Question

1. Discuss some policies or strategies that would give firms an incentive to substitute labor for capital within modern production techniques.

Answer 1

ans

NOTE-it's a short summary.

There is clear evidence that those LDCs which have increased exports of manufacturers have succeeded in increasing export earnings. There is also ample evidence that producers in these respond favourably to economic incentives.

The East Asian countries have demonstrated clearly the viability of trade policies in promoting industrialisation through reliance on foreign markets (as opposed to domestic markets) and were based on dynamic comparative advantage that went beyond reliance on primary commodities.

The East Asian experience clearly demonstrated that the earlier export pessimism that underlay the ideas of IS was perhaps more an indicator of inward-oriented trade and payment regimes than an outward focus based on a dynamic comparative advantage. The East Asian experience suggests that LDCs with an outward focus would not lock themselves permanently into a pattern of primary product specialisation.

So the conclusion is that a clear understanding of comparative advantage and the importance of fostering the presence of correct relative prices of products and factors is central to harnessing the potential role of international trade in promoting the development of newly industrialising countries.