave stuck in Rostow's pre-takeoff model. Could worsen unemployment if primary product is capital intensive (eg. oil/gas) and manufactured in infant industries is labour intensive. A few good points for ADVANTAGES a) If the commodity is the good that the country has a Comparative Advantage in, it will be beneficial to specialise in the good. (Remember the theory of CA says that you should specialise in goods you have a CA in). This will allow the economy to access more imports and will lead to a new enhanced trading possibility curve, outside the PPF. (DRAW THIS-WITH STRAIGHT PPF LINES). This will lead to increased productive potential. If the goods are needed capital etc this could aid development and allow the country to progress through the Rostow model towards the manufacturing stage and eventually get around the problem of PPD. b) Specialisation in the commodity may attract FDI. Eg. the economy econom may gear itself towards the production of the good; forming economic zones, lowering corporation tax revenue, allowing synergies of relevant companies around the good. This could attract FDI which brings advantages (e.g. AD and LRAS increasing, savings gao etc). c) Could evaluate the applicability of the Prebisch-Singer hypothesis (which would be your analysis). Le. some primary products are income elastic (e.g. copper or luxury fruit). In this case, rising incomes may lead to rising prices and therefore rising growth. This is because they are still price inelastic and so higher prices will lead to higher revenues. This could be used by the government (if gained via taxation) to spend on education/healthcare etc. E.g. figure 3.1 shows how Zambia's development was improved by their increased Terms of Trade over the period. A few common mistakes: a) 'FDI attracted by the commodity causes Dutch Disease, NOOO!!! The FDI may cause Dutch Disease, but remember that Dutch Disease is named after what happened when the Dutch discovered gas (a primary product). The disease happens when the rise in exports of the price inelastic product appreciate the currency, so leading to a fall in demand for price elastic other industries. In the case of the Netherlands this gas was capital intensive and so overall unemployment increased. The point is: YES FDI DOES CAUSE A TYPE OF DUTCH DISEASE, BUT THE CONCEPT PRIMARILY REVOLVES AND WAS NAMED AROUND THE EXPORTS OF PRIMARY PRODUCTS, IF YOU'RE WRITING A QUESTION ON PRIMARY PRODUCTS, TO ONLY SAY DD IS CAUSED BY FDI IS CRIMINAL b) Link explanations and evaluation BACK to SUSTAINABLE DEVELOPMENT. c) Evaluation must be focused on evaluating the Primary Product, and not CA or FDI If you missed the chance to mention the Prebisch-Singer and evaluate it, that's missing the obvious. A few nice points