Question

Describe the advantages and disadvantages of export-led growth versus consumption-led growth strategies.

Answer 1

Answer1:

Advantages of Export-led growth

Increases efficiency: the productivity of an economy increases due to increase in its efficiency due to exports oriented growth.

Exporting is an efficient way of getting innovative technologies. Both exporting firm and economy make technological advancement and learns through channels of exporting.

The disadvantage of export-led growth.

Dependence on foreign markets: the export-led growth of an economy almost completely dependent on foreign markets. A little imbalance in the foreign market can lead to decrease in growth in the home country.

Neglect of domestic priorities: the domestic need gets neglected in order to attain more growth through exports. Almost all the good quality products get exported leaving country’s own people neglected.

The advantage of consumption-led growth.

This growth means consumption is the main source of increasing aggregate demand and economic growth.

It requires spending good income on consumption so they have to earn more in order to consume more. There will be poverty alleviation.

It is like a welfare focused growth. The standard of living will increase and social inequality will decrease.

The disadvantage of Consumption led growth.

It can lead to high current account deficit in the short run because of increase in demand for exports.

The growth will be unsustainable. If growth will be focused on consumption increase then there are higher chances of unsustainable development.