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Macroeconomics Homework Help from Classof1.com
Strategies for Economic Development
Today in developing economies, the market plays a much stronger role. In most parts of the world,including nondemocratic countries like China, state ownership has declined and prices are mostly set in markets. International agencies like the International Monetary Fund (IMF), whose primary goals are to stabilize international exchange rates and to lend money to countries with problemsfinancing international transactions, and the World Bank, which lends money to countries fordevelopment projects, have pushed hard for market oriented reforms.Market-oriented reforms, however, have not eliminated the role of government. The governmentsplay a vital role in creating institutions that allow markets to work effectively
physical institutionslike roads and schools, and business and legal institutions such as accounting systems and property rights. Many governments also use their taxing and expenditure policies to favor specific sectorsover others as they try to grow. Industrial policy, in which governments actively pick industries tosupport as a base for economic development, is still carried on at some level in most developingnations.The greater central control of the economy in China was very evident during the recent recession inthe speed with which China could direct its government expenditures as it sought to stimulate itseconomy.
Exports or Import Substitution?
As developing nations expand their industrial activities, they must decide what type of trade strategy to pursue. Development economists discuss twoalternatives: import substitution or export promotion. Import substitution is a strategy used todevelop local industries that can manufacture goods to replace imports.If fertilizer is imported, import substitution calls for a domestic fertilizer industry to producereplacements for fertilizer imports. This strategy gained prominence throughout South America