Industrialization of East Asia - Essay Example

Why do many economists argue for outward orientation and export promotion to the industrialization of East Asia? ………………… College ………. Date of submission ……….. Introduction For many economists and observers, trade policy has been cornerstone of East Asia’s industrialization policy, even though its trade policies vary greatly and from country to country. With low trade barriers to enhance an economy’s efficiency, outward orientation has been highly significant as an intellectual measure to maintain economic development. Through export promotion from East Asian countries including India has been viewed as major trade concern by other countries, it was useful for many of East Asian countries to achieve greater presence in international markets. This piece of research work is an attempt to find out why many economists argue for outward orientation and export promotion for East Asian countries. This paper presents economic significance of both outward orientation and export promotion in order to help a country gain better role in international marketing and achieve economic growth. Outward Orientation for India According to large proportion of economics, countries that have relied on outward orientation as a strategy for development and industrialization have done better than those countries that in contrary adopted inward orientation (Edwards, 1989, p. 1). More specifically, outward orientation is a trade policy characterized with absence of bias against exports, active promotion of exports and low trade barriers (Mody, 1999, p. 2). Firms face equal incentives to produce for the home as well export markets, same time emerging exporters are given quite high levels of initial market protection. Outward orientation is an absence of bias against exports (Bromley, Mackintosh and Brown, 2004, p. 69). An inward orientation is an attempt to withdraw from the full participation of a country in the world economy. It supports import substitution that is the production of goods at home to be encouraged as it would otherwise to be imported. An outward orientation strategy is an attepmt to participate in international trade by encouraging resource allocation without any price distortions. Outward orientation is thus an application of production according to comparative advantage (Appleyard, Field and Cobb, 2005, p. 427). Economists argue for the outward orientation to industrialize East Asia because it is highly useful strategy to enhance and improve the economic performance of the country. A research done by World Bank about the performance of countries operating under different trade strategies, it is found that outward-oriented economies have been broadly superior to that of the inward oriented economies (Appleyard, Field and Cobb, 2005, p. 427). World Bank has suggested that outward orientation rather than inward orientation may lead to a more equal income distribution. It is because, the labor intensive exports can generate employment opportunities within the country. Same time, import substitution policies result in capital intesnive production processes that in turn causes displacing labors. Where Outward orientation strategy has been implemented, the foreign exchange shortage issue has been found less common (Appleyard, Field and Cobb, 2005, p. 427). Outward orientation encourages competition and innovation and thus to promote economic efficiency. As it is primarily a comparative advantage related ideology, it permits countries to take better advantages of technological opportunities available to them. The Indian context of outward orientation has helped it gain productivity gain and vent for surplus. It also has increased employment opportunities in India. Industrial licensing system and tax reform with simplified tax structure are some of the outcomes of outward orientation in India. Reserve bank’s status as regulator has been changed to be ‘facilitator’ that represents how far outward orientation was successful in India. The research analysis conducted by Kumar (2007) showed that Indian enterprises have drawn ownership advantages from the production experiences, cost effectiveness of their production processes and adaptations to the imported technologies due to its trade policy of outward orientation (p. 1). Since 1990s, Outward Foreign direct investment has been undertaken by Indian enterprises in order to achieve increased global competitiveness with a local presence in major markets and also by acquiring strategic assets and access to emerging trade blocs with an emphasis on outward orientation (Kumar, 2007, p. 6). Even though there are many arguments for outward orientation for India’s industrial and economic renaissance, there are growing concerns that India’s emphasis on outward orientation has resulted to make its share of global trade unchanged. According to a report issued by IMF, if India had opened up like China since late 1970s, its exports would have gone up to $200 billion instead of its average figure of $50 billion (Business line, 2002). IMF has suggested that more efforts are to be put in to eliminate the anti-export bias of Indian economy which would achieve the authorities objective for trade integration. India’s share of world trade merchandise exports has increased from 0.5% to less than 0.7% where as China’s share has been tripled to almost 4% (Business Line, 2002). Export Promotion for India Export promotion is another trade policy that ensures various incentives programs in order to attract more firms towards exports and by offering aids in product and market development, financing, training and other by delivering other necessary resources. Some Economists argue for focusing on export promotion so as to use various measures of incentives like export subsidies, encouraging skill accumulation in the labor force, use of more advanced technology and tax breaks etc (Appleyard, Field and Cobb, 2005, p. 426). Czinkota (2002) emphasized that many governments have recently developed many programs in roder to assist exporters as they view export as ‘special’ for their macroeconomic impact. In order to function efficiently as well as to solve WTO’s anti-subsidy rules, exports promotion programs have become central to the international trade and its financial need. Exports are highly significant to a country because they can affect currency values and fiscal and monetary policies. They are the only means a country can meet its requirements of foreign currency for imports. Export is also crucial for the degree of choice and quality of life experienced by consumers. Export is to be promoted because it can lead to lower costs and higher profits in both the home market as well as foreign market (Czinkota, 2002, p. 316). Many economists argue for export promotion for the in dustrialization of East Asian countries because , for the firms, exports deliver greater opportunities for economies of scale and with broader market reach and achieving many customers abroad, the firms will be able to produce more. This will lead to lower costs and higher profits in both home and foreign markets. Export promotion has been found to facilitate market diversification as well (Czinkota, 2002, p. 315). As far as India’s export promotion is concerned, the main emphasis of India’s export policy was to increase the availability of hard currencies to pay for the increasing imports from the developed countries. Export promotion is always viewed as most beneficial and highly imperative trade policy for India because its failure to boost exports to the desired extent has been causing deficit in its balance of payment and thus increasing its foreign debt as well. For years, subsidies and some other incentives only have been used to promote exports (Prasad and Krishna, p. 245). India has been promoting its exports through various measures like 1) cash subsidies on exports, 2) bank loans at cheap rate of interest, 3) facilities being provided by governmnet for importing machineries and raw material, 4) concessional freight, railways and shipping charges and 5) income tax concessions (Jain, Trehan and Trehan, p. 299). Conclusion This piece of research paper has highlighted the argument for export promotion and outward orientation for the industrialization of East Asian countries, specifically of Indian economy. The paper has presented a detailed study on both outward orientation and export promotion as strategies for the economic development of India. References Appleyard D R, Field A J and Cobb S L, 2005, International Economics, Fifth Edition, McGraw Hill Publishing Irwin Bromley S, Mackintosh M and Brown W, 2004, Making the International: Economic Interdependence and Political Order, Illustrated edition, Pluto Press Business Line, 2002, India must open up to attain trade integration, says IMF, Retrieved from http://proquest.umi.com/pqdweb?did=166518151&sid=1&Fmt=3&clientId=13118&RQT=309&VName=PQD Czinkota M R, 2002, Export Promotion: A Framework for Finding Opportunity in Change, Thunderbird International Business Review Edwards S, 1989, Openness, outward orientation, trade liberalization, and economic performance in developing countries, World Bank Publications Jain, Trehan and Trehan (nd), Indian Economy, FK Publications Kumar N, 2007, Emerging TNCs: trends, patterns and determinants of outward FDI by Indian enterprises, Transnational Corporations, Vol. 16, No. 1 Mody A, 1999, From "Outward Orientation" to New Internal Capabilities, World Bank Publications Prasad P H and Krishna M, 2000, India: dilemma of development, Mittal Publications Read More