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This paper is aimed at examining the advantages and disadvantages of export-oriented industrialization. This economic policy has been described as one of the factors that contributed to the development of many less advanced countries that were able to raise their standards of living. Nevertheless, it has also been argued that this strategy can lead to exploitation of laborers and increasing inequality in the society (Schuerkens 2010, p. 102). It is necessary to focus on less developed countries which implemented this policy after the end of World War II. One should bear in mind that in the middle of the twentieth century various countries could be viewed less developed, for instance, one can mention South Korea, Taiwan, or Singapore.
Moreover, it is critical to look at the experience of western countries that took a different approach. Overall, it is possible to argue that export-oriented industrialization can indeed contribute to the growth of economy because this policy can increase the income level and purchasing power of people living in less developed countries. Furthermore, in this way, the poor countries can gain financial resources that are needed for the improvement of local infrastructure. Nevertheless, policy-makers and economists should remember that the implementation of this strategy depends on such factors accessibility of market, the level of corruption, skills of local workers, and willingness of entrepreneurs to invest into new technologies. This is the main thesis that can be put forward.
The underlying principles of export-oriented industrialization
Overall, export-oriented industrialization can be described as the economic policy which lays stress on the production and export of those products for which a country has a comparative advantage (Bair 2009, p. 29). Moreover, it can be possible if the barriers to free trade are eliminated. For example, one can speak about such obstacles as import quotas or tariffs (Dickson 2013, p. 1991). These are the main premises of this approach. It should be borne in mind that the comparative advantage can be explained by several factors, for instance, the presence of natural resources, the availability of skilled and less expensive labor force, or even the climate of a country. In many cases, companies that are based in less developed countries can achieve leading positions in the market because their production is more cost-efficient (Dickson 2013, p. 1991). In turn, the nation that adopts this strategy has to focus on those areas where it can best compete with foreign countries. Furthermore, this policy implies that foreign market can be more profitable for a country, than the domestic one. These are the main issues that can be taken into account.
After World War II, this approach to economic development has been adopted by different countries. Much attention should be paid to Asian countries such as Singapore or Taiwan. At that time, these countries were profoundly affected by poverty and increasing unemployment rates (Hamilton 1996, p. 1). However, they could gain comparative over others because local companies had access to relatively skilled and cheap labor force (Hamilton 1996, p. 1). The industrial development of these countries can also be explained by the fact that they had strong economic relations with Japan which passed through a period of rapid growth in the early sixties.
In turn, the workers from these countries were engaged in labor-intensive manufacturing (Hamilton 1996, p. 1). At the beginning, the manufacturers from Taiwan focused on the export of textiles. However, in the following decades, the country switched to the production of advanced technologies, usually electronics (Rasiah & Schmidt 2010, p. 48). These products enjoyed significant demand in the foreign market. Similar strategies have been implemented in India. This nation concentrated on the exports of textile and agricultural products. For example, one can mention sportswear, knitted garments, cotton, sugar cane, wheat, rice, and many others (Rameshan, 2008, p. 67). However, within the last two decades, India began to play an important role in information technology industry (Rameshan, 2008, p. 67).
Thus, one can say that the development of these countries had similar patterns. These processes contributed to the improvement in the standards of living. For example, one can mention the country reduced income inequality (Chan & Clark 2013, p. 1958). Additionally, the GDP of this country grew by 300 percent within the period between 1960 and 1986 (Chan & Clark 2013, p. 1958). This trend has been observed in other countries such as Singapore or Hong Kong. At present, the most eloquent example of export-oriented industrialization is China. The economic development of this country is primarily dependent on the foreign demand for its products and labor-intensive production. These are some of the main examples that can be discussed.
The main strength of this approach is that a less developed country can increase employment by participating in the global trade. Additionally, this strategy eventually leads to the rising income level of people who can improve the quality of their lives. Moreover, they can get access to education (Hamilton 1996, p. 1). This is the main prerequisite for a person’s ability to climb the social ladder and become competitive in the labor market. In turn, they can start their own businesses that can also become profitable. Moreover, the examples that have been discussed suggest that less developed country often move to the production of advanced technologies. Apart from that, one should bear in mind that export-oriented investment brings foreign direct investment to a country (Chan & Clark, 2013). This flow of capital is also critical for the growth of industries. These are the main benefits of export-oriented industrialization.
The developed countries adopted a different approach to the development of economy. They paid attention to both domestic and foreign markets since the purchasing power of local clients was also high. Moreover, these nations had to rely on advanced technologies in order to retain comparative advantage. Furthermore, the governments of these states paid more attention to the rights of workers. However, it is important to remember that income inequality, which is measured by Gini coefficient, was higher in some western countries, even in comparison with some Asian states that relied on export-oriented industrialization.
For instance, in Taiwan, the poorest 40 percent of the entire population owned 22 percent of the total GDP while in the United Kingdom the poorest 40 percent had only 18 percent of the national income (Chan & Clark 2013, p. 1958). Therefore, it is not possible to argue that export-oriented industrialization inevitably lead to inequality within a society. Still, economically advanced states were able to diversify their economies. Moreover, service industries began to play a more important role in these countries. This situation could be observed in Europe and the United States. Overall, one can argue that at present, some of Asian countries such as Singapore have reached the standard of living set in Europe or the United States. These are the main aspects that can be identified.
The limitations of export-oriented industrialization
However, this policy may have significant limitations. First of all, the emphasis on specific industries can lead to the decrease of diversification. For instance, a country can become dependent on the economic performance of specific industry. In the long-term, such a state can become very vulnerable to the changes in external environment. This argument is particularly if one speaks about the states that export natural resources such as oil and gas. This strategy can increase the GDP of these countries; however, it does not always intensify upward social mobility. The most eloquent example is Nigeria which exports oil and gas; however, other areas of this economy remain underdeveloped (Campbell 2013, p. 15).
In this case, much attention should be paid to manufacturing sector that cannot become competitive. This phenomenon is often described as a resource curse which means that the exportation of resources is associated with the decline of other industries. Overall, the resource curse can affect both developing and advanced countries. Nevertheless, this situation can be attributed to such factors as corruption, lack of infrastructure and the collapse of the educational system (Campbell 2013, p. 15). Therefore, one should not suppose that export-oriented industrialization always brings success. Nevertheless, these problems encountered by Nigeria can be resolved by the government. This is one of the main arguments that can be put forward.
Apart from that, such states can become extremely dependent on the trade policies of other states. The development of such nations as China or India can be possible provided that they have access to foreign markets (Dickson 2013). The export-oriented economy of such countries cannot function effectively provided that other countries adopt protectionist policies. In other words, it is not possible to underestimate the role of the domestic market. If the purchasing power of local clients does not become strong, the industrialization of a less developed country may not be successful. This issue should be taken into account by legislators who should work on the development of social policies.
Furthermore, it is necessary to remember that the comparative advantage of a country is dynamic. A nation can be quickly gain expertise in those areas that were previously dominated by other countries such as the United States (Bair 2009, p. 29). The most vivid example of this transformation is Japan because it acquired leading roles in such industries as automobile manufacturing or electronics. Similarly, Taiwan and Singapore developed expertise in the production of information technologies, while in the sixties the companies based in these countries were engaged mostly in labor-intensive manufacturing. Thus, export-oriented industrialization can be successful if entrepreneurs adopt technologies that raise the volume of production or improve the quality of good manufactured by companies. If this initiative is absent, the economy of a country may stop to grow. This is the main risk that entrepreneurs should be aware of.
Moreover, in many cases, the development of an industry is affected by the governmental policies. For example, the state can provide subsidiaries to the enterprises that represent a particular sector of an economy. Nevertheless, governmental officials cannot always predict emerging trends the world economy (Dickson 2013, p. 1991). As a result, their actions can lead to the stagnation of many economic sectors. This is one of the main limitations that should be considered.
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Finally, it is vital to remember that a less developed country can achieve success through export-oriented industrialization if local laborers are relatively skilled. This situation could be observed in Taiwan, Singapore, and India (Hamilton 1996, p. 1). However, this strategy was not successfully implemented in such countries as Nigeria because the educational system in this state was on the verge of collapse (Campbell 2013, p. 15). These examples suggest that policy-makers should understand the drawbacks of export-oriented industrialization. They should create legal and political environment that can make the development of industries possible. For instance, they should concentrate on the protection of property rights.
This discussion suggests that export-oriented industrialization has been a driving force that improved the economic performance of many less developed countries. This strategy enabled many states to raise the standards of living and boost the development of industries. Nevertheless, this policy can be successful if several prerequisite conditions are present. For instance, it is possible to mention absence of corruption, accessibility of the world markets, or the development. Moreover, the government should not suppose that a certain industry can always retain comparative advantage. However, these short-comings do not undermine the positive role that was played by export-oriented architecture. It continues to be adopted by many countries that attempt to participate in the global trade. These are the main aspects that can be identified.
Bair, J 2009, Frontiers of Commodity Chain Research, Stanford University Press, Palo Alto.
Campbell, J 2013, Nigeria: Dancing on the Brink, Rowman & Littlefield Publishers, Boston.
Chan, S & Clark, C 2013, Flexibility, Foresight and Fortuna in Taiwan’s Development, Routledge, New York.
Dickson, A 2013, Development and International Relations: A Critical Introduction, John Wiley & Sons, New York.
Hamilton, G 1996, Asian Business Networks, Walter de Gruyter, New York.
Rameshan, P 2008, WTO, India, and Emerging Areas of Trade: Challenges and Strategies, Excel Books India, Delhi.
Rasiah, R & Schmidt, R 2010, The New Political Economy of Southeast Asia, Edward Elgar Publishing, New York.
Schuerkens, U 2010, Globalization and Transformations of Social Inequality, Routledge, New York.