"The countries which have implemented policies that emphasize exporting have been more successful than the countries using import-substituting industrialization (ISI)." Does theory suggest that this must be the case? That is, theoretically, is there no support for ISI, or are the necessary conditions for successful ISI not being met?
What will be an ideal response?
POSSIBLE RESPONSE: Theory provides several reasons that ISI could be appropriate and successful. First, ISI is a form of support for the development of infant industries. Second, ISI can generate tariff revenue that the government can spend on education and health. Third, ISI can improve the country's terms of trade. Fourth, current imports provide a guide to industries that can be targeted for development. So why did ISI not work? The theory failed because real world governments are ill-informed and lack the power to stop protecting industries that turn out to be inefficient. ISI often resulted in industries where domestic firms have high costs, low product quality, and domestic monopoly power. Outward-oriented policies that emphasize exporting encourage domestic firms to make use of the country's relatively abundant resources. Firms can achieve scale economies in international markets. International competition creates pressure on them to increase quality and resource productivity.
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a. What strategies and payoffs are represented by quadrant A? b. What strategy will Firm 1 pursue if it believes that Firm 2 is offering a coupon? c. What quadrant represents the equilibrium that will result if the firms act independently (compete)? d. What quadrant represents the equilibrium that will result if the firms successfully collude?
The shortened work week coupled with rising hourly wages in the U.S. economy shows that
A. the income effect has been dominant. B. the substitution effect does not exist at all. C. the U.S. worker is no longer productive. D. workers have become increasingly lazy.
China collectivized its agriculture during the Cultural Revolution
a. True b. False
We say that a country completely specializes in production when it spends all of its resources producing:
A. those goods it has an absolute advantage in producing. B. what it can make more of than anyone else. C. a particular good. D. only what other countries need.