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Trade and Developing Economies Trade has often been viewed as an integral part of economic development for poorer countries. Trade and Economic Development – Import Substitution and Export Promotion One of the main aims of developing countries is to pursue industrialisation by expanding the secondary (industrial) sector. International trade provides a means by which this can be pursued. There are two main strategies that countries can follow with regards this problem:- 1. Import substitution: The idea is to produce what was previously imported from elsewhere. this saves valuable foreign exchange and ease balance of payments deficit (most poor countries have these). there is a ready-made market for the product, because people are already buying it from abroad. In theory, firms would start by importing:- ‘capital goods’ [plant and machinery and the latest technology], ‘intermediate goods’ [raw materials and other components], and technical expertise. When established, industry would be able to import capital goods to make all the necessary machinery themselves. Governments might use tariffs to protect infant industries at first then them once the industry was ready to compete. In reality, firms have rarely got beyond the first stage. Import tariffs have remained in place, since producers were unprepared to face global competition and so they had no incentive to become efficient and competitive. 2. Export Promotion This was by the ‘Asian Tiger’ economies in their expansion of hi-tech manufacturing industries. Countries try find markets in which they can successfully exploit their comparative advantages and sell their products to. Production centred on labour-intensive technologies (for the comparative advantage!) – i.e. production has been based on much lower unit labour costs Industry made up of private-sector firms driven by the profit motive Module 6: Govt Policy, National & International Economy © tutor2u 2004 AQA A2 Economics Course Companion 2005 (143) o Government provides incentives for firms to export Many of the Asian Tiger economies have been incredibly successful in implementing export promotion strategies and for them the process of globalisation has been a huge stimulus to their economic growth and development over the last ten – twenty years. |