Outward Oriented Growth

Question 1

Whats another name for Outward Oriented Growth?

Answer 1

The Neo Classical Approach

Question 2

Explain the Neo-Classical Approach

Answer 2

Markets and Prices: Markets set prices that help decide where resources should go to get the best results.

Matching Local and Global Prices: Making local prices closer to world prices helps local businesses compete better globally.

Boosting Exports: Putting resources into sectors that can export more helps the economy grow

Question 3

What are the signs that an economy is moving to become more open (Trade Liberalisation)

Answer 3

1. Reduction of Tariffs
2. Some protection on key areas
3. Export subsidies
4. Devaluation of Local Currency

Question 4

What are strategies used in Outward Oriented Growth?

Answer 4

1. Foreign Direct Investment (FDI)
2. Export Processing Zones
3. Regional Cooperation/Regional Trade Integration
4. Export Subsidy

Question 5

Explain FDIs and its effects.

Answer 5

Foreign Direct Investment (FDI) is when a firm (typically MNCs) from one country sets up operations in another country.

This could involve , opening a branch, or building new facilities, like factories or offices.

Benefits:
1. Create Jobs for Host (Increase productivity)
2. Knowledge and Technolgy transfer (Increase A in Harrod-Domar)

Question 6

Explain EPZs and its effects

Answer 6

Designated Zones: EPZs are specific areas within a country where businesses get special incentives. (Near ports usually)

Export Focus: Companies in EPZs are primarily focused on manufacturing goods for export.

Incentives Offered: EPZs offer benefits like tax breaks, reduced tariffs, and simplified customs procedures to attract businesses.

Job Creation: They help create jobs by encouraging foreign and local companies to set up production facilities.

Economic Growth: EPZs are used as a strategy to boost a country’s exports and overall economic growth.

Question 7

Challenges for FDI

Answer 7

Political instability in a country – USA, UK (Brexit)

Tensions between countries : China – USA; Russia – Ukraine crisis

Greater drive for nationalism and concern over food security

Post Covid 19 Evaluation on effects of lockdowns

If MNCS leave, they leave a hollow in the economy : empty factories and amenities, local workers unemployed

Question 8

Firm’s Perspective of FDI

Answer 8

Market Access: FDI allows firms to enter and operate in foreign markets, often bypassing trade barriers like tariffs and quotas.

Resource Acquisition: Firms can access local resources, such as raw materials, labor, and technology, often at a lower cost.

Control and Influence: Unlike other forms of investment, FDI gives firms significant control over their operations and decision-making in the host country.

Question 9

Challenges of EPZs

Answer 9

1. Freer labour laws ; minimum wage law might not apply to them (Worker Exploitation)
2. Environmental Pollution
3. Local Govt has little control
4. Lower transfer of skills and knowledge as EPZ firms employ the more lowly skilled labour

Question 10

Explain Regional Cooperation

Answer 10

Trade Facilitation: RTAs reduce or eliminate tariffs, quotas, and other trade barriers between member countries, making it easier and cheaper to trade goods and services across borders.

Market Access: RTAs provide businesses in member countries with better access to each other’s markets, creating opportunities for expansion and growth.

Competitive Advantage: By forming RTAs, countries can strengthen their economic position by collectively negotiating better terms in global trade and attracting investment.

Examples: Examples of RTAs include the European Union (EU), the North American Free Trade Agreement (NAFTA, now replaced by the USMCA), and the Association of Southeast Asian Nations (ASEAN) Free Trade Area.

Question 11

Trade Creation , Diversion and Deflection
When Laos joined ASEAN in year 1997 ,and she began to open trade to Brunei to import oil and reduce her trade with India . We can thus conclude Laos has

a.
Trade creation with Brunei and India

b.
Trade creation with Brunei and trade diversion with India

c.
There is trade deflection with India

Answer 11

b.
Trade creation with Brunei and trade diversion with India

Trade Creation:
Country A and Country B form a trade agreement.
Before Agreement: Country A imports goods from Country C (a non-member) at a high tariff.
After Agreement: Country A imports the same goods from Country B at a lower or no tariff.

A and B = Trade Creation

Trade Diversion:
Country A and Country B form a trade agreement, and Country A starts importing goods from Country B instead of Country C.

A stop trade with C and instead trades with B = Trade Diversion

Question 12

A German auto manufacturer locates an assembly plant in Thailand to gain ASEAN trade preferences on sales of the completed product to Indonesia, This an example of

a.
Trade Diversion

b.
Trade Deflection

c.
Trade Creation

d.
FDI inflow in Germany

Answer 12

b.
Trade Deflection
Germany is not part of Asean but direct her production to Thailand. Thailand and Indonesia in ASEAN has preferential trade agreement so the Thai produced German cars is able to reach to Indonesia

Question 13

What is the Noodle Bowl Effect?

Answer 13

The Noodle Bowl Effect refers to the complex web of overlapping regional trade agreements (RTAs) and free trade agreements (FTAs) that create a tangled, confusing network of trade rules and regulations.

Too Many Crisscrossing FTAs: When countries have numerous overlapping Free Trade Agreements (FTAs), it creates a complex web of trade rules and tariffs.

Costly Complications: This complexity can lead to higher costs for businesses due to the need to manage different regulations.

Discriminative Trade Policies: Countries might adopt policies that favor certain partners over others, which can be unfair and lead to trade imbalances.

Reduced Trade Welfare: Overall, this tangled network can reduce the overall benefits of trade by making it less efficient and more costly.

Question 14

GVC
Country A provides labour and equipment worth $10 to mine 10kg of iron which is sold at $15/10kg

Country B provides factories and refineries worth $5 to refine the iron bought from A into bicycle parts and sells it at $25.

Country C assembles a bicycle at its assemblies for $2 and sells the completed bicycle at $30

What is the total value added by all three countries?

Answer 14

Country A:
Input Cost: $10 (labor and equipment)
Selling Price: $15 (for 10kg of iron)
Value Added by Country A: $15 - $10 = $5

Country B:
Input Cost: $15 (cost to buy iron from Country A) + $5 (factories and refineries) = $20
Selling Price: $25 (for bicycle parts)
Value Added by Country B: $25 - $20 = $5

Country C:
Input Cost: $25 (cost to buy bicycle parts from Country B) + $2 (assembly)
Selling Price: $30 (for the completed bicycle)
Value Added by Country C: $30 - ($25 + $2) = $30 - $27 = $3
Total Value Added by All Three Countries:

Value Added by Country A: $5
Value Added by Country B: $5
Value Added by Country C: $3
Total Value Added = $5 + $5 + $3 = $13

So, the total value added by all three countries in the Global Value Chain is $13.

Question 15

Why do emerging economies participate in global value chain?

Answer 15

GVCs are considered a fast track for emerging economies to industrialisation

Question 16

Why do developed economies participate in global value chain

Answer 16

GVCs provide access to more competitively priced inputs, higher variety, and the economies of scale.

(GVCs help businesses get cheaper materials, offer more choices, and allow them to produce more at lower costs.)