Q78+-+Development

Distinguish between an outward oriented growth strategy and an ininward oriented growth strategy.

Outward oriented growth strategies and inward oriented growth strategies differ from each other in a number of ways. Outward oriented growth strategies are used when a developing country aims and export markets which involve focusing on industrialization and opening the economy by moving towards a somewhat more free trade and free capital flows from abroad. An outward oriented strategy can be defined as a strategy based on openness and increased international trade. Growth is achieved by concentrating on increasing exports and export revenue, as a leading factor in the aggregate demand (AD) of the economy. Growth in the international market should be translated into growth in the domestic market over time. Countries that have applied the use of outward oriented strategies include Malaysia, South Korea, Hong Kong, and Taiwan. Characteristics of outward oriented strategies include that they decrease trade barriers for increased trade, and capital markets are opened and regulations on capital flows are relaxed. Countries who use outward oriented strategies also focus on comparative advantage. It produces the products in which it has a comparative advantage. Inward oriented strategies on the other hand include import substitution. This means that the basic strategy is to implement barriers to imports, such as tariffs. The definition of an inward oriented strategy is that it is a strategy that encourages the domestic production of goods, rather than importing them. It should mean that industries producing the goods domestically should grow, as will the economy, and they then should be competitive on world markets in the future. the strategies encourage protectionism. Inward oriented strategies also encourage domestic producers with subsidies.

For example, in the diagram below, it shows how one country has a comparative advantage, which allows for it to produce that product for export use. The comparative advantage for the better producer is the good where the distance between the production possibilities is greatest, which in this case is the distance between 1 and 3 liters of wine. The comparative advantage of the less efficient producer is the good where the distance between the possibilities is the least, for example, the distance between 3 and 4 kilos of cheese. This shows how France has a comparative advantage in producing wine and Poland has a comparative advantage in producing cheese. France would then produce wine and export this product. This shows how the country would use outward oriented growth strategies.