1. 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?

2. 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

3. 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)

4. 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)

5. 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.)

6. 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

7. 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

8. Free market / government intervention strategies
free-markets.html
Free market forces
Privatisation leading to greater efficiency
Free trade

9. 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