ANALYSIS OF PAKISTANI INDUSTRY

INTRODUCTION
Trade policies refer to the processes and procedure that monitor the movement of
trade in and out of the country. They have been the crucial deciding factor for any
countries success as they can make or break the economy. Moreover they significantly
impact the major economic indicators of the economy such as GDP, inflation,
employment etc.
There are two ways in which countries can strengthen their industries and progress to
industrialization.

Inward looking trade policies

Out ward looking trade policies

Both these policies are used to gain economic growth and industrialization however
they are very different in their essence. The policy maker and the economist have to
view various factors and decide which policy would best fit their own economy.
Countries like India and China have successfully used inward looking trade policies in
the past, while other countries such as South Korea have effectively followed the
outward looking trade policies.
However after the discouraging result of inward looking policy in Latin America,
direction has shifted from inward looking policies that support import substitution to
outward looking policies amongst the less developed countries.

INWARD LOOKING POLICIES:

Inward looking trade policies focuses on building and developing domestic industries. The
government is interested in protecting and helping the infant industries grow and become
competitive in the world market by gaining comparative advantage. This can be achieved
when the opportunity cost of producing that good is lower than other countries. This is
achieved through high trade barriers and high tariffs on imported goods. There is low level of
foreign direct investment into the country
They rely on import substitution industrialization (ISI) is a trade and economic policy which
advocates replacing foreign imports with domestic production. ISI is based on the premise
that a country should attempt to reduce its foreign dependency through the local production
of industrialized products
They provide subsidies to domestic firms and try to build on economies of scale in order to
lower their cost of production. This makes the country more competitive when the
government decides to lower protectionism and enter foreign markets. India also followed
this policy in the 1990s. Moreover, Japan, import substitution meant developing strong motor
vehicle and consumer electronics industries which helped them come stronger when they
entered the international market.
Howe ever, the inward looking trade policy failed in the case of Latin America which
discouraged most of the less developed countries from opting towards the policies.

ADVANTAGES OF INWARD LOOKING POLICIES:

PROTECTION OF INFANT INDUSTRIES:
Inward policies uses import substitution to protect infant industries from foreign competition
so that large MNCs dont run them out of business and they have a fair chance to grow and
develop themselves. This means higher GNP within the country as more revenue will be
generated by the domestic products.

SHEILDS ECONOMY FROM EXTERNAL SHOCKS:

It acts as a buffer and shields the economy from external forces. Hence the country is less
volatile towards outside recessions and booms, resulting in stable and sustainable growth.
REDUCES BALANCE OF PAYMENT DEFICIT:
The inward policies increase tariffs and quotas restricting imports or making it more
expensive for people to buy. Hence they rely more on locally produced goods rather than
foreign goods. This improves the BOP deficit. The local production gets more competitive and
the surplus can be exported further improving the BOP of the country.
BUILDS A BASE FOR FUTURE:
Barriers will stay as they are until local firms are able to compete in terms of size & have
acquired the know-how techniques to be productively efficient. Such as Taiwan, Hong Kong,
South Korea & Singapore which once operate behind protection. Now they are able to produce
at competitive costs to the whole world.

DISADVATAGES OF INWARD LOOKING POLICIES

INEFFICIENT RESOURCE ALLOCATION:
The inward policies lead to inefficient resource allocation which results in welfare loss within
the economy. This is because the goods and services available in the world market are
cheaper still the people are forced to buy them at a higher price from the domestic market or
bare the cost of tariffs imposed.
OPPORUTUNITY COST OF SUBSIDIES:
The resource utilized in providing subsidies to the domestic firm has high opportunity costs.
These resources couldve been used elsewhere such as in infrastructure, education, health
care or to improve the standards of living.
LOW LEVEL OF FOREIGN DIRECT INVESTMENT
Low level of FDI means slower transfer of technology and knowledge which restricts growth
within the country. Moreover there isles accumulation of capital stock which leads to slower
economic growth.
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INCREASE INEFFICIENCY
Domestic firms rarely reach the benefit of economies of scale by allocating resources
efficiently. Also the lack of competition and subsidies of the government results in slacking
and inefficient industries that arent able to develop any comparative advantage. Local
producers will tend to slack and when protections will be removed they wont be able to
compete internationally and earn the same. So they tend to remain as they are. Removal of
protections is very politically unpopular and may cause resentment. Ruling government may
lose its mandate
CAPITAL COST:
The cost of importing capital machinery is higher due to increased tariffs and quotas in form
of protectionism. This may also result in worsening the BOP deficit rather than improving it.
Moreover the shift to capital intensive industry is done at the loss of labor intensive which
result in unemployment

OUTWARDLOOKING TRADE POLICY

These are the opposite of inward trade policies. Countries that implement it focus on
international trade, reducing protection, lifting subsidies and increasing FDI. Singapore,
Taiwan and Hong Kong are successful examples of implementations of outward policies. They
adopted it because of the limited scope from the small domestic market. They focus on
exporting more goods and services in which they have a comparative advantage and hence
more profits can be made. It focuses on export promotion and developing its competitiveness
in the international market.
The major characteristics of the outward policy hold:

Deregulation
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Free trade
Free floating / devaluating exchange rate
High competiveness
Increased FDI

ADVANTAGES OF OUTWARD LOOKING POLICIES:

Create employment:
Many of these factories are located in urban areas & they are labor-intensive. It provides
great employment opportunity to not only people in town but also to rural migrants. They can
develop their small scale industry and export their products in the foreign markets. As a
result, they will witness lesser urban slums which are disgust to sights. Also it reduces the
level of absolute poverty
Influence
Aggregate Demand:
An export-oriented economy will expect an increase in its exports over imports, thus creating
net exports. As now the country will be catering to domestic as well as international market
the aggregate demand will l increase. This shall move the AD curve rightward resulting in an
increase in real GDP. Through the multiplier effect, national income & employment will
further increase
Financing capital goods:
An increase in exports over imports can improve its terms of trade. Terms of trade means
ratio of export prices to import prices. The country need to export lesser to finance the same
amount of imported goods e.g. machineries. Also there will be lesser danger that the
economy will run into foreign exchange & foreign debt problems
Exploit Economies of Scale:
Since local manufacturers are producing on a large scale to world market, it is able to
significantly exploit EOS. It could be any of the combination of purchasing EOS, marketing
EOS, managerial EOS, technical EOS etc. This will give the developing countries an advantage
on top of its cheap labor. It will be able to compete easily at international scale with its cost
competitiveness. China is a good example, it has created a chaos in British and US
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Learn from rivals:

By competing with multinational companies, local firms will be able to improve its
competitiveness. There will be more efforts put into R&D. Marketing team will be more
aggressive. Also they can learn the unique features of rivals product & perhaps make a large
improvement over their existing ones to enlarge market share

DISADVATAGES OF OUTWARD LOOKING POLICIES

Environmental degradation:
Developing countries are often accused by Western economies as the major contributors to
global warming, especially China. This is true. Rich Western economies have already reached
the desired level of income. As such living in a cleaner environment is now their priority.
Meanwhile, for poor but booming countries they have to sacrifice environment at the expense
of economic growth & development. Besides, industrialists in developing economies are not
that well educated. As such their level of environmental awareness is very low
Fall in export prices.
This is assuming if all developing countries are trying to export their way out simultaneously.
Due to flooding of manufactured goods into the world market, its prices will be forced to
plunge, putting exporters in disadvantage
No protection against economic shocks
Export-led growth is not without its problems too. Its level of success depends a lot on the
pace of economic growth in rich Western countries. If US is hit by a recession, then third
world countries could be the worst affected. Level of exports will slump. Unemployment will
escalate & the demultiplier effect will feed into the whole system.
Rich countries erect protectionism.
Its unlikely that Western manufacturers are able to compete with low cost Asian economies.
Manufacturing sector is labor intensive and labor form a large portion of total costs. Its one
of the major arguments as to why major Western economies are shifting their comparative
advantage to services sector. Others which still have manufacturing industry as their core
economic activity began to erect unfair protectionism
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REFERENCES
http://wisebrain.info/describe-the-main-features-of-inward-and-outward-orientateddevelopment-strategies-and-discuss-and-evaluate-their-advantages-and-disadvantagesdevelopment/
http://wisebrain.info/describe-the-main-features-of-inward-and-outward-orientateddevelopment-strategies-and-discuss-and-evaluate-their-advantages-and-disadvantagesdevelopment/
https://prezi.com/cgkoqbetymwr/promoting-development-inwardoutward-strategiesinterventionist-vs-free-market/
http://www.slideshare.net/burhanettinnogay/outward-looking-development-policies
https://answers.yahoo.com/question/index?qid=20110320233907AAy8BqJ