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Trade Strategies to promote economic growth and development. - Coggle…
Trade Strategies to promote economic growth and development.
Import substitution
Conditions
Government needs to adopt a policy of organizing the selection of goods to produce domestically.
labour- intensive, low- skill manufactured goods such as
clothing or shoes.
Subsidies are made available to encourage domestic industries.
Government needs to implement a protectionist system with
tariff barriers to keep out foreign imports.
Inward oriented strategy
Should produce goods domestically rather than import them
Latin America
Disadvantages
ISI may causes
inefficiency in domestic industries, because
competition is not there to encourage research and development.
high rates of inflation due to domestic aggregate
supply constraints.
other countries to take retaliatory protectionist
measures.
Country does not enjoy the benefits to be gained from comparative advantage n specialization
produce products inefficiently
job protection in short run only
in long run, lack of job creation due to lack of economy growth
Advantages
ISI protects
jobs in the domestic market, since foreign firms are
prevented from competing so domestic firms dominate.
the economy from the power, and possibly bad
influence, of multinational corporations.
jobs in the domestic market, since foreign firms are
prevented from competing so domestic firms dominate.
Trade Liberalisation
Removal or reduction of trade barriers that block the free trade of goods and services between countries.
( tariff barriers, quotas, export subsidies, administrative legislation.)
Increase world trade n will enable developing countries to concentrate on production of goods n services in which they have comparative advantage
Policies by John Williamson
Fiscal discipline, that is, balanced budgets
Redirect spending priorities from things like indiscriminate
subsidies to basic health and education
Lower marginal tax rates and broaden the tax base
Interest rate liberalization
A competitive exchange rate
Trade liberalization
Liberalization of FDI inflows
Privatization
Deregulation
Secure property rights
Export promotion
Outward oriented growth strategy, based on openness n increased international trade
Growth is achieved by concentrating on increasing exports and export revenue as a leading factor in the aggregate demand of the country
Increase export = increase GDP = higher incomes = growth in domestic n exporting markets
Take full advantage of comparative advantage in the production of particular goods
encourage domestic production of goods for export
Increase export revenue
Increase domestic income
Achieve economic growth
Policies
Liberalized trade: Open up domestic markets to foreign competition in order to gain access to foreign markets.
Liberalised capital flows: Reduce restrictions on foreign direct investment
A floating exchange rate.
Investment in the provision of infrastructure to enable trade to take place
Deregulation and minimal government intervention
Success factors
Benefits of diversification.
Major investments in human capital.
Appropriate technologies.
Expansion into foreign markets.
Disadvantages
ncrease in protectionism by developed countries against manufactured from developing countries.
Export-led growth may increase income inequality in the country
When a high proportion of income in a country comes from the sale of exports the country’s economy can become over-dependent on demand for their goods from the rest of the world.
Bilateral and regional preferential trade agreements
Preferential trade agreements are related to preferential trading areas
Reducing, but not necessarily abolishing, tariffs
More agreements made, greater the ability of developing countries to trade n gain growth n development
may be between 2 countries / 2 regional groups
Diversification
Major problem: Over-dependence upon exporting a limited range of primary commodities
Developing countries are now pursuing export diversification as a means to gain economic growth.
Aim
transits from the production and export of primary commodities to production and export of manufactured and semi-manufactured products.
Protect themselves from the volatile changes in primary product prices, to stabilize or increase export revenue and to stabilize or increase employment.
Barriers
The need for a more highly qualified workforce in order to produce relatively more sophisticated products.
Practice of tariff escalation, which was discussed earlier in the chapter.