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What strategies will enable the achievement of economic growth and/or…
What strategies will enable the achievement of economic growth and/or economic development?
Import Substitution
Government needs to adopt a policy of organizing the selection of goods to produce domestically > labor-intensive
Subsidies are made available to encourage domestic industries.
Government needs to implement a protectionism (tariff)
Disadvantages
May only protect jobs in the short run
Economic growth may be lower ( long run )
The country does not enjoy the benefits to be gained from comparative advantage & specialization
Lead to inefficiency in domestic industries ( no comp)
Lead to high rates of inflation
Cause other countries to take retaliatory protectionist measures
Developing countries should produce goods domestically rather than import them
The industries will be able to compete on world markets in the future > gain from economies of scale
The opposite of export-led growth
Advantage
Protects jobs in the domestic market
Protects local culture and social habits
Protects economy from the power and bad influence
Export promotion
Definition
export-led growth
growth is achieved by concentrating on increasing exports
lead to increasing GDP > higher incomes > growth in domestic
country attempt to manage its exchange rate > keeping the rate low > exports more attractive
Problem
the success of "Asian tigers" > increase in protectionism against manufactured products > price increases (tariffs)
tariff escalation reduced the ability to export processed goods
government adopted policies where they protected domestic industries that were not able to compete with foreign firms
others argue that state intervention in these economies actually slowed down growth rates
MNCs may be too powerful within the country > problems
free market may increase income inequality in the country
Economic integration
Advantage
larger export markets > gain economies of scale
encourage diversification & reduce dependence on a narrow range of commodities
provides opportunities for workers to work in other member countries if there is free movement of labour
greater political stability & cooperation
greater efficiency
trade creation will benefit producers who can import inputs without tariffs
Challenges
role of WTO might be undermined since it allows member countries to look inwards
trade can become more complicated with other trading blocs
unemployment may arise as less efficient companies
may encounter trade diversion