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In: Economics

Development Strategies: What are the primary benefits and drawbacks of import-substituting industrialization, international commodity cartels, and...

Development Strategies: What are the primary benefits and drawbacks of import-substituting industrialization, international commodity cartels, and international commodity agreements for developing countries? Are official financial flows (e.g. aid, IMF loans) or private flows (e.g. foreign investment and bank loans) more beneficial for developing countries? Should either be encouraged by the international community?

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Expert Solution

Role of import substitutive industrialisation, international commodity cartel and international commodity agreement:

Import substitutive industrialisation benefits the domestic nation which is developing majorly as this helps the import burdern to be reduced for the nation by producing the imported goods domestically . This reduces the balance of payments burden in economy.

International commodity cartel is majorly fixing of prices above the market rate. The price cartels are beneficial for the developing country iff the domestic goods are sold at higher price. If the nation engages with a other nation to imprt goods at higher prices, this will lead to a balance of payment deficit for nation .

International commodity agreement is also double edged in its impact. If the domestic market is encouraged with agreement , this causes a boost to economy , otherwise not.

Role of official financial flows or private loans.

Bith official financial flows and private loans are lended to the developing nations with a face value of financial aid. The financial aid can help the economy to kickstart the economy by helping it invest in different varied areas. These areas can be development of infrastructure, domestic markets etc. Following this investment , the conditions on which the loans are lended are usually high and not easily compensated by the borrowing nation. The conditions include opening of economy which in long run can damange the domestic industries or there can be situation of debt trap the borrowing country might be stuck at. Hence the impact of these loans and lending is not just indicating financial aid, but an agreement with tradeoffs and choices for the borrowing country to make.

Talking about encourage the two aids, it depends on the impact it is making on the borrowing nation. Sometimes the economy is in a deep slump , and need financial assistance , then these both aids are extremely useful for short term atleast. But if the conditions following the lendings impact the domestic market adversely , the international regulation policies must control the damage.


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