Sunday, October 28, 2012

Is this true? Regarding export-based economics, and consumer-based?

Is this true? Regarding export-based economics, and consumer-based?
China's economy is growing very fast right now. They're primarily an export-based economy, based on foreign investment. The money China makes goes to build infrastructure. I've noticed South Korea and Japan did the same thing, they relied on exporting based on foreign investment to modernize there country. I have a question though, Is it possible to modernize without being such a heavy manufacturing exporter? So just modernize to a consumer-based economy
Economics - 3 Answers
Random Answers, Critics, Comments, Opinions :
1 :
no, it is not possible. Consumer-based economy requires infrastructure, and that requires many years of investment. Also, consumer-based economies require values and attitudes that are developed during the manufacturing stage.
2 :
Not clear. You do have to export something in order to buy what you need from the outside world, but what and just how much has been debated. In the case of Japan, it has had to import all of its energy (coal, oil, and natural gas) so it will always have to export more than a country that produces most of its own energy (the U.S. and China) https://www.cia.gov/library/publications/the-world-factbook/geos/ja.html On the other hand, Japan did not have all that much foreign investment. Their investment was taken out of domestic savings. There was an attempt to replace reliance on exports with "import substitution" as an explicit development policy http://en.wikipedia.org/wiki/Import_substitution_industrialization Some argued that it worked; others that it failed; others that it was never really tried. Just to complicate matters, many actions can be taken to be either export oriented or domestic oriented. For example, building railroads and other infrastructure makes sense in both contexts; ditto for investing in education; etc. Also, there is no reason one can't follow both paths in parallel. In particular, even the export-oriented countries started out by stressing domestic agriculture reform http://en.wikipedia.org/wiki/Chinese_economic_reform#1978-84 http://www.oecd.org/dataoecd/3/48/35543482.pdf This raised both yields and productivity, making more food available (raising living standards, GDP, etc.) and more people to work outside agriculture. (Note that this was true of England too, starting before the industrial revolution: http://en.wikipedia.org/wiki/British_Agricultural_Revolution ) Neither China nor Japan export food, but it has been argued that if it were not for the agricultural subsidies of the the developed world, sub-Saharan farmers would have a comparative advantage in wheat and some other foodstuffs. http://en.wikipedia.org/wiki/Agricultural_subsidy#Global_food_prices_and_international_trade http://www.fpif.org/reports/us_foreign_agricultural_policy Exporting foodstuffs would allow local investment to support both exports and modernization without heavy manufacturing. This has already started happening with speciality foods - fresh fruits and vegetables - and flowers for the European markets. http://www.euroasiaindustry.com/page/151/Balancing-the-Cost-of-Food-Miles http://news.bbc.co.uk/2/hi/africa/8631439.stm http://allafrica.com/stories/200705080559.html and has always been the case with plantation agriculture: tea, coffee, cocoa, and rubber which the developed countries don't compete with because they can't. Still, eventually, every country is going to need a significant manufacturing sector. Even the U.S., which the world thinks of as an importer of manufactured goods and a service economy, is still the world's largest manufacturer (though only #3 in manufactured exports) at 22% of its $14 trillion GDP And unless local production is competitive with world production, good and cheap enough to export, it will be drain on the local economy. So overall, I think the question isn't binary but only one of stress and short-term tactics. And heavily dependent on the size and natural resources of the country. (Import substitution makes far more sense for a country like Brazil then it does for a country like Haiti; though both could export food, Brazil has more than 10 times Haiti's domestic market.)
3 :
Export oriented policy was developed in Japan. And you are correct that many countries in Asia, including South Korea, the NICs, ASEAN and China have pursued this policy. On the contrary, many countries in South America have pursued import substitution policy or consumer-based economy. And that was not so successful. Foreign reserve derived from export oriented policy can increase economic stability and exchange rate. And it is a drive to build infrastructure for exporting zone and open the country for foreign investment. Moreover, foreign reserve can be used to invest in foreign countries to secure law materials and market for export products. China has the biggest foreign reserve in the world and has pursued investments in many countries such as in Africa for oil. It is the largest investor in Myanmar. Now it is very active to invest in ASEAN, including rubber plantation, paper, cars and bullet train. It's called this kind of development pattern "a flying geese" based on Japanese economist.