Question

Uses Solomon Islands and explain with examples:

One important lesson from the current covid-19 is the vulnerability of economies dependent on foreign aid, foreign investment and trade (goods and services) and hence the importance of domestic investment (i.e. encouraging the private sector to invest in essential sectors such as food production in case of such prolonged shut-down of global movement of people, goods and services). On this note, discuss the importance of domestic investment for self-sufficiency, economic expansion and employment. You can use any Pacific Island country as a case study. Discuss how the government can promote domestic investment (i.e. respective polices etc.).

Answer 1

Pacific Island depends on tourism and exports. With the pandemic disrupting tourism opportunities and international trade, the economies suffered severly. As the government tried to protect the vulnerable groups, fiscal deficit rose over the last few months.

Self sufficiency ensures that the domestic economy is not affected by global disruptions. It ensures that the economy is experiencing growth and expanding as employment levels are very high. It promises more growth and less unemployment. Another advantage of self sufficiency is that during global disruptions like the ongoing pandemic or a global crisis, the economy can easily shut down and still not fall into recession.

The government can take various steps to encourage domestic investment. Firstly, monetary policy through lower interest rates encourages investments. Secondly, if governments give tax breaks to industries, it will encourage investment in the country.