1The idea in one paragraph

A strategy is a deliberate attempt to cut one of the arrows in a poverty cycle, to move an economy inside its frontier back towards it, or to push the frontier itself outwards. There are a lot of strategies because there are a lot of barriers, and no strategy works everywhere. The whole of the examinable skill here is matching: naming the barrier that binds this economy, choosing the strategy that acts on it, tracing the mechanism from the policy to somebody's income or health or schooling, then saying honestly what could stop it working and what the answer depends on.

2A strategy is an answer to a barrier

Take the ten economic barriers and four political and social barriers from 4.9 and lay them beside the strategies the guide lists here. They line up almost item for item, because that is how the two subtopics were written.

A strategy is not a good thing to do. It is an answer to a named barrier, and it is judged against that barrier.

That sentence is the difference between a middling answer and a strong one. "Norvant should attract foreign direct investment" is a sentence with nothing behind it. "Norvant's binding barrier is a shortage of investable funds, because saving is near zero and capital has been leaving, so inward FDI brings capital without adding to the debt that is already absorbing a fifth of the budget" is the same strategy with a barrier, a mechanism and a reason attached.

Norvant and Tenara, the two invented economies from 4.9, run through these notes as well. Norvant is landlocked and sells one crop, the arun bean, in marek. Tenara is coastal, processes food, exports one mineral and uses the tenar. Every figure here is invented for teaching.

3What a strategy has to move, and which diagram to borrow

The guide gives this subtopic no diagrams of its own. It says instead that you draw from the diagrams used in the other sections. That is not a licence to draw nothing; it means the examiner expects the right borrowed diagram, drawn correctly.

Any strategy has to do one of three things, and you should say which one yours does.

• Raise actual growth: use the capacity that already exists but sits idle. A road that lets a warehouse fill and a factory run two shifts raises output without adding a single machine. On an AD–AS diagram this is aggregate demand rising along an upward-sloping short-run aggregate supply curve.
• Raise potential growth: add to the stock of physical capital, human capital, technology or usable natural resources, so the economy could produce more. This shifts long-run aggregate supply, or the production possibility curve, outwards.
• Change who gets it, or whether it lasts: redistribution changes the share, and sustainability decides whether next year's output is still there. Neither shows up as a bigger number for output, and both are development.

Figure 2 is the pair of diagrams you borrow most often. The table in section 17 says which diagram belongs to which strategy.

4Two families, and the three lines every strategy needs

The guide splits the strategies into market-based policies, which work by widening the space in which prices and competition operate, and interventionist policies, where the government supplies or redistributes directly. Most real programmes use both at once.

From here on, every strategy gets the same three lines, because that is what a part (b) is marked on.

• The case for. One mechanism, traced from the policy to output, income, health or schooling.
• The case against. One mechanism again, not a list of worries.
• What it depends on. The condition under which the case for wins. This is where the evaluation marks are.

5Trade strategies

Import substitution is a strategy of replacing imported manufactures with goods made at home, behind tariffs, quotas or subsidies. It is the infant industry argument from 4.3 turned into a development plan: protect a young industry while it learns, then expose it.

The case for. Figure 4 shows the mechanism. Behind the tariff the domestic price rises, domestic output grows from Qs₁ to Qs₂ and imports shrink. Jobs appear in a sector that did not exist, workers and managers learn a process, and foreign exchange that was spent on cloth stays at home. For an economy whose export earnings swing with one crop, a domestic market it can supply itself looks like insurance.

The case against. The protected firm faces no competitor, so it has no reason to cut costs, and the learning that was meant to be temporary never finishes. The domestic market may be too small to reach the scale at which the good is cheap. The saving in foreign exchange is often smaller than it looks, because the new factory imports its machinery and its inputs. And consumers pay the higher price, which takes proportionally most from households with least — an equity cost inside a growth policy.

What it depends on. Whether the protection has an end date and is enforced; whether the domestic market is large enough for scale; and whether the industry chosen has a reason to become competitive rather than a reason to lobby.

Export promotion is the opposite orientation: producing for world markets, supported by export subsidies, tax relief, export processing zones, cheap credit, a competitive exchange rate and the port and customs capacity to ship on time.

The case for. Figure 5 shows a subsidy moving Tenara's supply of processed beans to S₂, so at the world price exports rise from X₁ to X₂. The world market is far larger than the home market, so scale is reachable; a firm that must sell abroad is disciplined by competitors it cannot lobby against; and the earnings come in the foreign currency that debt service and imported machinery are paid in.

The case against. The strategy hands your growth to somebody else's spending: a recession in the buying countries arrives as a fall in your export revenue. Tariffs abroad can rise, particularly on processed goods. Subsidies of this kind are restricted under WTO rules, as 4.4 sets out. And if every exporter competes on cost, the pressure lands on wages and on environmental standards, which is growth bought at the expense of well-being and sustainability.

What it depends on. World demand, the trade rules the destination applies, whether the earnings are invested at home or repatriated, and whether small producers can meet the certification the buyer requires.

Economic integration is covered in full in 4.4. As a development strategy the argument is that a preferential trade agreement, a customs union or a common market gives a small economy a market larger than its own, a stronger position at a negotiation, and a reason for firms to invest at a scale a single country could not support. Against that, 4.4's trade diversion is a real cost, the gains inside a bloc are rarely shared evenly, and joining means giving up policy tools — a common external tariff is set jointly, and a monetary union takes the exchange rate and the interest rate out of your hands. What it depends on: whether your partners buy what you sell, and whether the adjustment costs fall on regions that can bear them.

6Diversification and social enterprise

Diversification means widening the range of goods and services an economy produces and sells, rather than depending on one crop or one mineral. It is the direct answer to 4.9's primary sector dependence.

The case for. Figure 6 draws ten invented years for both economies. Norvant and Tenara average close to the same export earnings, but only Tenara's can be budgeted against, borrowed against or taxed steadily. Diversification also moves production up the chain — cleaning, roasting, packing and branding at home rather than shipping the raw bean — and each step adds value and a different kind of job.

The case against. Somebody has to decide what to diversify into, and governments and banks pick wrongly as often as anyone. Building a second sector means paying for skills, power and transport before the revenue appears. Protecting the new sector while it grows brings back every limitation of import substitution.

What it depends on. Whether the new sector shares inputs with the old one, so the skills and the infrastructure are already partly there; and whether the support has a limit.

Social enterprise is a business that trades with a social or environmental objective as its primary purpose, and reinvests its surplus in that purpose rather than distributing it to owners. A farmers' cooperative that owns a processing plant, a community-owned mini-grid, a non-profit pharmacy chain.

The case for. Social enterprises operate where a commercial firm sees too little profit and the state has too little reach: a village with 200 customers, a crop grown by smallholders too small for a buyer to contract individually. Because the surplus stays inside, the gain is spread among members, which is an equity argument as well as an efficiency one.

The case against. They are usually small, and small means high unit costs. They cannot raise capital by selling shares, so they depend on grants, donations or member savings, and that funding is unreliable. Success against a social objective is hard to measure, which makes it hard to fund and hard to judge.

What it depends on. Whether the enterprise can reach a size at which it covers its costs, and whether it is treated as a complement to public provision rather than a reason to withdraw it.

7Market-based policies

All three share one logic: the constraint is the rules, and removing them lets prices and competition allocate resources better than an official can.

Trade liberalization is the removal of tariffs, quotas and other barriers. For: imported machinery, medicines and inputs get cheaper, domestic firms face competitors and have to answer them, and resources move towards what the economy is relatively good at, as 4.1 argues. Against: the industries exposed shed workers before the new ones hire them, and that gap is measured in years; tariffs are a large share of tax revenue in economies where income tax is hard to collect, so liberalising cuts the budget that funds the clinics; and an industry that would have become competitive can be killed before it gets there. Depends on: the speed, whether there is a budget to support the workers who lose, and whether an alternative tax base exists.

Privatization is the transfer of a state-owned enterprise to private ownership. For: a private owner has a reason to cut costs and invest that a ministry does not; the sale raises revenue; and the government stops funding losses. Against: selling a natural monopoly without a regulator replaces a state monopoly with a private one that can raise prices; the revenue is once only, while the asset is gone for good; and a firm that must cover costs from charges may stop serving customers who are expensive to reach, which is a clean water and electricity question before it is an ideological one. Depends on: whether the market the firm sells into is contestable, whether a regulator exists and can act, and how the sale is run.

Deregulation is the removal of rules on how firms operate: licences to start a business, price controls, restrictions on entry. For: where registering a firm takes months and several payments, the rules themselves push activity into the informal economy from 4.9, and simplifying them lowers a real cost. Against: some rules exist because of a market failure. Rules on bank capital, food safety, building standards and emissions are answers to externalities and information gaps, and removing them moves a cost onto somebody who never agreed to carry it. Depends on: which rule. Cutting the number of forms to register a firm and cutting the standards a factory must meet are not the same policy, and an answer that treats them as one loses the evaluation mark.

8Interventionist policies: redistribution

The guide names three redistribution tools: tax policies, transfer payments and minimum wages. The development argument for all three is the one from 4.9: where the households with least cannot fund schooling, tools or a small business, ability that exists goes unused, so redistribution is an efficiency argument as well as an equity one.

Tax policies. A progressive income tax takes a rising proportion as income rises; the same effect comes from widening the base, closing exemptions, taxing property or land, and taxing the rent from a mineral. Figure 7 shows what success looks like: the Lorenz curve after taxes and transfers lies closer to the line of equality. For: it funds everything in section 9 out of domestic revenue rather than aid or debt, which is why 4.9 lists an ineffective tax structure as an institutional barrier. Against: a tax system needs an administration, records and addresses; where most firms are informal the tax lands on the formal minority; and high rates on mobile income invite avoidance and, at the extreme, the capital flight from 4.9. Depends on: administrative capacity far more than on the rate on paper.

Transfer payments. Cash paid to households — a child grant, a pension, a payment conditional on school attendance or clinic visits. For: they raise the consumption of the poorest immediately, which no other strategy here does; conditional transfers raise attendance and health checks directly; and the money is spent locally, so it supports the small firms serving those households. Against: they cost budget every year; targeting always makes two kinds of error, missing households that qualify and paying households that do not; and they require a register and a payment system, which is itself institutional change. Depends on: whether they are financed sustainably rather than from borrowing, and whether the services the conditions point to actually exist — a transfer conditional on attendance is worth little where the nearest school is 20 kilometres away.

Minimum wages. A legal floor under the hourly wage.

The case for. Every worker who keeps their job earns Wmin instead of W₁. Where one large employer dominates a local labour market, the competitive picture in Figure 8 is the wrong model, and a floor can raise both the wage and employment. Better-paid workers stay longer and are trained more, so productivity can rise to meet the wage.

The case against. Figure 8 gives the standard competitive prediction: above the market wage, the quantity of labour supplied, Qs, exceeds the quantity demanded, Qd, and the gap is excess supply. A minimum wage also reaches only registered employers, so it can push work towards the informal economy, where there is no floor at all.

What it depends on. How high the floor is set relative to typical earnings, how elastic the demand for labour is, how much of the workforce is formal, and whether the law is enforced.

9Provision of merit goods

A merit good is one that is under-consumed relative to what would be socially efficient, because the buyer does not count the benefits that fall on other people and often cannot judge the benefit to themselves. Education and health are the guide's examples, and infrastructure is treated with them.

Figure 9 is the diagram from 2.8, and it is the one to draw here. Marginal private benefit stops at the household; marginal social benefit includes the benefits to everybody else — a vaccinated child does not infect the class, a literate farmer reads the loan contract. The market settles where MPB meets MSC, at Q₁, below the socially efficient Q₂, and the shaded triangle is the welfare loss. Government provision, subsidy or direct funding closes the gap.

Education programmes. Schooling raises output per hour for the rest of a working life, and the effects run wider: schooling is associated with better health, later first births and greater ability to retrain. Against it: buildings are the cheap part, and teachers, salaries, materials and maintenance recur every year for ever; expanding access while quality falls produces years of schooling that do not produce learning; and the gain arrives in fifteen years, which is longer than most budgets look.

Health programmes. Clinics, vaccination, maternal care, treatment for the endemic diseases from 4.9. A worker who no longer loses forty days a year to illness produces more this year, so the return is faster than education's, and the benefit is a rise in economic well-being whether or not output moves.

Infrastructure. The guide names energy, transport, telecommunications, clean water and sanitation. Each unlocks something that already exists: power lets a workshop run machines, a road turns a crop into a sale, a mobile network turns a price rumour into a price, and clean water and sanitation remove the illness that was costing the working days. This is the strategy with the clearest claim on both panels of Figure 2 — the existing capacity gets used, and the frontier moves out.

What all three depend on. The recurrent budget, not the building budget. A clinic without staff and medicines, a school without teachers and a road without maintenance all show up as investment and deliver nothing. Sequencing matters too: better seed does nothing while the road is impassable.

10Inward foreign direct investment

Foreign direct investment (FDI) is investment by a firm in productive capacity in another country, where the investor takes a lasting interest and a degree of control — conventionally a holding of at least ten per cent of voting shares — rather than simply buying securities. Inward FDI is FDI arriving in the host economy.

The case for. FDI brings capital that does not have to be repaid in hard currency, which matters greatly to an economy already carrying the debt from 4.9. It can bring production techniques and management practices that local firms copy or learn as suppliers, access to the parent firm's customers abroad, jobs, training and tax revenue. In the short run it is an injection that raises aggregate demand; in the longer run it adds to the capital stock, which is the right panel of Figure 2.

The case against. The return on the investment belongs to the owner, so profit is repatriated, and the flow out can exceed the flow in within a few years. Firms operating across borders can book profit where tax is lowest through the prices they charge their own subsidiaries. A plant can sit as an enclave, importing its inputs and selling its output abroad, with almost no connection to local firms. Competition from a much larger firm can close local producers rather than teach them. And where the investment was attracted with a tax holiday, cheap land and relaxed rules, the host may collect very little and the plant may leave when the holiday ends.

What it depends on. Whether there are local firms capable of supplying the investor, so linkages form; what was given away to attract it; who regulates the labour and environmental standards; and how long the investment is tied in. None of this is a judgement about foreign firms in general. It is a question about the host economy's bargaining position and its rules, and economists disagree about how much of the measured association between FDI and growth is FDI causing growth rather than firms choosing to invest where growth was already coming.

11Foreign aid

Foreign aid is a transfer of resources from one country, or an international body, to another on terms better than the market would offer. The guide names four things to distinguish.

• Humanitarian aid is short-term relief in an emergency: food, shelter, medicine after a flood, a drought or a conflict. It is meant to keep people alive, and it should be judged on that, not on its effect on growth.
• Development aid is longer-term support for projects and programmes — a water system, a teacher training college, a vaccination campaign, budget support to a ministry.
• Official Development Assistance (ODA) is the formal category: aid from official government agencies to eligible countries, with economic development and welfare as its main objective, given on concessional terms, meaning a grant or a loan cheaper than a commercial one. Donor countries have repeatedly endorsed a United Nations target of 0.7 per cent of gross national income for ODA, and most have not met it.
• Non-governmental organizations (NGOs) are private non-profit bodies that deliver aid directly, usually specialised and working at community level, funded by donations and by contracts from official donors.

Debt relief is the reduction or cancellation of debt owed, or of the service due on it, so that a government's budget is freed for other uses. Internationally agreed initiatives since the late 1990s have cancelled debt for countries meeting agreed conditions.

Figure 11 is 4.9's Figure 7 with one arrow cut. That is exactly what debt relief claims to do, and drawing it that way earns the mark that a description does not.

The case for aid. It fills two gaps at once: the gap between what an economy saves and what it would need to invest, and the gap between the foreign currency it earns and what it must pay for imports and debt. It can fund things with a high social return and no commercial return — vaccination, rural water, a research station. Progress on specific health and schooling outcomes has been measurable where aid was directed at them. And humanitarian aid needs no growth argument at all.

The case against. Aid can substitute for tax revenue, so a government's income comes from donors rather than from its own citizens, which weakens the accountability that a tax base creates — the loop in 4.9's Figure 2, reinforced from outside. It is volatile and hard to budget around, since it depends on donor politics. Tied aid, which must be spent on the donor's own firms or goods, returns part of the value to the donor and can cost the recipient more than buying locally. Dozens of donors each with their own reporting requirements can absorb the time of the few officials a ministry has. And aid can keep in place a government that its own citizens cannot remove.

What it depends on, and where economists disagree. This is one of the most contested questions in the subject, and you should say so rather than settle it. One body of work finds little reliable relationship between aid received and subsequent growth across countries; another finds a positive relationship conditional on policy or institutions; a third argues the cross-country question is the wrong one, because aid aimed at a specific outcome can be evaluated directly and often works while aid as a general flow cannot be. A part (b) that states any one of these as settled fact has made an error. A part (b) that names the disagreement and then judges on a stated condition — the form of the aid, whether it is tied, whether it substitutes for revenue, the time frame — is doing what the mark scheme rewards.

12Multilateral development assistance

Multilateral assistance comes from an institution owned by many member governments rather than from one country. The guide names two.

The World Bank lends and grants for long-term development: power, transport, water, schools, health systems, agriculture. Its lending to the poorest members is concessional, at rates below commercial ones or as grants, and it supplies research, data and technical advice alongside the money.

The International Monetary Fund (IMF) does something different, and mixing them up is a common and costly error. The IMF lends to members in balance of payments difficulty, watches the world economy and its members' policies, and provides technical help on tax administration, central banking and statistics. Its lending is short- to medium-term stabilisation finance, and it comes with conditions on macroeconomic policy.

The case for both. A country in a foreign exchange crisis has no other lender; without the IMF the adjustment would be faster and harsher, not gentler. Long-term infrastructure finance at concessional rates is not available commercially to a low-income borrower. Both institutions pool risk across many members, which is interdependence used deliberately, and both have changed practice over time, including floors on social spending inside programmes.

The case against. Conditions attached to lending have required spending cuts, subsidy removal or rapid liberalisation at moments when the cost fell hardest on the households with least, which is an equity objection to a stabilisation policy. Voting power in both institutions is tied to financial contribution, so the members most affected by a programme have the least say in designing it. And a programme designed from outside can misread which barrier binds.

What it depends on. Whether the conditions match the diagnosis, whether the lending is fast enough to prevent the crisis it is meant to stop, and whether the government has room to choose its own order of reform. The evidence on whether programmes raise growth is genuinely contested, partly because the countries that enter a programme are in trouble by definition, which makes a fair comparison hard to build.

13Institutional change

Institutions are the rules by which an economy runs. 4.9 treats a weak institutional framework as a barrier; here the same four items come back as a strategy.

Improved access to banking, including microfinance and mobile banking. Microfinance is small-scale lending and saving for households and firms that no commercial bank will serve, often without collateral and sometimes with a group guaranteeing the loan. Mobile banking is holding, sending and receiving money through a phone rather than a branch, which reaches places a branch never will. For: a saver and an investment opportunity that never met now meet, and a household with somewhere safe to keep money and a way to receive a transfer from a relative can absorb a shock without selling its animals. Against: the cost of administering many tiny loans is high, so interest rates are high; a loan taken for consumption at a high rate makes a household worse off; and the careful evaluations of microcredit have often found business investment rising while average household income, consumption and schooling moved little. Depends on: whether the return on what the loan buys exceeds the rate, whether savings and insurance are offered rather than credit alone, and whether people have the phone, the identity document and the network coverage that mobile money assumes.

Increasing women's empowerment. Schooling for girls, legal equality in inheritance and employment, access to credit and land in a woman's own name, and representation in decisions. For: it cuts 4.9's Figure 8 directly, and it raises the productivity of half the workforce, so it is an equity argument and an efficiency argument at the same time. Against, or rather what limits it: a change in the statute book is not a change in the household decision, and reforms that stop at the law can leave the outcome untouched. Depends on: whether the change reaches the decision that is actually made, and whether it is matched by the school, the clinic and the bank account being reachable.

Reducing corruption. Open procurement, independent audit, paying officials enough to live on, publishing budgets, a press that can report. For: a bribe is an unpredictable tax, and uncertainty deters investment more sharply than a known tax of the same size; and public money starts following the project with the highest return rather than the largest kickback. Against: the officials asked to run the reform may be the ones it constrains, and measurement is weak, since most international indices are surveys of perception rather than counts of anything. Depends on: whether the auditor is independent of the audited.

Property rights and land rights. A registered, enforceable title to land or premises. For: a titled plot can be sold, inherited securely, pledged as collateral and is worth improving, which cuts the loop in 4.9's Figure 6. Against: registration is only as good as the registry and the courts behind it, and titling programmes have sometimes recorded a single male household head as owner of land that a family or a community held in common, so a reform meant to secure rights removed them from the people with the weakest claim. Depends on: whether customary and communal holdings are recognised in the design, and whether the registry is cheap and quick enough to use.

Institutional change is slow and comparatively cheap; infrastructure is fast and expensive. That difference, not a ranking, is what an evaluation should be built on.

14Intervention against market-oriented approaches

The guide asks for this comparison directly, and it is the most common 15-mark question in this subtopic. Treat it as a live argument with reasons on both sides, because that is what it is.

The market-oriented case. Prices carry information that no official has: a rising price says where a resource is scarce, and competition punishes firms that ignore it. Entry by new firms tests an incumbent in a way an inspection cannot. Governments must choose which industry to support and have no reliable way to choose well. And intervention creates something to capture: where a licence, a tariff or a subsidy is valuable, firms spend resources obtaining it rather than producing, and that is government failure, not a hypothetical.

The interventionist case. Markets under-supply merit goods and public goods, over-supply goods with external costs, and do not exist at all for some things people need — insurance against a bad harvest, a loan to a farmer with no title. Coordination failures are real: nobody builds the factory until the power line exists, and nobody builds the power line until there is a factory. Markets also need institutions to work — enforceable contracts, a currency, a court — and those are supplied by a state. And a market outcome carries no claim to be equitable: distribution is decided by who owns what, which is why redistribution is a separate policy rather than a correction.

How to judge it without pretending the question is closed. Economists disagree about this, and the disagreement is about evidence as well as values. Four conditions decide most cases.

• What is failing. Name the market failure or the government failure in front of you. A missing road is a public goods problem; a monopoly water supplier is a regulation problem; an over-staffed state airline is neither.
• State capacity. An intervention is only as good as the administration running it. The same policy is a reasonable answer in one economy and an invitation to capture in another.
• The time frame. Liberalisation's costs arrive before its gains; an education programme's gains arrive after almost every government that funded it has left office.
• Who carries the risk. Say plainly which households bear the cost of each option. That is the equity half of the answer, and it is the half most students leave out.

15Progress towards the Sustainable Development Goals, in two economies

4.7 explains what the Sustainable Development Goals (SDGs) are: 17 goals with 169 targets, agreed by United Nations member states in 2015, running to 2030, and reported against by every country. Here the task is narrower and more examinable — compare progress towards selected goals across two or more countries, and say what the comparison can and cannot show.

Figure 13 uses invented figures for Norvant and Tenara on two goals: goal 6, safe water and sanitation, and goal 4, completing lower secondary education. Four things to say about it, and they transfer to any pair of countries you are given in Paper 2.

Levels and rates are different questions. Tenara is ahead on both. Norvant is closing the gap on schooling quickly and barely moving on water. A comparison that reports only the level says Tenara is doing better; a comparison that reports only the rate says Norvant is doing better on one goal. Say which you are reading, and read both.

A national average hides who is left out. If Norvant's water figure rose because the capital was connected while three rural provinces were not, the average moved and the inequality widened. Goal 6 is a target for everybody, so disaggregated figures — by region, by income, by gender — say more than the headline.

Measurement is uneven. Many indicators are collected by household survey every few years, defined differently in different countries, and missing entirely for some. A gap of four points between two countries may be a real gap or a difference in what was counted, and 4.8 covers why composite indicators have to be read carefully.

The goals can pull against each other. Goal 8 asks for sustained growth while goals 13 to 15 ask for less pressure on the climate, the oceans and the land. An economy that hits its growth target by clearing forest has moved two indicators in opposite directions, and no goal says which wins.

For the exam, use a case you have actually studied, name the goal by number, and keep the claim modest and checkable. "Goal 6 targets universal access to safely managed drinking water by 2030" is worth more than a paragraph of general sentiment.