Is Export focused industrialization indispensable for financial growth


One of the key indicators, of monetary development of a country, is its level of industrialization. That is, as many empirical investigations demonstrated the main reason for increased divergence in living benchmarks between the advanced countries and the growing countries is their level of industrialization. This being the fact, it is merely after decolonization and end of world War II that, growing countries consciously used industrialization strategies for monetary development purposes and since a solution, of their vulnerable reliance on export of few principal products and transfer of high valued produced goods (Brisbane, 1980). The reduced conditions of trade in international market for primary goods from ex - colonies and the dedication to escape severe poverty and register sustained growth, were the key known reasons for the diversification of the narrow structure of the colonial overall economy.

Industrialization is beneficial for developing countries for most reasons like the following (i) it reduces their prone dependence; (ii) it speeds up their economic development process; (iii) it modernize the overall economy through spill over or externalities results associated with industrialization, from advanced countries; (iv) create more work for the great inhabitants in rural agricultural sector and accelerate income development which can be used as a means to re-distribute income to the impoverished masses; and (v) generate more forex through export - which reduces balance of payment problems (Brisbane, 1980).

As Brisbane explained, to industrialize, developing countries adopted import substitution strategies from about 1945 to the 1970's. Import substitution strategy was created to produce few luxury consumer goods for domestic consumption behind an extremely high tariff wall membrane. However, most countries which followed the import substitution strategy failed, to meet up with the goal of industrialization, while breathtaking progress and development was reported from growing countries that pursued an export oriented strategy, in the 1970's.

Defined simply, export-oriented Industrialization (EOI) often termed as export led industrialization (ELI) is a policy designed for the goal of accelerating the industrialization process of a country through exporting goods that the nation has a comparative benefit. This insurance plan requires countries to start their local market to foreign competition in exchange to getting access to international market. In order to promote EOI and finally economic development, complementary insurance policies with regards to tariffs, trade, exchange rate, and more have to be adopted and used.

This newspaper will critically look at how export oriented industrialization is vital for economic progress in producing countries, if it can be supported by appropriate policies on trade, industrial insurance plan and exchange rate coverage, geared for this purpose. The newspaper also argues that export focused industrialization has its drawbacks. Thus, the article is structured the following: In section 2, It the paper analyses the significance of guidelines on the performing of EOI, specifically: trade insurance policy, industrial insurance policy and exchange rate coverage that developing countries need to look at and identifies areas where government intervention is needed to bring economic development. It then explains the disadvantages of export focused industrialization, on export dependence countries, in Section 3. Then section 4, empirically examines how EOI contributes to economic development and the conclusions are provided in section 5.

2. Significance of Guidelines on EOI

The role of complementary insurance policies for performance of export oriented industrialization is undeniable. This paper focuses mainly on how trade, professional and exchange rate procedures can support EOI policy.

2. 1 Trade insurance plan:

Appropriate trade coverage is one of the key tools used for effective of export oriented industrialization and then for economic development, generally. That's, the better trade coverage a country has, the better chance they have for commercial diversification, creating value added products and getting ultimately more income from export.

Theoretical framework

Even if, "there has been little consensus on the relationship between trade and short- to medium -term monetary growth-and even less on its role in permanent financial development. The principle of comparative advantages, which suggest countries to specialize as to their factor endowment, first explained by David Ricardo, forms the theoretical basis for traditional trade theory and the rationale for free trade. The concept suggests that even when a country produced all goods more cheaply than other countries, it could benefit by focusing on the export of its relatively cheapest good (or the good in which it has a comparative benefits)"(Murray Gibbs 2007, p. 10). And some classical economists believed that the main base for this rule is the difference in factor endowments among countries determine the comparative cost of development.

However, this traditional theory from classical economists has been challenged as it generally does not describe well the real trade patterns so that the theory has unrealistic assumptions, like perfect competition, full work etc (Murray Gibbs 2007). As well as the unrealistic assumptions, in real situations the idea favors advanced countries, and expanding countries hardly advantage anything from it. The controversial Singer Prebisch thesis, also explained this situation by stating that it is the guts that gets all the benefits of international trade while the periphery gets nothing, which opposes to the Ricardian "Theory of Comparative Benefit. He argued: given the distinctions in the prevailing economic, fruitful and labor market set ups between the periphery and the guts (in the application of technology in traded goods and in the market structures; oligopoly vs. competitive) - less-developed countries cannot benefit from international market, if indeed they adopt comparative gain doctrine (Todaro and Smith 2009). It is because producing countries usually produce and export principal products that have lower conditions of trade. And the range for diversification is too slim, and these conditions put expanding countries to acquire vulnerable reliance on international market.

Thus, unlike the classical economists' static comparative gain doctrine, vibrant comparative benefit is a better option for producing countries. It is because as more creativity, technology, capital, and other requirements for industrializations are fulfilled so that as industrialization happens in expanding countries, it will be simpler to diversify their economical structure, as made goods have better conditions of trade than most important products.

Skarstein (2007) in his newspaper "Free Trade: A Useless End for Underdeveloped Economies, ". . . criticized the comparative advantage doctrine. He argued, what matters most in international trade is the definite gain that countries escape it when compared to a comparative benefit. And empirical evidences show that the doctrines of comparative edge and free trade profit the advanced countries only. This is due to the fact the doctrines are likely to exclude international learning among countries. Especially, the WTO arrangement, Trade related intellectual property privileges (Travels), which is a large challenge producing countries to obtain technology, skill and international learning from all of those other world.

He also argued, for a trade insurance policy to operate effectively, producing countries have to make sure that, this insurance plan is well integrated with their industrial policy. And likewise to these, producing countries need to get support from advanced countries, through reduced transfer tariffs for goods from expanding countries and giving developing countries an opportunity to protect their market sectors and get easy access to international market. He also stressed that, expanding countries have to ensure that food security is taken care of in their countries, as it will keep them safe from their foreign accounts, balance of payment problems as well. Thus, governments of producing countries have to safeguard agricultural development for intake.

Therefore, while planning policies, developing countries have to consider the strong comparative gain or absolute benefits options. In addition to this, there is also to consider how their economic integration to the earth economy should be in support of EOI.

2. 2 Industrial policy:

A proper professional insurance policy is also another important tool for effective export focused industrialization, as a country's industrialization is determined by how individual local firms are shielded. It is because, it is individual organizations that innovate and harness technical change and contend in the world market (Suranovic, 2002).

The basic insurance policy component of commercial policy for growing countries is Toddler industry protection. It is a necessary condition, because recently emerging companies in growing countries need some policy to help them grow strong and also to safeguard them from intrusion of international organizations in their market, that contain a negative effect on their growth. Newborn industries in developing countries can mainly be protected through import tariff system, which reduce imports from all of those other world and increases demand and creation of domestic product. This safety enables the domestic firms to repay their higher production costs and also to stay in business. Depending on the characteristics of the organization, infant industry protection strategy will help the domestic companies to produce effectively also to be capable in international marketplaces.

However, to be able to use the newborn industry protection plan as a tool for export focused industrialization, federal government of expanding countries have to have reliable information about what industry to protect, what size the development tariffs have to be and over what period the tariffs will be reduced and eradicated. Because import tariffs have to be slowly but surely reduced and removed, to increase efficiency of local firms.

A complementary insurance plan component to child industry safeguard in export oriented industrialization is export promotion. This component stimulates export and allows the infant industry to get access to international market, while Infant industry protection coverage allows the new home firm to expand strong.

For industrial insurance plan to be effective it needs to be complemented by competition insurance policy, as some legislation are required for your competition among domestic companies and together, as there's a need for insurance plan to protect the domestic organizations from intrusion of international businesses in their market.

A coherent execution of industrial policy takes a coordinated approach to trade policies. It is because trade policies are designed usually relative to a country's trade discussions, such as: procedures related to investment, tariff, Intellectual property, yet others.

"The effectiveness of tariffs as a tool for industrialization is also linked to the monetary policy platform within which it performs. When the administrative centre bank account is liberalized control over exchange rates may be lost and the gratitude of exchange rates can definitely undermine export competitiveness and the impact of tariff coverage" (Murray Gibbs 2007, p. 19).

2. 3. Exchange rate insurance policy:

The role of exchange rate coverage in the success of export focused industrialization strategy is undeniable. Exchange rate is a policy on the amount of exchange rate of any country's currency. The main problem in formulating the exchange rate coverage is within keeping balance between keeping exchange rate balance and retaining export price competitiveness, which requires devaluation. Devaluation increases the value of imports, while it offers options for exporters to choose either to lessen the prices with their products or to keep them as they are, to increase their profit percentage. Thus, devaluation, at a price of higher inflation, permits domestic business to be competent internationally, by keeping the volume of transfer down and by raising the volume of export (local output) higher. The role of government in controlling inflation, to stabilize the overall economy is very essential, here. Thus, this happening in addition to supporting the export focused industrialization process it helps countries to boost their current account balance in Balance of repayment problem (Jacob, Atta ; Keith R. , Jefferis ; Ita, Mannathoko and Pelani, Siwawa-Ndai 2000)

3. Disadvantages of Export dependence

A country is dependent on export, if export constitutes the largest portion of its gross domestic products. However, even if EOI strategy contributes for financial development, the magnitude to which this plan is applied must be considered for various reasons. To say a few of them, as dependency theorists argue: first, export based mostly developing countries cause chaos on the long-term economical planning capacity of any nation-state (Barratt-Brown Prebisch) as these countries have little or no control over the marketplace, to allow suffered economic development through stable revenue. Second, Income from export is not a reliable source for economical development for growing countries. As much of the export oriented industrializations in these countries are managed by multinational firms, and large part of income from such sources aren't repatriated, to be used for re-investment (Jaffee, 1985).

4. Empirical data:

Skarstein, 2007 newspaper "Free Trade: A Useless End for Underdeveloped Economies, " revealed the empirical evidences on EOI's contribution for miraculous economic development of the Asian tigers and the now developed countries. It mainly proved the relationship between financial development and effective implementation of infant establishments protection insurance policy and export campaign policy.

In support of the, it is argued, that lots of people have argued that Toddler industry coverage was exactly the industrial development strategy that was pursued by countries like the united states and Germany throughout their rapid commercial development before the flip of the 20th century. Both the US and Germany possessed high tariffs during their industrial revolution times. These tariffs helped protect fledgling companies from competition with an increase of efficient businesses in Britain and could have been the necessary requirement to activate economic expansion (Suranovic 2002)

Bairoch also analyzed data and concluded that the different the result of free trade on developed and developing countries is. In every the circumstances he analyzed, free trade has a good effect on developed countries while it lets minimal developed countries to are affected. He talked about that United Kingdom registered its quickest growth through the period (1860 - 1880). In those circumstances he analyzed, how effective transfer tariffs for expanding countries were in their economical development (Bairoch, 1972, p. 211).

In his paper, Skarstein, illustrated, with detailed data how the East Asian tigers used industrialization plan for their economic development. That is: first by implementing a policy of protected transfer substitution and then, as their establishments grow proficient, by shifting their industrialization strategy to export focused industrialization, with a poor reduction of import barriers for industrial good. And, at exactly the same time, how putting into action high import cover because of their agriculture helped them to keep up food security and helped their success in industrialization

The miraculous performance of the East and South East Parts of asia during 1970s to 1990s can't be analyzed without taking into consideration the connection between your export -focused policies and monetary growth. Inside the Newly Industrialized Economies from East and South East Asia, the overall macroeconomic policies as well as selective export campaign insurance policies facilitated the high export and economical growth. Pursuing their way China and India also changed their policy stance and only export oriented procedures and shifted the high growth trajectories.

5. Conclusions:

In sum industrialization is an integral process for expanding countries for economic development. However, as much economists agree, the process of monetary development is very complex, as it depends upon large numbers of parameters such as politics system, socio economical structure, capital build up (both physical and real human), trade, price fluctuations, and income syndication, and much more on geographical characteristics. Consequently, while export focused industrialization plays a part in economic growth, it isn't necessarily essential to the progress and development of developing countries.

As explained in this article, EOI can be one of the key strategies to sign-up economic expansion. And for it to operate effectively it needs to be reinforced by appropriate components of the coverage like: newborn industry cover strategy, competition plan, export campaign strategy as well as others. More specifically, it needs well functioning and well included macroeconomic regulations like: trade coverage, industrial policy, exchange rate insurance plan, investment plan, tariff policy while others. Government treatment also plays a key role to make the export oriented industrialization effective for financial development.

Examined empirical evidences also show you that Export-oriented Industrialization was particularly the feature of the economical development of the Asian Tigers: Hong Kong, South Korea, Taiwan and Singapore in the post World Conflict II period. In addition to Asian Tigers, evidences also inform how EOI strategy added for the economic development of US, Germany yet others, who are now in developed world category. However, although role of export oriented industrialization in economic development is undeniable, countries have to also carefully consider its show in the gross home product, as bigger export dependence has a negative effect on economic growth.

Also We Can Offer!

Other services that we offer

If you don’t see the necessary subject, paper type, or topic in our list of available services and examples, don’t worry! We have a number of other academic disciplines to suit the needs of anyone who visits this website looking for help.

How to ...

We made your life easier with putting together a big number of articles and guidelines on how to plan and write different types of assignments (Essay, Research Paper, Dissertation etc)