Less developed countries (LDCs)

have adopted two alternative

strategies for achieving
industrialization— inward-looking
strategy and outward-looking
strategy.
An inward-looking strategy is an
attempt to withdraw, at least in the
short run, from full participation in
the world economy.
This strategy emphasizes import
substitution, i.e., the production of
goods at home that would otherwise
be imported.
In contrast, an outward-looking
strategy emphasizes participation in
international trade by encouraging the
allocation of resources in export-
oriented industries (EOI)
In other words, it is an application of
production according to comparative
advantage in certain lines of
production in a given country
As opposed to import substitution
(IS) policies, some LDCs have
adopted outward-looking
development strategies. These
policies involve government targeting
of sectors in which the country has
potential comparative advantage.
This strategy focuses on export-
promotion, whereby policy measure such
as export subsidies, encouragement of
skill formation in the labour force and
the use of more advanced technology,
and tax allowances generate more
exports, particularly labour intensive
manufactured exports in accordance with
the principle of comparative advantage.
A key element in the promotion of
export oriented industrialization has
been the use of export processing
zones.
Export processing zones comprise
not only a spatial entity, movement to
and from which is closely monitored
but also a package of incentives.
However, to be allowed into an EPZ,
firms have to export a high
proportion of their output
Export processing zones represent
the most dramatic manner in which
developing countries are competing
for foreign investment and trying to
induce local manufacturers to
produce for exports
A wide range of incentives are
offered as part of an EPZ package.
Although details of incentives often
vary from country to country, the
general types of incentives offered
are extensive.
Arguments for EOI
First: With export-led growth, firms
produce according to their long-term
comparative advantage. This is not
current (static) comparative
advantage, based on existing
resources and knowledge.
It is dynamic comparative advantage,
based on acquired skills and
technology, and recognition of the
importance of learning-by-doing of
the improvement in skills and
productivity that comes from
repetitive performance and
production experience.
With exports, the demand for the
goods produced by an LDC is not
limited by the narrow size of the
domestic market. The market is the
entire world.
Second: The advocates of export-led
growth also believe that the competitive
pressure generated by the export market is
an important stimulus to efficiency and
modernisation.
The only way a firm can succeed in the
face of intense international competition
is to produce what consumers want, at the
quality they want, and at the lowest
possible costs.
Third:Export-oriented industrialisation
overcomes the smallness of the domestic
market and allows an LDC to take
advantage of economies of scale.
The expansion of manufactured
exports is not limited (as in the case
of IS) by the growth of domestic
market. This is particularly important
for many developing countries that
are both very poor and small.
Fourth: Production of manufactured
goods for export requires and stimulates
efficiency throughout the economy.
This is especially important when the
output of an industry is used as an input of
another domestic industry.
Fifth: Finally, export-led growth
strategy facilitates the transfer of
advanced technology.
Producers exporting to developed
countries not only come into contact
with the efficient producers within
these countries but also learn to adopt
their standards and production
techniques.
They come to realise quickly why
timeliness and quantity in production
are of strategic importance for
achieving success in a global market.
Arguments against EOI
1. It may be very difficult for LDCs to
set up export industries because of
the competition from the more
established and efficient industries in
developed nations.
2. Developed nations often provide a
high level of effective protection for
their industries producing simple
labour-intensive commodities in
which LDCs already have or can
soon acquired a comparative
advantage.
3.Comparative advantages in each
period must be defined clearly and
they should be employed effectively,
because comparative advantage is
dynamic.
Local companies are forced to select
and replace technologies in use, and
improve their managerial skills.
It also requires new macroeconomic
policies that are flexible enough to
deal with changes on the world
market.
The economy should ensure
conditions for enhancing the quality
of development, and more exactly,
enhancing the international
competitiveness