Grade 9 Business IGCSE
____________________________________________________Cambridge University____________________
- 8.1.2: Discuss what would be the most effective policies to increase a country’s exports.
Last date for Submission:
May 11th, 2014
Please Write Your Response in 750 Words
Note:
Marks allocation for this article is 20.
Rubrics for Marks.
A. Theoretical Explanation 5 Marks
B. References. 5 Marks [Use Harvard referencing style]
C. Use of Key words. 5 Marks
D. Evidences in the support of explanations 5 Marks
Two of the government’s objectives is to balance the trade of a country’s economy and economic growth. This is achieved by implementing policies to influence the imports and exports of a country, affecting the economic growth and employment of the country as well.
ReplyDeleteThe “long” way to increase exports is by imposing trade barriers such as quotas, embargoes, tariffs, etc. on imports as an act of protectionism. This way the prices of imported goods will rise rapidly, which makes aggregate demand fall as well as the domination of the foreign products. As this happens, the domestic firms enjoy the higher output, and slowly expand from their increased aggregate sales. Eventually, the general people will start using the domestic goods and services instead of the imported ones, and as it expands even larger, the firms will have enough credibility and respect, as well as brand loyalty from other countries in the quality of the product sold, increasing the exports.
The government can impose educational policies, as well as setting an extremely high standards of education towards the nation’s people. This includes free education, fully-equipped schools around the country with highly qualified teachers, laws that restrict anyone below 18 to drop out of school, etc. can really improve the intelligence, knowledge and ability of the nation. This way, with the brilliance and skills of the people, instead of relying on goods exported out of the country, they can focus on the services exported out of the country, which will tend to remain stable even in a tough economic crisis.
Another step into increasing exports, known as the “short” way, includes weakening the exchange rate. In order to do this, the government will have to manipulate its exchange rate by selling the currency to the open market, and buy other countries’ currency in order to form a weaker currency. This way, when the goods are exported, the prices will then fall when exported out of the country, thus increasing aggregate demand by doing this.
The government can also limit its control towards private sectors. This includes reducing imposed taxes, making rules and regulations flexible, etc. As the government stops pressuring private companies, their profits will therefore increase, which can lead to better innovation, advance in technology, and ideal solutions towards the goods and services sold as there is more capital that can be spent in the business. To compete internationally, the industry standard for quality products, competitive price, good packaging, etc. As the local firm can provide all this, the exports will tend to soar high as they are fierce competitors with other countries.
Although there are many ways to increase exports, the government will have to be mighty risk-takers in order to follow through with these plans, since the results of such actions are extremely destructive towards the country.
When the government tries to protect the economy by imposing trade barriers, multinational goods and services will take time to ‘die down’ in a country, and when they do, the domestic producers will have to be prepared with the sudden change in aggregate demand, and will have to ensure consumers that the goods and services produced are just as good or even better than imported ones. If not, people will still buy foreign brands instead of the country-made ones. The process of the shift from multinational goods to domestic is slow and very long, taking up many years to evaluate its results. In the process, the variety of goods will be fewer, employment for large multinationals decrease and there is slow market growth for a certain period of time. In times of bad government planning, the impacts on economic growth and increased exports might not be as well as previously expected.
ReplyDeleteAnother limitation is, as the currency weakens, the country will face high inflation rates if most of the goods and services sold are imported elsewhere, causing spending and purchasing power to drop and living standards to fall, which leads to deep economic problems. The measures taken to overcome such problems will also be very costly, and the effect of a weakened currency may instead lead to higher inequality from MEDCs and LEDCs.
Also, by loosening government control to the private sector, workers can get exploited in order for private firms to achieve maximum profit, and taxes received from the corporations will also reduce, thus reducing the government revenue in a country, and instead of the company using its profits in investing new capital, there will be slow growth in exports as they are neck-to-neck or in lower quality than their competitors.
In conclusion, although there are many ways to increase exports, the risks from implementing these policies can be deadly in an economy. Furthermore, the government will have to manoeuvre and distinctively plan ways to increase exports from their current economic position and deep researching of the believed outcomes from such policies.
References:
- http://www.economist.com/economics/by-invitation/questions/should_governments_take_any_steps_boost_exports
- http://foran.hubpages.com/hub/Exportscountryplayimportantrole
- http://www.economicshelp.org/blog/7164/trade/importance-of-exports-to-the-economy/