Trade Strategies

1. Import Substitution: Inward oriented strategy> aims to develop manufacturing sector to reduce relianc on primary products> uses protectionist startegies> barrriers would stay untill firms were large enough in size to lower AC

   Advantages:

   • Protects jobs in domestic> domestic firms protected so dominate
   • Protects local culture, social habits from influence
   • Protects from powerr and bad influence of multinational

   Disadvatages

   • Only protects jibs in short run> long run growth may be lower
   • Global misallocation of resources> country does not enjoy benefits of comparative advantage, specialisation, inefficiently produced
   • Lack of incentive to improve> protected> reliant> inefficiency> no R&D
   • Retaliation by other countries

2. Export Promotion: Export led growth> growth achieved by increasing international trade, export revenue> leads to GDP increase> high incomes> growth in export and domestic market> comncentrates on which it has comparative advantage> country attempts to keep low exchnage rate

   Policies used may be

   • Liberalised trade: open domestic markets to foreign competition> acces to markets> increasing AD> EOS
   • Liberalised capital flows: reduce restrictions on FDI
   • Floating exchange rate
   • Investment in infrastructure> enable trade
   • Deregulation, minimal intervention

later finish

1. Economic Integration; Preferential access shcmes. opportunities for growth

   Advantages

   • Larger export market> EOS
   • Larger market> diversification> reduce dependence on naarow range
   • For landlocked> will provide vital access to ports, infrastructural networks in neigbouring countrie
   • Further stimulus for inward FDI due to larger market size
   • Free movement of about> employm,ent opportunities
   • Free movement of capital> allows companies to invest in other countries
   • Greater politicsl stability and investment
   • Greater efficiency due to high competition from memeber countries
   • Increaswe in bargaining power of developing countries after integration

   Disadvatages

   • Trade may become complicated
   • May cause trade diversion
   • Greater competition> less efficient companies not able to compete. domestic unemployment

Diversification

• Aim: move from production/exports of low value primary commodities to high value secondary/manufactured prodcts> protect themselves from volatility in primary prices> increase export revenue, employment> increased use of tech and demand for higb skilles workers

Barriers

• However due to trade esclaation> developed countries increasse tarrif more proccessed product are>to rpotect their industries> reduces incentive for developing to diversity> export competitiveness for manufactured low
• Need for more qualified workforce> dveloping have low educational standars and poor system>
  • poverty trap (cycle)

Market Based

1. Trade liberalization>
   1. removal/reduction of trade barriers> free trade> increase world trade> countries would focus on ones they have comparative advatage> (advatages of free trade)
   2. However, developing lack infrastructute to gain full benefits> plus protectionist policies by developing countries> reduce effectiveness and lower export competitiveness. Moreover subsidies given
2. Privatisation
   1. Sale of public owned firms to provate sector> more efficient> profit maximizing incentive> increase potential output> nationalised firms have different goals> are inefficient
   2. However: process requires careful design and sequencing, regulatory infrastructure> often challenging in developing> >regulations need to be in place to monitor
   3. Plus, some goods need to be provided by nationalised in order to be affordable> for low income> private firms will not provide if its not profitable, or charge high prices
3. Deregulation
   1. More regulation> greater cost> reduce potential output. Reduction> increase AS> EG
   2. Lower regulation> more investment
   3. However, labor laws are important> protect safety, rights. Moreover deregulation in banking> debt driven growth. Relaxing of environmental laws> threatents sustainability

Interventionist Policies

1. Redistributive policies
   1. Tax policies: Progressive taxation> increase govt revenue
      1. ways: Progressive taxation> reduce income inequality. Increase indirect tax on demerit goods, luxury items, increase taxes onreal estate> progressive. Tale measures to reduce tax evation
      2. Less indirect taxes since less revenue and are regressive
   2. Transfer Payments: Cash transfers to low income> no output
      1. Reduces poverty> increases income> AD> economic growth> high incomes> investment
      2. Improves affordability of healtcare: lesser diseases> able to afford basic needs> less malnutrition
   3. Minimum Wage: raising wage> reduce income inequality> should be set after consultation with workers and employers
2. Provition of merit goods

   1. Provision of education

      1. increase labor productivity> more skills> increased social mobility> greater employability> qality of physical capital> lowers unemployment> all increase economic growth> attarxts FDI
      2. Lowers crime rates> better social attitudes
      3. Increased education of women>increase labor participation rate> reduction of poverty
      4. Basic sanitasion and hygiene knowlege improves

      However, greater focus in higher education over elementary education could cause international brain drain> high skilled worker leaving country for better jib prospects

      or underemployment

      (What is internal brain drain)’

   2. Provision of healthcare

      1. greater productivity> output> economic growth
      2. Less transmision of diseases> less spreading
      3. More active participation
      4. Better life expectance> economic developent
3. Infrastructure
   1. Infrastructire improves productivity > reduces cost, time effort to transport> permits faster communications. Also provides essential services for maintaiing basic SOL
   2. Transport improve access to education and healthcare

Institutional Change

1. Microfinance: Credits/ small loans to low income people, who ordinarily dont have access.> help start up businesses> increase income> escape from poverty

   Problems: Interest rates are too high>poor unskilled people may be harmed

2. Mobile phone banking; Increases access to banking> more cost effective way to send/recieve money, avoidance to travel long distances > reduced cost of transfering>

3. Women Empowerment: (in barriers)

Barriers

1. Reducing corruption: corruption limits government ability to bhelp economies grow
2. Propert rights: read barriers to developemnt

FDI and MNC

• FDI: investment by firm to set up production overseas> involved construction of firms, purchase of machinery
• MNC: multinational firms that undertake FDI

Why they expand: Increase sales and revenue> larger marker, Bypass trade barriers, Lower corporation tax, lower costs of production> cheap and abundant labor, etc

Strategies developing countries can use

• Favourable institutional environment> attracts FDi>favourable tax rates, well established property rights, lack of regulations, etc
• Have a stable macroeconomic environemnt> reducing uncertainty with low inflation,stable currency, etc