Six important financial structures and monetary policies successful export-led developing countries need to have.
There is now a general consensus that an export-orientated strategy and export growth are integrally associated with achieving a high overall rate of growth in a country. The shift in industrialisation strategy from import substitution to export promotion is evident in many South Asian economies.
However, in order to achieve this, a country needs to have six important financial structures and monetary policies in place.
- Government finance needs to be well managed. There needs to no pressure for monetary expansion to finance large and continuous government deficits. Good financial policies are a prerequisite for good monetary and financial policies in all developing countries.
- Governments who keep loan rates below free market rates discourage efficient use of existing capital stock and reduce the average efficiency of new investment.
- Governments should not administer allocation of investment funds through selective credit policies in an attempt to accelerate the rate of economic growth by raising the average efficiency of investment. These policies will actually lead to lowering of economic growth by reducing both the availability of credit and the efficiency of investment.
- Governments should follow consistent monetary and exchange rate policies, thereby ensuring that the net real effective exchange rate never appreciates solely as a result of inflationary monetary expansion.
- Favourable movements in the terms of trade leads to unanticipated surpluses in the overall balance of payments, which is a primary source of monetary instability.
- Monetary authorities need to react both quickly and convincingly to counteract any exogenous monetary disturbances. Failure to do so can lead to a loss of control of the supply of money.
A successful export-orientated development strategy does three things:
- It allows countries to take better advantage of technological opportunities available to them.
- It prevents them from making some costly mistakes often associated with inner-orientated restrictive trade and development industrialisation strategies.
- It forces policies upon governments that usually lead to better economic performance by the private sector.
After government policies, it is the private sector that is the main force behind driving exports. Foreign investors do not play a major role in opening up new markets, rather it is the resident branches of foreign trading companies that play a significant role in exploring new export markets for firms. These companies can more easily gain access to foreign markets because of their extensive overseas contacts. Evestico is a leader is both Market Entry Strategies and assisting Ministry of Foreign Affairs departments in developing their trade strategies with the industrial Automation, CleanTech and GreenTech sectors. To find out more visit our State Trade Strategies page.