Question

The consensus today is that import-substitution protectionist industrial policy has not served the developing countries' growth ambitions well. This fact proves that policies relying on export-driven growth are the "winning ticket" for these countries. Fully evaluate this statement.

Please don't copy and paste from other websites. I can get those myself. Only answer if you have knowledge of the topic so we're not getting random answers that don't make sense.

Answer 1

Prior to the 1990s period, wherein the World Trade Organisation came into existence and most developing countries opened up their economic boundaries to allow for imports to take place, the world had countries such as India and China which largely saw no economic imports across most sectors.

These countries assumed that slowing down imports would give boost to the local companies which would catch up with foreign competition gradually and help in boosting the economy. What they did not realize however, is the fact that such economies also see reduced export volumes due to retrospective taxation by other developed or developing countries alike.

Countries such as India and China were falling and had extremely low growth rates due to these policies coming into existence. This would mean that the domestic companies remained sluggish and were often subject to lesser income levels which were possible if free market economics was established.

Post opening up their economies to foreign trade, the same countries today are seeing as much as double-digit growth rates, wherein they have become manufacturing hubs and are used by all major countries for diverse needs which they may have.

The rationale behind opening up an economy and allowing foreign trade to take place is the fact that domestic companies in an environment wherein there is lesser competition do not try and maximize on their innovation and the end result being that customers have few choices to choose from for fulfilling their overall demand. This results in a situation wherein due to lack of quality in the product these are not demanded at all in the international markets, and even if demanded are subject to retrospective or in return taxes which are placed because of import restrictions by these economies themselves. Then, the aggregate demand or total demand in the country remains low. The employment opportunities are limited and lack of revenue means lesser tax collections for the government.

Over time, this has eased out for the numerous countries which have now operated under free market economics and have allowed companies to come in and export goods freely. The overall expenditure in these countries has gone up by miles and so has the employment opportunity and the ability to create more money for themselves.

Please feel free to ask your doubts in the comments section.