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Questions based on readings - Assignment Example

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Import- substituting industrialization is a policy that is mostly used by small and developing countries. Its main aim is to replace foreign products with domestic products. This helps such countries reduce their dependency on foreign countries through local production of…
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Questions based on readings

Download file to see previous pages... Xcolonia is a country that has a comparative advantage in agriculture and textiles (Krugman et al. 55). Machinery production requires complex technology, which Xcolonia does not have. Easy export substitution would, therefore, be the best strategy for Xcolonia, where they export agricultural and textile products, and this will speed up industrialization. This strategy will help Xcolonia to create profits and reduce their debts. It will also trigger the productivity that will result to increased exports and greater efficiency.
2. By unlimited labor supplies the labor, the labor minister means that the labor supply in Xcolonia exceeds the labor demand. Thus is a characteristic of many small developing countries, where there is a labor surplus. However, most of this labor is unskilled and this may inhibit the growth since technical progress necessary for growth requires skilled labor. The Lewis-Ranis Fei model suggests that the economic growth take place if agricultural laborers are transferred to the industrial area, where their productivity would increase (Williamson et al., 44). This design is based on the assumption that the economy of concern is dual with a stagnant agricultural sector and a dynamic industrial sector. Therefore, at the point where marginal productivity equals zero, labor can be transferred to the industrial sector without any loss in agricultural sector. In the first stage of the model, there is disguised unemployment because the labor supply is perfectly elastic, and the marginal productivity of labor is zero. This disguised unemployment is transferred to the industrial sector at the constant institutional wage (Fort and Ricardo, 27). Due to the constant institutional wage, the labor supply curve is horizontal at this stage. However, this does not last forever. This can be shown using diagram 1.
3. Land is a major factor of production, and an important asset for the rural and urban poor. It provides a ...Download file to see next pagesRead More
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