Comparison and contrast of export diversification and import substitution strategies

Résumé du document

Export diversification and import substitution are both theories of growth used to stimulate economies in various countries. The first of these theories uses an increased base of exports to trigger economic growth, whereas import substitution tries to achieve the same aim by reigning in expenditure on imports through the local production of these goods. This has been the strategy adopted by many developing countries as they can "insulate themselves from the sharp and unexpected changes in their terms of trade, and by extension, stabilize domestic incomes and employment".

Extraits

[...] Growth Rates in the Latin American Countries that Grew or More During 1963-73 Source: Rodrik, Dani, Making Openness Work for growth rates of GDP and author's calculations for growth rates of exports. It therefore seems that both models have advantages and disadvantages and the adoption of a model depends on the structure of the country, the population size, the labor available as well as the availability of natural resources and geographic location among other criterion in order to make the best possible choice to stimulate economic growth. Unknown, (2002) Export Diversification in Pacific Island Countries. Retrieved April Website: http://www.unescap.org/pdd/publications/bulletin2002/ch9.pdf Ibid. Unknown (2006). [...]

[...] “Instability in export earnings has been greatest for countries with the least export diversification”[2]. This is particularly beneficial to smaller countries as the potential on the domestic market is not as high as it would be in larger countries; hence it is economically wise to export. Fiji is a country which has experienced an increase in exports of manufactures due to its economic liberalization. According to the UNESCAP bulletin, some Pacific countries have not only increased exports of non-agricultural commodities, but have also found themselves export ‘niches'. [...]

[...] The idea is to import less finished goods, by substituting these goods with locally produced ones. This way less is spent on imports and money can be made via exports thus increasing economic growth. This method has three principles in order to work: active industrial policy to subsidize and orchestrate production of strategic substitutes, protective barriers to trade (namely, tariffs), and a monetary policy that keeps the domestic currency overvalued. Hence import substitution policies are not favored by advocates of absolute free trade”[3]. [...]

[...] Compare and contrast "export diversification" and "import substitution" strategies. Your answer should include two specific examples of each Export diversification and import substitution are both theories of growth used to stimulate economies in various countries. The first of these theories uses an increased base of exports to trigger economic growth, whereas import substitution tries to achieve the same aim by reigning in expenditure on imports through the local production of these goods. This has been the strategy adopted by many developing countries as they can “insulate themselves from the sharp and unexpected changes in their terms of trade, and by extension, stabilize domestic incomes and employment”[1]. [...]

[...] Import Substitution. Retrieved April from Wikipedia Website: http://en.wikipedia.org/wiki/Import_substitution Ibid. Mendis, P. (2005) Freedom on the March: An American Voyage to Explore Globalisation. Sarvodaya Vishva Lekha publication. Pg. [...]