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Development strategy based on global trade

Export oriented industrialization (EOI), sometimes called export substitution industrialization (ESI), export led industrialization (ELI), or export led growth, is a trade and economic policy aiming to speed up the industrialization process of a country by exporting goods for which the nation has a comparative advantage. Export led growth implies opening domestic markets to foreign competition in exchange for market access in other countries. However, that may not be true of all domestic markets, as governments may aim to protect specific nascent industries so that they grow and can exploit their future comparative advantage, and in practice, the converse can occur. For example, many East Asian countries had strong barriers on imports from the 1960s to the 1980s. Reduced tariff barriers, a fixed exchange rate (a devaluation of national currency is often employed to facilitate exports), and government support for exporting sectors are all an example of policies adopted to promote EOI and ultimately economic development. Export oriented industrialization was particularly characteristic of the development of the national economies of the developed East Asian Tigers: Hong Kong, Singapore, South Korea, and Taiwan in the post World War II period. Export led growth is an economic strategy used by some developing countries. The strategy seeks to find a niche in the world economy for a certain type of export. Industries producing this export may receive governmental subsidies and better access to the local markets. By implementing that strategy, countries hope to gain enough hard currency to import commodities manufactured more cheaply elsewhere. Export Agencies are formed in the process. In addition, a recent mathematical study shows that export led growth has wage growth being repressed and linked to the productivity growth of nontradable goods in a country with undervalued currency. In such a country, the productivity growth of export goods is greater than the proportional wage growth and the productivity growth of nontradable goods. Thus, export price decreases in the export led growth country and makes it more competitive in international trade.

From the Great Depression to the years after World War II, under developed and developing countries started to have a hard time economically. During this time, many foreign markets were closed and the danger of trading and shipping in war time waters drove many of these countries to look for another solution to development. The initial solution to this dilemma was called import substitution industrialization. Both Latin American and Asian countries used this strategy at first. However, during the 1950s and 1960s the Asian countries, like Taiwan and South Korea, started focusing their development outward, resulting in an export led growth strategy. Many of the Latin American countries continued with import substitution industrialization, just expanding its scope. Some have pointed out that because of the success of the Asian countries, especially Taiwan and South Korea, export led growth should be considered the best strategy to promote development.

Export led growth is important for mainly two reasons: The first is that export led growth improves the country's foreign currency finances, as well as surpass their debts as long as the facilities and materials for the exports exist. The second, if more debatable reason, is that increased export growth can trigger greater productivity, thus creating even more exports in a positive, upward spiral cycle. The nomenclature of this concept appears in J. S. L McCombie et al. (1994): Neither, Post Keynesians state, is there a question of the private sector competing with the state for available funds, due to their opinions on hypotheses about "crowding out". As to the claim about the state's inability to engage in basic, primary, "paradigm changing" investment in research and development, the work of economists such as Mariana Mazzucato has claimed that the claim is groundless. Scholars have claimed that governments in East Asia, nonetheless, did have the ability and the resources to identify and exploit comparative advantages. EOI has, therefore, been supported as a development strategy for poor countries because of its success in the Four Asian Tigers. This claim has been challenged by a minority of non mainstream economists, who have instead emphasised the very specific historical, political, and legislative conditions in East Asia that were not present elsewhere, and which allowed for the success of EOI in these nations. Japanese producers, for example, were given preferential access to US and European markets after World War II. Additionally, some domestic production was explicitly protected from outside competition, for an extensive period of time and until local business entities had become strong enough to compete internationally. They claim that the protectionist policies are crucial to the success of EOI. though there are criticisms of this thesis as practical contradictions have occurred. Primary commodity dependency also links to the weakness of excessive specialization as primary commodities have incredible price volatility, given the inelastic nature of their demand, leading to a disproportionately large change in price given a change in demand for them. Nobel laureate Paul Krugman has criticized what he called the "popular views" on macroeconomic policy as they were shaped in the 1950s, and, particularly, regarding productivity and foreign trade economic policy. The "highly influential" position that "the United States needs higher productivity so that it can compete in today’s global economy", he wrote, is akin to the person supporting it “wearing a flashing neon sign that reads: 'I don't know that I'm talking about'."