International Economics

INTERNATIONAL ECONOMICS
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INTERNATIONAL ECONOMICS
There are significant differences between the economies of developed nations and
developing nations. This tends to have significant impact on the underlying trade policies.
This has been apparent in the last four–five decades. The developing countries typically tend
to lack a strong industrial base and significant proportion population is dependent on primary
occupations such as agriculture, animal husbandry & mining (Mankiw,2016). The result of
this is that the developing countries tend to export raw materials such as agricultural and
mineral commodities. The industrial base required to convert into more useful and value
added products is typically lacking and hence this is carried out in the developed countries
which tend to export these to developing nations. The net result is that there is a dependence
relationship and trade deficit (Krugman & Obstfeld, 2014).
In order to reduce this dependence and move towards economic development, the
developing countries typically tend to focus on the manufacturing sector. This potentially can
also lead to higher employment and use of cheap labour owing to availability of cheap
manpower. This development of manufacturing sector is carried out as part of import
substitution strategy whereby the emphasis is on localisation of manufactured products
imported from developed countries. In this regards, some developing nations may develop
technical collaboration with developed nations so as to kickstart the process (Krugman &
Wells, 2015).
Another key pillar of this policy is protectionism which is aimed to protecting the
infant manufacturing industries. However, over the years, this protectionism tends to result in
inefficiency and development of government monopolies. The end result is that this fragile
manufacturing sector is not able to compete globally as it grows only on account of
protectionism and not global competitiveness. Meanwhile, the developed countries tend to
keep exporting high end capital goods besides services to these developing nations (Krugman
& Obstfeld, 2014).
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