A Country decides to change from an inward orientated strate
Uploaded by dudespanky on May 18, 2006
A) What changes in economic policy would be introduced?
An inward orientated strategy focus on self sufficiency. Self-sufficiency is important because being reliable on foreign imports is very risky because these imports may be affected by external influences, for example, if one of the trading countries where to be hit by famine or war, this suddenly affect the amount traded. Self sufficiency is achieved by promoting domestic production, by offering subsidies, such as the British agricultural policy, which hands out subsidies to farmers if the leave a certain percentage of there land ‘untouched.’ Rather than importing from foreign imports. The Government can install tariffs on imports to discourage foreign imports, by raising relative prices.
When a country changes from an inward orientated to an outward orientated strategy different economic policies are introduced. The country focuses more on importing foreign goods. It does this for many reasons. Importing fills gaps in domestic markets. The good or service that is imported is not available or produced at a lower opportunity cost than it would be domestically, this means that the firms can offer the good or service at a cheaper price than the local firms and therefore be very competitive. The local government will employ tariffs (taxes on imports) on the imported goods or services. Tariffs protect the local business from large competition. Small scale firms in LDCs will not be able to compete with large firms from MDCs. One reason for deciding to use an outward orientated strategy is that the country must export to finance its imports. The country cannot import goods with its own currency, it must use foreign currency. By exporting goods it allows local firms to compete on a global scale instead of just domestically. This allows some firms and countries to exploit any monopolies may have. This will cause firms to expand which could lead to the firms being able to offer higher incomes leading to higher levels of savings leading to higher levels of investment leading to higher levels of growth which then brings us back to an increase in the levels of incomes. Apart from just competition it also promotes firms to be more efficient in production which could have the same knock-on affects.
If a country does decide to become outward orientated then this increases the dependency for the country on foreign imports. The country then has less ability to support itself. This causes problems...