During the past many less developed countries sought development strategies to improve the standard of living and reduce poverty however sum countries were more successful then others. Examples of this are Taiwan and Jamaica who both pursued export-oriented strategies, which involved an outward-looking approach. Paul P. Streeten a professor from Boston University said outward looking policies “encourage not only free trade but also the free movement of capital, workers enterprises … the multinational enterprise, and an open system for communications.” Therefore export-oriented strategies will involve opening up to free trade and embracing the world market, which may entail removing trade barriers and price distortions. Countries will be benefit from the competition, becoming more efficient and in turn promote economic growth. Nevertheless Jamaica’s approach was not successful as they experienced increases in unemployment and poverty where as Taiwan experienced decreases. In 1960 Jamaica’s unemployment rate was 13.5% by 1980 this figure had more then doubled to 30.0%. Taiwan on the other hand had unemployment rate of 6.3% in 1955 that decreased by almost five times to 1.3% in 1981%. To measure poverty in Jamaica we look at the % of labour force with weekly incomes less than J$20, in constant 1973 prices: 70% in 1968, which rose to 80% by 1979. In Taiwan 80% of households had income below NT $40,000 in 1965 which decreased by over two times to 35 in 1972 (Gary s. Fields, 1984: 76). In this essay I will explain the differences in unemployment and poverty between the two export oriented countries and conclude with what I believe to be the most relevant explanation.
Both Jamaica and Taiwan followed import substitution polices in the past. Taiwan however suffered from the World War II as it was part of the Japanese colony, the U.S decided to pour foreign aid into economies of the former Japan colonies which included South Korea as well “$13 billion in the former and $5.6 billion in the latter between 1945 and 1978” (Gulati, 1992: 164) This foreign aid financed the capital formation and help build military machines which helped to provide disciplined training and basic education. The U.S also played important role in convincing Taiwan to switch from import substitution policies to a export oriented approach. They believed free trade lead to an improvement in economic welfare for both parties and the U.S even opened up its markets for Taiwan’s exports. Jamaica on the other hand experienced economic booms in the 1950s and 60s but has failed to achieve growth since, only averaging a real growth rate of 0.1% (Bloom et al, 2001: 12) in the last decade and in fact suffered from huge debt and fiscal deficit.I believe it is important to look into the history of these two countries as it allows us to understand their economic conditions before they pursued export-oriented policies. Taiwan was given a large amount of aid where as Jamaica was in huge debt, for this reason it may have been easier for Taiwan to achieve economic development using such policies.
Government policies and goals I believe played a vital role in the success of the export oriented approach. For example, as mentioned previously, Jamaica was in huge debt and was in a fiscal deficit therefore they kept interest rates high. This is because high interest rates cause the face value of bonds to fall meaning there will be a greater yield for bond buyers. Leading to more people purchasing government bonds allowing for the Jamaican government to finance their debt and deficit. However high interest rates reduce domestic investment, as the cost of borrowing is higher. This meant export-manufacturing firms experienced higher cost when obtaining capital which lead to their goods becoming more expensive, less competitive in price and less attractive to consumers. Taiwan on the other hand were more focused on the export oriented approach. Manufacturing exporters were given...
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