So the conclusion is that a clear understanding of comparative advantage and the importance of fostering the presence of correct relative prices of products and factors is central to harnessing the potential role of international trade in promoting the development of newly industrialising countries. The Duty Drawback Scheme: In this important scheme of providing incentives to exporters customs duty and excise duty paid on inputs which are used for production of exports are reimbursed to exporters. In Handbook of Development Economics: 2B. It is the beneficial effect of trade on economic growth that is described as dynamic gains. Especially strong problems are in the area of the agricultural and food trade, which is much less liberalized than the trade in other goods. In this regard export obligation period has been extended to a maximum of 12 years. The dynamic policy initiatives announced by the Government in the new foreign trade policy towards expansion and diversification of export markets, technological upgrade increased flexibility and procedural simplifications will help our exporters retain market share, and will hopefully reverse the declining trend in our exports.
Assess its effectiveness in promoting economic development. Growth of import-substituting industries required large quantities of imports of capital goods machines, raw materials etc. This would lead to closure of a large number of industrial units, especially small scale industries, Besides, they claimed that the large-scale imports would require substantial foreign exchange resources. This means 21 per cent compound annual growth in exports. Since import-substituting industrialisation was pursued regardless of comparative cost considerations, inefficiencies crept into the system resulting in the Indian economy becoming increasingly high-cost economy.
Empirically, the export pessimism of the fifties post-war period has been proved to be untrue and unjustified. Past experience shows that further commercial borrowing to finance import liberalisation …would also be undesirable, given the high level of external debt. If people have little confidence that the local currency will retain its value over time, they have less incentive to save money. Further, the foreign trade policy has allowed re-import of rejected jewellery subject to refund of duty exemption benefits on inputs only not the duty on entire jewellery. As an example, during the past two decades 1990-2008 Sub-Saharan Africa has lagged behind other developing countries in growth in both exports and income.
Under protection, there is an incentive for an initial innovation, but once a new industry is established in the protected environment, there is little need to engage in creative destruction. It was observed that domestic industries growing behind protective tariff walls had no incentive to become efficient in production. Export promotion is sometimes seen as a complementary development strategy to import protection. Some Asian countries, especially India and Sri Lanka, also pursued. The demand for primary products was constrained by the income and price elasticity factors discussed above , development of synthetic substitutes and distortionary interventionist policies of developed countries.
But if there are only short-run gains in growth and those gains come at the cost of short-run static losses from protection, the attractiveness of import substitution is greatly diminished. Economic and Political Weekly, 1623-1630. Given the inelasticity of import basket, only viable option available for the government is to diversify exports. Elaborating how trade promotes growth he emphasises the following factors: 1. These problems are both of an internal economic policy nature and of an international trade policy nature. Through foreign trade developing countries can get material resources such as capital equipment, machinery and raw materials which are so essential for industrial growth. Exports only picked up because of accompanying depreciation of the real exchange rate and due to high international commodity prices as observed by the Planning Commission of Pakistan.
There is a widespread belief that Pakistan has not been able to reap much benefit from export-led growth strategy due to both product and market concentration. Typical practice included direct subsidies to tax exemptions, direct government investment in establishing new industries, preferential treatment in bank credits, as well as preferential treatment in imports. Finally, because the whole development strategy depends upon the choices made by government officials, considerable resources are devoted to rent-seeking activities. In the later half of eighties quota system in case of several commodities was replaced by tariffs. In order to achieve a conclusion, the relative merits and weaknesses of each will be discussed - albeit an informed decision depends on a number of explanatory variables.
While increase in exports is of vital importance, we have also to facilitate those imports which are required to stimulate our economy. Consequently these items are exempt from special duty of 4 per cent and education cess. History shows that countries with clear, investor-friendly policies do better than those that cripple businesses with red tape and taxes. Lack of Association between Export Growth and Industrialisation: In addition, some empirical studies fail to find any positive relationship between exports and industrialisation. Fears were expressed that through free trade industrial developed countries would acquire political domination, as happened in case of India.
We explain below the various export-promotion measures taken to give export-orientation to trade policy. Case for Export Orientation: The export orientation of trade policy or outward-looking growth strategy is believed to have many advantages and is regarded as superior to import-substitution policy. Foreign debit reserve ratio rose to a peak of 35. Since the labour-intensive manufactured exports pose a threat to well-established industries in industrialised countries e. First, there is a proper division of labor between those who develop theories and those who meet day to day challenges. Despite significant chance in composition of exports with share of manufactured goods in total exports increased to 77 percent in 2007 from 56 percent in 1990, there is still a high concentration around a few products like rice and textile.