š¢ Trade Strategies
Import substitution industrialisation (ISI).
- ā Protects infant industries while they build capacity.
- ā Reduces dependency on foreign imports.
- ā Creates domestic employment in manufacturing.
- ā Protected firms lack competitive pressure ā inefficiency.
- ā Small domestic markets limit economies of scale.
- ā Can lead to retaliation from trade partners.
- ā Often benefits politically connected firms, not consumers.
Export promotion.
- ā Access to larger markets ā economies of scale.
- ā International competition drives efficiency and innovation.
- ā Earns foreign currency ā finances imports of capital goods.
- ā Vulnerable to external demand shocks and commodity price fluctuations.
- ā May widen inequality if only some sectors benefit.
- ā Race to the bottom ā competing on low wages and weak regulations.
East Asian Tigers: South Korea, Taiwan, Singapore, and Hong Kong used export-led growth combined with heavy government investment in education and infrastructure. They went from low-income to high-income in a single generation (1960sā1990s).
š Market-Based Approaches
Market-based (or neoliberal) strategies emphasise reducing government intervention to let markets allocate resources efficiently. Often promoted by the IMF and World Bank as conditions for loans.
- Trade liberalisation ā opens the economy to competition and foreign goods.
- Privatisation.
- Deregulation ā reducing government rules and bureaucracy to make it easier to start and run businesses.
- Sound fiscal policy ā balanced budgets, low government debt, and controlled inflation to create a stable macroeconomic environment.
- Floating exchange rates ā allowing the currency value to be determined by market forces.
- ā Attracts FDI through a business-friendly environment.
- ā Price signals guide resources to most productive uses.
- ā Macroeconomic stability builds investor and consumer confidence.
- ā Austerity can cut essential services (healthcare, education) and worsen poverty.
- ā Privatisation may reduce access to essential services for the poor.
- ā Rapid liberalisation can destroy domestic industries unprepared for foreign competition.
- ā The "Washington Consensus" policies have a mixed record ā some countries thrived, others stagnated.
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š¼ FDI and Microfinance
Foreign direct investment (FDI).
- ā Brings capital, technology, and management expertise.
- ā Creates employment and raises worker skills.
- ā Tax revenue for the host government.
- ā Links into global supply chains ā increases exports.
- ā Profits repatriated to home country ā may be a drain on host economy.
- ā May exploit cheap labour or weak environmental regulations.
- ā Creates dependency ā decisions made by foreign headquarters, not local communities.
- ā Can crowd out domestic firms unable to compete with multinational resources.
Microfinance.
- Enables entrepreneurship and self-employment for the very poor.
- Particularly empowering for women ā Grameen Bank lends predominantly to women.
- Limitations: high interest rates, risk of over-indebtedness, doesn't address structural barriers.