International Trade: A Case of Developing Countries and the Policies Involved

INTERNATIONAL TRADE: A CASE OF DEVELOPING COUNTRIES
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International Trade: A Case of Developing Countries
Introduction
Industrial growth and development are important in developing countries and as such, it has received considerable attention over the years. According to Carrasco and Tovar-Garcia (2020), high rates of growth in developing countries have been linked to reduced poverty and improved standards of living. Over the years, developing countries have adopted different policies and strategies to promote economic and industrial growth. The results, even from developing countries using similar policies, indicate that the rates of economic growth vary considerably (Carrasco and Tovar-Garcia, 2020). Countries using similar policies find themselves in the extreme ends of growth rates, with some enjoying high growth rates while others experiencing very low growth rates if any. Understanding these policies, especially in the era of globalization and international trade, is important for policymakers, to allow them to introduce more appropriate policies for the growth of their specific countries. This paper aims at discussing import substitution policies and export-led growth policies and how they influence/ can influence economic growth and development in developing countries. Further, the paper will discuss the challenges of each of these policies and provide a recommendation on which policies can best promote growth and development in developing countries.
Import Substitution Policies
Import substitution policies are inward-looking in the sense that they focus on reducing foreign dependency by replacing imports with local production of goods (Slatvistskaya et al., 2017). The idea of such policies is to reduce the surplus of imports in the domestic market while giving the country a chance to develop its market and become more competitive in international trade. Import substitution policies gained prominence in the 1950s and 1960s (Slatvistskaya et al., 2017). Several factors contributed to the popularity of these policies. The first factor was the end of the Second World War, which resulted in a high cost of living, especially in developing countries (Adewale, 2017). A lot of production resources had been focused on producing weaponry for the war and local households suffered as a result. Developing countries realized a need to strengthen their local industries by producing goods that would otherwise be imported from other countries. The second factor was the global economic crisis (Adewale, 2017). During the meltdown, the prices of the primary products that are exported by developing countries went down. This affected the local economy by slowing industrial growth.
According to Adewale (2017), countries that adopted import substitution policies applied several strategies to facilitate sufficient internal markets. They include government subsidies, targeted import control, and high tariffs on imported goods. These trade limitations protect local industries whose products replace imports. Additionally, different countries use different approaches to import substitution policies. For instance, countries such as Japan used li...