Trade strategies for economic growth and development
Import substitution
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Also known as import-substituting industrialisation, refers to growth and trade strategy where a country begins to manufacture simple consumer goods for the domestic market to promote its domestic industry. This depends on trade protective measures to prevent the entry of imports that compete with domestic producers.
Export promotion
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Growth and trade strategy where a country attempts to achieve economic growth by expanding its exports.
Typical Export promoting policies:
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State ownership and control of financial instituitions
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Targeting of industries for export
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Industrial policies to support export industries
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Some protection of domestic industreis
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Requirement imposed on multinational corporations
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large public investments in key areas
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Provision of incentives for private sector R&D for high technology products.
Factors making export promotion over import substitution
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Expansion into foreign market
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Benefits of diversification
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Major investment in human capital
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Export revenue prevent BOP problems
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Increase employment
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Appropriate technologies
Diversitification
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involves a reallocation of resources into new activities that broaden the range of goods or services producedd.
As we have mentioned the problem of overspecialisation, diversification for a country is important.
It also helps country to achieve the following objectives:
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Sustained increases in export
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Development of technological capabilities and skills
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Reduced vulnerability to short-term price volatility and long-term price declines
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Use of domestic primary commodities