Export Led Growth Essay

709 words - 3 pages

Limitatations of export led growth
Export-oriented Industrialization (EOI) sometimes called export substitution industrialization (ESI) or export led industrialization (ELI) is a trade and economic policy aiming to speed up the industrialization process of a country by exporting goods for which the nation has a comparative advantage. Export-led growth implies opening domestic markets to foreign competition in exchange for market access in other countries.
However this may not be true of all domestic markets, as governments may aim to protect specific nascent industries so they grow and are able to exploit their future comparative advantage and in practise the converse can occur. For ...view middle of the document...

Other criticisms include that export orientated industrialization has limited success if the economy is experiencing a decline in its terms of trade, where prices for its exports are rising at a slower rate than that of its imports. This is true of many economies aiming to exploit their comparative advantage in primary commodities as they have a long term trend of declining prices, noted in the Singer-Prebisch thesis[1] though there are criticisms of this thesis as practical contradictions have occurred[2].
Primary commodity dependency also links to the weakness of excessive specialization as primary commodities have incredible price volatility, given the inelastic nature of their demand, leading to a disproportionately large change in price given a change in demand for them.
The problem is that EOI presupposes that a government contains the relevant market knowledge to judge whether or not an industry to be given development subsidies which will prove a good investment in the future. The ability of any government to do this is limited as it will not have occurred through the natural interaction of market forces of supply and demand. Also to exploit a potential comparative advantage requires a significant amount of investment which...

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