Development through trade - lower income countries, Business Economics

Development Strategies are explained as follows:

Keeping the reasons for the persistent poverty in the LICs aside, there are three broad progress strategies which have been adopted to address the situation.

DEVELOPMENT THROUGH TRADE is explained as follows

Till the 1970s, it was thought that LICs required to develop their import competing industries reduce their reliance on the consumer goods imports by switching to domestically produced goods, and therefore gradually attain self-sufficiency and foreign exchange adequacy. Stimulated by dynamic comparative advantage theories and massive Soviet industrialization drive launched under the Stalin, this model was passionately followed by various South Asian, Latin American countries and African. The results were not much positive, unfortunately. For one, the nationalization policies which often accompanied the pursuit of the ISI model led to the crowding out of private entrepreneurship (and with it, the spirit of the competition), and the birth of extremely inefficient public enterprises, which later became a breeding ground for corruption, nepotism and labor dumping. Second, the large savings expected on imports were never quite materialized. Given the large current account deficits delivered by the weak exports and stubbornly very high imports, therefore, many of these countries went into the BOPs crises after the 1970s.

The East Asian Model is as follows:

A rival trade model which came out to be very successful was the East Asian one. These countries (Indonesia, Malaysia, Taiwan, Korea, Hong Kong, Singapore, and to a lesser extent Thailand, Indonesia and The Philippines) industrialized not to produce for local markets (that is to substitute their imports) but to produce for the international market (competing with foreign producers). The result of which is they focus, from the very start, on productive efficiency and did not rely on the high tariff protection for quite long and hence attained a sustainable ascent on the comparative advantage ladder (from the primary products to high tech goods). These are the nations which have been the fastest growing (or miracle) economies of last quarter of the 20th century.

The success of East Asian model, not withstanding, there is the major criticisms which are leveled against richer countries with respect to their double standards on the trade. The criticism is that, while supporting free trade internationally and at any time it suits their interests, number of these countries imposes quotas, tariffs, subsidies and the indirect restrictions (environmental and labor standards and many more) to prevent poor countries from selling their primary products and the light manufactures to the rich nations markets. One instance is the agricultural sector, where the wealthy west which gives lavish subsidies to its farmers, enabling the latter to out-compete LIC farmers  who  are  not  receiving  any  subsidies  from  their  own governments.

One  argument, so, is to require rich countries to open their markets to exports from the poor countries.

Posted Date: 7/19/2012 4:26:29 AM | Location : United States







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