Critically Discuss the Similarities and Differences Between Industry Based Approach to Economic Growth and Development and Trade Based Approach to Economic Growth Development.
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Trade can be a strong force for economic growth and development through utilising trade liberalisation and trade openness policies through taking advantage of the diverse open world market opportunities offered. However, using the power of trade is most difficult for developing or low-income countries, due to supply-side domestic constraints, meaning that trade liberalisation and openness have not always conveyed the predicted results.
Weaknesses of the trade-based approach are the due to developing countries facing major obstacles in their aim for economic growth through trade policies. One setback is the difficulty of obtaining access to markets, restricting the availability and volume of trade. Furthermore, due to capacity constraints, for example, lack of trade-related infrastructure, turning trade opportunities into trade flows is one difficulty that presents a barrier to world market integration. These domestic constraints limit the influence of trade expansion on economic growth, therefore hindering progress of development as an economy. Moreover, trade reforms and expansions, and their impact on the economy depend on the policies that are implemented and the effect it has on the population .
Despite these weaknesses, trade-based approaches and policies to development can be very successful. The two most popular trade policies include export promotion and import substitution in which East Asia and Latin America respectively undertook in the post-World War II economy . These trade policies assist in a countrys development by stimulating industrialisation , boosting economic growth and GDP. Correlation studies between exports and economic growth shows that high economic growth is significantly associated with high levels of export growth , showing the positive effect trade and trade-promoting policies have on an economy, which is a major strength to this approach.
Despite several domestic constraints, trade policies for developing countries are particular important and effective. It is stated that export expansion in low income countries correlates with higher economic performance , therefore trade policies would be most beneficial for
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