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The Benefits and Problems to lesseconomically developed countries of free market development strategies.

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Introduction

The Benefits and Problems to less economically developed countries of free market development strategies Multi-national firms have access to the markets necessary for making use of technological processes and implementing them. These firms have headquarters located within developed nations yet the expertise that they possess would be invaluable to less developed nations with struggling industries and economies. In order for poor countries to develop and increase their wealth they must attract these firms or possibly create their own. However, these firms require a specific set of institutions within which they operate. The nations must have solid property laws, a corruption free government (that is stable and which abides by a set of laws), and a large internal market. There should also be some sort of physical infrastructure such as transport links, communication capabilities and educational facilities. These basic needs vary depending on the industry. For example, India's computer industry requires good educational institutions and communications, yet transport is not as important. There are two main development strategies used in third world countries. ...read more.

Middle

The other development strategy, export lead growth, encourages manufacturers in poor countries to produce goods for export, which must then be competitive on the world market. A success story of this is post-war Japan. It is now the general model of growth in Asia, where Taiwan, South Korea, Singapore, and Hong Kong successfully imitated the Japanese model in the 1970s and 1980s and now are rapidly developing middle-income countries. It is the most common model of growth for third world nations who export mainly minerals and agricultural products. However, they face uncertain and unstable markets where the ratio of export to import prices is unfavorable (or at least very unstable). A decline in the countries terms of trade means its imports of goods become relatively expensive, while its exports become relatively inexpensive in the world markets. Such a condition leads to a country exporting more but receiving less real income. Therefore, the biggest problem with the export lead growth model is that it requires an appropriate stable and growing export industry. ...read more.

Conclusion

Overall, though, the development strategy of export lead growth has been very effective. In order for the developing country to be a desirable locale for the expansion or start-up of a firm, as before mentioned certain conditions must be present. The cost of labour is often a key attraction for foreign firms, as it is much lower than that of developed nations. If transportation costs are significant a firm will tend to locate, either next to a source of raw material (if the material is heavy, bulky or fragile) or near its buyers. The Third World countries are suppliers of raw material and thus attract processing industries, but their remoteness from the buyers in the industrialized countries makes it difficult to attract these industries (unless there is a significant internal market). Services, one of the fastest growing economic sectors, generally need to be located near the buyers, yet service industries and other market-orientated industries are unlikely to be attracted to remote Third World locations. These are key difficulties in encouraging export lead growth, which remains the preferred option in free market development strategies in less economically developed countries. Craig Agutter Economics, Mrs Lumutenga 1 ...read more.

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