What were the main problems for Chile? Read through the articles provided and identify the different strategies the two countries took for growth. What were the main problems for Chile?

Inward Looking Policies High levels of protectionism (tariffs, quota’s etc.) Subsidies for domestic producers (encourage import substitution) Prohibition of multinational activities Encouragement of locally acquired skills

Inward Looking Policies: Benefits To encourage independence To preserve individual culture To nurture domestic industry while growing to compete on international market (infant industry argument)

Inward Looking Policies: Problems Domestic inefficiency can occur without international competition e.g. Chile Protectionism may lead to retaliation of trading partners New industries cannot grow due to requirement of imported inputs Tend to favour industry at expense of agriculture (migration to cities)

Outward Looking Policies Abolition of tariffs, quotas, etc. Elimination of subsidies Encouragement of international capital flows & MNC’s Allowing international labour mobility Export promotion policies (eg. advertising, trade fairs, etc.)

Outward Looking Policies: Benefits Evidence suggests that countries that are open and outward looking have higher growth: Welfare gains from trade & comp. adv. Benefits from int’l comp – both incentive & knowledge Economies of scale from increased mkt size Benefit from other countries’ growth

Outward Looking Policies: Problems Short-term - loss of local jobs & businesses May lose local culture & tradition May lose special local skills / products May lose biodiversity / environment May adopt policies which suit larger wealthier nations rather than what is best for the individual nation Could lead to civil unrest

Free market / government intervention strategies http://www.telegraph.co.uk/finance/economics/11100698/Africas-rapid-growth-is-down-to-industry-and- free-markets.html http://www.tutor2u.net/economics/reference/estonia-growth-and-development Free market forces Privatisation leading to greater efficiency Free trade

Advantages of market based economies (and policies) Central economics question – allocation of scarce resources Incentives in markets act to encourage economically beneficial and efficient behaviour. Workers work, firms try to make profits Investment Linked to above, if enterprise is encouraged, and firms are able to make profits, they are more likely to invest FDI more likely if foreign firms can make profits on investments Government failure Governments may choose wrong investment projects, in particular not choosing investments which reduce poverty. Could be lack of information, corruption, incompetence