1. Harrod-Domar Growth Model
-Growth depends on the level of saving, and the productivity of investment.
-More physical capital increases the growth.
-Higher income will give higher rate of savings.
= Harrod Domar Growth Model is nearly impossible to apply to Ethiopia, because the Real GDP per capita is already so low. Since the incomes are very low, there’s no capacity of investment or saving. In order to use the strategy, Ethiopia would have to come up with a solution for low income first.
2. Structural change/dual sector Model
-Primary Production: Raw Materials, Mining, Fishing, Forestry, and Agriculture.
-Secondary Production: Manufacturing and Construction.
-Tertiary Production: Education and Tourism
-Dual Sector is about Productivity.
= Ethiopia has a huge primary production, including its oil, coal and gold. This can be further developed by increase in its production efficiency. Tertiary production, especially education, is the most urgent factor that needs improvements. The government should try its best to decrease the percentage of illiterate within its population.
3. Types of Aids
- Humanitarian (individual country to country, a major organization to country), Bilateral (one country to another), and Multilateral (different countries into one organization)
-Increase saving ratios, Reduce Foreign exchange outflows, Reduce the dependency on private investment, and increase the living standards of people
= From 1950, Ethiopia received foreign aids from different countries, such as, Soviet Union, Sweden, and India. Ethiopia has borrowed money from European union, individual European nations, Japan, and China. The debt was about 1.6 billion us dollars in 2001. Because of its huge dept, the World Bank-International Monetary Fund-sponsored Highly Indebted Poor Countries (HIPC) debt reduction program.
4. Export led growth/ outward oriented strategies
-Increasing exports of goods where comparative advantage exists – higher incomes – Growth in domestic market along side growth in export market
-Requires: liberalized trade to gain access to markets, floating exchange rate, and minimal government regulation
-Focus on either primary products or manufactured products.
= Coffee has been the biggest export good of Ethiopia, but the trade hasn’t been liberalized between people. This discourages the citizens from becoming more passionate about increasing their incomes.
5. Import Substitution/ Protectionism
-Focus on producing goods domestically instead of importing
-subsidies provided
-tariffs or quotas imposed.
= Ethiopia imports food, animals, petroleum, chemicals, machinery, and vehicles. More sophisticated education is needed in order to support producing vehicles, machinery, and chemicals domestically.
6. Commercial loans
-Loans from banks and other financial organizations
-Loans to developing countries grew from 3bn to 12bn.
-From 1970s loans continued to increase.
-Higher interest rates and falling commodity prices defaulted their loans and many other loans had to be re-scheduled.
-Possibility of Indebtness.
= Foreign aids burdened Ethiopia even more by leaving debts for the economy to pay.
7. Fairtrade Organization
-Multinational power has grown
-Put pressure on farmers and other producers in the developing world
-Falling incomes
-Growth of fair trade organizations guarantee farmers and producers a fair price for goods.
-Sustain a reasonable standard of living and price stability.
= There hasn’t been fair trade organizations that can guarantee the farmers a fair price for goods. For the reason, the farmers weren’t encouraged to increase their productions. This would delay the growth of the economy. Creating a trade organization can be a solution to Ethiopia’s poor economy.
8. Micro edit schemes
-Lend small amounts to the poor in a developing country.
-Often offered by Non governmental Organizations
-Directly targeted at the people who need them -promote the culture from the bottom.
= Local organization, Vision organization for community development ,helped the women in Ethiopia to borrow money, and own their own businesses. It provided the women with independence,decreased the gender inequality, and increased the real output.
9. Foreign direct investment
-Multinational corporations has productive capacity in a number of countries. The profit and income flows that they generate are part of the foreign capital flows moving between countries.
-Foreign direct invetment(FDI) can mean that the MNCs can hold a disproportionate amount of power over the countries they operate in.
-The role of the corporations becomes more important. They look to locate part of their production in other countries to increase their advantages.
-It boosts the rate of economic growth, and increase in training and education.
=Ethiopia has competitive advantages in different areas and, with tremendous business opportunities, the country should
seen as an attractive investment location for nationals.
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Ethiopia itself has a lot of potential of increasing its economy, because it has a huge amount of natural resources. It is, again, the education that should be improved as soon as possible. Also increasing foreign direct investment is one of the fastest ways to accelerate the growth. To acheive above strategies, the government intervention is required. As increase in foreign direct investment and education is applied to the economy, according the harrod domar growth model, the saving rate and investment will aggrandize. Due to the cycle, it will result in further growth.
Constructing free markets that the citizens can participate in can stabilize the growth. So far, Ethiopians have no set ownership on their lands and properties. By providing laws that protect the ownerships, the economy encourages the people to take parts in the markets, increasing the growth.
