It is argued that import substitution is a misguided trade policy if the intent is to promote long-term economic growth. Explain the reasons underlying this argument
What will be an ideal response?
Import substitution promotes that economic activity in which the country is relatively inefficient. This lowers the real income at any given time and decreases the resources which can be used for investment purposes, hence lower growth rates. An additional answer is that import substitution by creating a protected domestic market fails to provide incentives to produce high, or world-class quality-which means this country, cannot market in foreign countries. With such a (perceived) limited market, endogenous economic growth will not be forthcoming. Finally, it may be that exposure to world competition has its own dynamic effect promoting economic growth.
You might also like to view...
Refer to the figure below. If the price is $4 today and there is no change in either supply or demand, one would expect the price in the future to be:
A. greater than $6. B. $4. C. less than $4. D. greater than $4.
Which president had to cope with both rising deficits and a rising rate of inflation?
A. John Kennedy B. Dwight Eisenhower C. Jimmy Carter D. Ronald Reagan
A decrease in foreign incomes
A) increases aggregate demand in the United States. B) increases the aggregate quantity demanded in the United States. C) decreases the aggregate quantity demanded in the United States. D) decreases aggregate demand in the United States.
Refer to Figure 12-3. Suppose the prevailing price is P1 and the firm is currently producing its loss-minimizing quantity. Identify the area that represents the loss
A) P2 deP1 B) P3cbP1 C) 0P1 bQ1 D) P3caP0