Strategies influencing growth and development

Market-Orientated Strategies:

These are measures which make the economy freer, with minimum government intervention.

1) Trade liberalisation:
Through the growth of free trade (the act of trading between nations without protectionist barriers, such as tariffs, quotas or regulations) countries can aim for export led-growth. World GDP can be increased using free trade, since output increases when countries specialise.

• If firms are able to compete globally, living standards might increase and there could be more economic growth which will allow firms to grow as they can export more.
• However, if firms are unable to compete globally, they will collapse. This will cause a loss of jobs and limit development and growth.

2) Promotion of FDI:
FDI is an investment by a firm/individual in one country into business interests located in another country and generally takes place when an investor establishes foreign business operations or acquires foreign business assets in a foreign company.

• Firms tend to undertake FDI because production costs are lower in developing countries (BRICS - Brazil, Russia, India, China and South Africa), because it helps promote long term sustainable growth and enables them access to a new market as the innovation of technology is encouraged.
• For developing countries, more job creation will occur and this leads to the positive multiplier effect since labour productivity increases and results in higher wages. It also provides them with funds to invest and develop, helping to overcome the savings gap (Hong Kong, Singapore and South Korea have benefitted from this method and as a result became developed countries).
• The transfer of knowledge will occur, with firms bringing staff training and production and management techniques which will benefit the country as labour productivity improves.
• However, there is often repatriation of profits and workers from developing countries are exploited with low wages and poor working conditions.
• Countries will also lose some sovereignty and become dependent on another firm. Difficulties may arise for local competition as it becomes harder to set up and compete and the best jobs often go to imported labour, leaving only low skilled jobs for locals.
• Environmental damage and exploitation of natural resources tend to become greater issues.

Examples:

• India: the Make In India initiative liberalised FDI policy and led to a 48% increase in FDI in a range of sectors (including pharmaceuticals, manufacturing and railways).
• Vietnam: Samsung's investment in Vietnam has been crucial. Many local firms are now a part of their supply chain and other businesses have set up around their factories, for example, hotels and restaurants.  

3) Removal of government subsidies

Government subsidies could distort price signals by distorting the free market mechanism and a free-market economist would argue that this could lead to government failure. There could be an inefficient allocation of resources because the market mechanism is unable to act freely. It also has a negative effect on the government budget and could cause excessive debts.