• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

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

Extracts from this document...

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.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. The costs and benefits of economic growth.

    Kuwait where oil is cheap there is far less incentive to buy fuel efficient cars). One link between growth and the environment which lends weight to the Kuznets argument concerns the effect that development has on the natural rate of population growth.

  2. Discuss the view that the free market economy encourages negative externalities and thus the ...

    A coercive act according to Rothbard would always make at least one person worse off and therefore violates the Paretian rule and reduces social welfare would be one that violates the property rights of an individual. A negative externality such as pollution would reduce social welfare as pollution interferes with the use of property by it "owner".

  1. What makes a country wealthy.

    Trade in specialized goods and services today relies on money to lubricate its wheels Money is the universally acceptable medium of exchange including primarily currency and checking deposits. It is used to pay for every thing from apple tarts to zebra skins.

  2. China or India? Many companies ask themselves this question. Due to saturated markets, increasing ...

    A confusing, complex accounting system, which is not based on profits, is also complicating the business. It is not comparable to western standards and the China will not adopt international standards. It is very complex to do business in the highly regulated environment of the communist system.

  1. Case Study: The Home Depot

    During the 90's all three components of the home improvement industry (namely; do-it-yourself, buy-it-yourself and professional) saw a large increase in sales. Highest growth of sales was seen in the home centres and maintenance service. Before the 90's, the largest part of the market focused on mass or medium-market building material and home improvement and garden projects.

  2. Economics of European Integration

    The most important disadvantage is electricity supply instability and price instability, which has happened to California electricity. In nearly all electricity markets, demand and supply are both inelastic to price. Such characteristic results in inherent electricity volatility. So even small changes can lead to a price boom or bust.

  1. Changes in the business environment and their impacts on business strategies.

    Political distress could be detrimental even to companies established in other foreign countries. Too many companies, domestic political considerations are likely to be of prime concern. However, firms involved in international operations are faced with the additional dimension of international political developments.

  2. The Quest for Optimal Asset Allocation Strategies in Integrating Europe.

    between different country indices, which jeopardises international diversification benefits as suggested by the mean-variance portfolio model first introduced by Markowitz. Many authors have therefore suggested that stock diversification strategies should concentrate more on the industrial composition of the portfolio. Accordingly, institutional investors in practice have started to change the structure of the traditional top-down approach to asset selection.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work