Export-oriented industrialization

Export-oriented industrialization (EOI), sometimes called export substitution industrialization (ESI), export-led industrialization (ELI), or export-led growth, 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, that may not be true of all domestic markets, as governments may aim to protect specific nascent industries so that they grow and can exploit their future comparative advantage, and in practice, the converse can occur. For example, many East Asian countries had strong barriers on imports from the 1960s to the 1980s. Reduced tariff barriers, a fixed exchange rate (a devaluation of national currency is often employed to facilitate exports), and government support for exporting sectors are all an example of policies adopted to promote EOI and ultimately economic development. Export-oriented industrialization was particularly characteristic of the development of the national economies of the developed East Asian Tigers: Hong Kong, Singapore, South Korea, and Taiwan in the post-World War II period. Export-led growth is an economic strategy used by some developing countries.…

Export-oriented industrialization (EOI), sometimes called export substitution industrialization (ESI), export-led industrialization (ELI), or export-led growth, 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, that may not be true of all domestic markets, as governments may aim to protect specific nascent industries so that they grow and can exploit their future comparative advantage, and in practice, the converse can occur. For example, many East Asian countries had strong barriers on imports from the 1960s to the 1980s. Reduced tariff barriers, a fixed exchange rate (a devaluation of national currency is often employed to facilitate exports), and government support for exporting sectors are all an example of policies adopted to promote EOI and ultimately economic development. Export-oriented industrialization was particularly characteristic of the development of the national economies of the developed East Asian Tigers: Hong Kong, Singapore, South Korea, and Taiwan in the post-World War II period. Export-led growth is an economic strategy used by some developing countries. The strategy seeks to find a niche in the world economy for a certain type of export. Industries producing this export may receive governmental subsidies and better access to the local markets. By implementing that strategy, countries hope to gain enough hard currency to import commodities manufactured more cheaply elsewhere. (i) y B =y A =y C : balance-of-payments equilibrium and full employment (ii) y B =y A C : balance-of-payments equilibrium and growing unemployment (iii)y B A =y C : increasing balance-of-payments deficit and full employment (iv) y B A C : increasing balance-of-payments deficit and growing unemployment (v) y B >y A =y C : increasing balance-of-payments surplus and full employment (vi) y B >y A C : increasing balance-of-payments surplus and growing unemployment (McCombie 423) Countries with both unemployment and balance-of-payments problems are supposed, according to the dominant economic paradigm, to orient their policies towards export-led growth aiming to achieve either situation (i) or situation (v). In addition, a mathematical study shows that export-led growth has wage growth being repressed and linked to the productivity growth of nontradable goods in a country with undervalued currency. In such a country, the productivity growth of export goods is greater than the proportional wage growth and the productivity growth of nontradable goods. Thus, export price decreases in the export-led growth country and makes it more competitive in international trade. ===Theoretical=== Mainstream economic analysis points out that EOI presupposes that a government contains the relevant market-knowledge enabling it to judge whether or not an industry to be given development subsidies will prove a good investment in the future. 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 investment, of which governments can only supply a limited amount. In many LDCs, it is necessary for multinational corporations to provide the foreign direct investment, knowledge, skills and training needed to develop an industry and exploit the future comparative advantage. Scholars have claimed that governments in East Asia, nonetheless, did have the ability and the resources to identify and exploit comparative advantages. EOI has, therefore, been supported as a development strategy for poor countries - because of its success in the Four Asian Tigers. It has helped these countries to escape the middle income trap to become developed, industrialized countries. 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. Japanese producers, for example, were given preferential access to US and European markets after World War II. Additionally, some domestic production was explicitly protected from outside competition, for an extensive period of time and until local business entities had become strong enough to compete internationally. They claim that the protectionist policies are crucial to the success of EOI. ===Empirical=== Despite its support in mainstream economic circles, EOI's ostensible success has been increasingly challenged over recent years due to a growing number of examples in which it has not yielded the expected results . EOI increases market sensitivity to exogenous factors, and is partially responsible for the damage done by the 1997 Asian financial crisis to the economies of countries who used export-oriented industrialization. This is something which occurred during the 2008 financial crisis and subsequent global recession. Similarly, localized disasters can cause worldwide shortages of the products that countries specialize in. For example, in 2010, flooding in Thailand led to a shortage of hard drives. Other criticisms include that export oriented 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 though there are criticisms of this thesis as practical contradictions have occurred. 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. ==See also== Import substitution industrialization International trade Industrial policy The Commanding Heights

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