Import substitution was heavily practiced during the midth century as a form of developmental theory that advocated increased productivity and economic gains within a country. This was an inward-looking economic theory practiced by developing nations after WW2.
Origins[ edit ] From the Great Depression to the years after World War II, under-developed and developing countries started to have a hard time economically. During this time, many foreign markets were closed and the danger of trading and shipping in war-time waters drove many of these countries to look for another solution to development.
The initial solution to this dilemma was called import substitution industrialization. Both Latin American and Asian countries used this strategy at first. However, during the s and s the Asian countries, like Taiwan and South Korea, started focusing their development outward, resulting in an export-led growth strategy.
Many of the Latin American countries continued with import substitution industrialization, just expanding its scope.
Some have pointed out that because of the success of the Asian countries, especially Taiwan and South Korea, export-led growth should be considered the best strategy to promote development.
The first is that export-led growth improves the country's foreign-currency finances, as well as surpass their debts as long as the facilities and materials for the exports exist. The second, if more debatable reason, is that increased export-growth can trigger greater productivitythus creating even more exports in a positive, upward spiral cycle.
L McCombie et al Types of exports[ edit ] There are essentially two types of exports used in this context: Manufactured goods are the exports most commonly used to achieve export-led growth. However, many times these industries are competing against industrialized countries' industries, which often have better technology, better educated workers, and more capital to start with.
Therefore, this strategy must be well thought out and planned. A country must find a certain export that they can manufacture well, in competition with industrialized industries. However, this strategy is risky compared to manufactured goods. If the terms of trade shift unfavorably, a country must export more and more of the raw materials to import the same amount of commodities, making the trade profits very difficult to come by.
The ability of a government to do this, it is argued, is probably limited as it will not have occurred through the natural interaction of the market forces of supply and demand.
Additionally, they claim that the exploitation of a potential comparative advantage requires a significant amount of investmentof which governments can only supply a limited amount. In many LDCsit is necessary for multinational corporations to provide the foreign direct investmentknowledge, skills and training needed to develop an industry and exploit the future comparative advantage.
This line of argument runs against heterodox and particularly Post-Keynesian analysis. There, the investment requirements for state investment, denominated in the national currency, are never operationally constrained; any claim about the "limited" ability of the state to finance expenditures in its own currency is rejected.
EOI has, therefore, been supported as a development strategy for poor countries - because of its success in the Four Asian Tigers. This claim has been challenged by a minority of non-mainstream economists, who have instead emphasised the very specific historical, political, and legislative conditions in East Asia that were not present elsewhere, and which allowed for the success of EOI in these nations.
EOI increases market sensitivity to exogenous factors, and is partially responsible for the damage done by the Asian financial crisis to the economies of countries who used export-oriented industrialization. This is something which occurred during the financial crisis of —08 and subsequent global recession.In the context of a Sino-American war, the United States could try to take China’s greatest national strength—its export-oriented, booming economic-growth model—and transform it .
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of export-oriented growth strategy has been delivered by China in the last two decades. In fact, in China became the largest exporter of the world, ahead of Germany and the.
China’s export-oriented growth is not unprecedented; Korea, Japan, and the newly industrialized economies (NIEs) of Asia have all maintained rapid exports growth and increased market shares over a sustained period of time.
China’s export-oriented growth model faces an unprecedented challenge in the face of shrinking global demand. China’s Domestic Transformation in a Global Context Domestically, China also faces the challenge of adjusting to a new balance China’s Trade Negotiation Strategies.
Keywords: export oriented strategy, export oriented strategies After the Great Depression in the s, countries adopted the import substitution strategy. The aim was to produce the products locally rather than having to import them.