Q4+-+Development

==== Some economists have begun to refer to some countries as Newly Industrialized Countries (nics). Explain and discuss the strategies that a Less Developed Country (ldc) might adopt if it wishes to become a nic. [M 93, 6] ====

__**Response **__
If an LEDC wants to become a Newly Industrialized Country, it must turn its country onto a more export-orientated path. Trade barriers should be lowered and in doing so allow for the increased inflow of Foreign Direct Investment as well as stimulate aggregate demand and encourage domestic investment. LEDCs are likely to have a large labour force, most of which is unemployed, hence the low GDP – so they should produce labour-intensive goods likes leather or rice for which they have the comparative advantage and can therefore is competitive in the international market increasing exports. Also by investing in the merit goods of the economy such as health and education, the quality of the goods produced will increase which will in turn make exports even more competitive. The government should protect the infant industries; industries which they believe have the potential to have a comparative advantage in the international market by giving them subsidies, grants, soft loans etc. The government can also intervene by helping keep the currency artificially low by quantitive easing therefore making exports appear to be “cheaper”. Imports should also be discouraged in order to stimulate domestic supply which will provide jobs therefore more savings, income and investment, leading to a higher income and GDP. The government should also remove any tariffs on capital imports as it will help keep costs down. These strategies might result in a dramatic boost in productivity and growth but it has the opportunity cost of increasing the inequality gap exponentially within a country itself. The focus of labour intensive goods might lead to exploitation of low-cost labour and then might lead to a lowering of the quality of life whilst national income increases in which case it’s not exactly development. In terms of government interference, the government might choose to protect the wrong infant industries and in doing so misallocate resources. Also keeping the currency at an artificially low rate leads to discontent amongst other countries as exports decrease because they aren’t as competitive. This might lead to retaliation and trade barriers, quotas or tariffs on imports. What is an even worse scenario is if there is a sudden supply-side shock and raw resources are cut off for example, this will send inflation soaring; this coupled with quantitive easing will result in a recession eventually as debt builds up and investment is re-allocated. In any case, the example commonly referred to by economists as a success of outward-oriented policies is the Asian Tigers and the dramatic growth they experienced. These countries also had certain favourable economic factors such as a high level of literacy, healthcare and efficient governments. But even they experienced a dramatic crash of their economies as a result of their currencies depreciating as a result of massive pull-out of foreign investment.