Export-based industrialization strategy (5)

In our previous article on the field of economy, we examined the Import Substitute Industrialization Strategy, one of the industrialization strategies. In this article, we will examine the export-based industrialization strategy and then the infant industry theory, which is indirectly related to both industrialization strategies.

For those who see exports as the source of growth and aim to specialize in the export of industrial products, the priority development strategy to be followed is the export-based industrialization strategy. According to this strategy, within the framework of the international division of labor based on comparative advantages in the free trade and market mechanism, a country can increase its exports and industrialize by producing in the sectors in which it is superior.

The success of the export-based industrialization strategy depends on the high a priori and backward linkage of the export sector, the incentives given to export-oriented industries and the stability of the exchange rate. The big push model, one of the development theories, forms the intellectual basis of the export-oriented industrialization strategy.

Within the framework of this strategy, certain industries are given priority in development. With financial supports such as export subsidies, states systematically try to improve their comparative advantage and keep their products in foreign markets at competitive prices. Tools of this strategy:

o Exchange rate policy: Within the scope of export promotion, the value of the national currency is kept low for the foreseeable future. With devaluations, incentives can be made permanent.

o Tax refund on exports: The government can reduce the taxes included in the cost of export products, so that the goods can be kept in the market at a competitive price.

o Encouraging policies: It controls the quality of the government's export goods, provides guiding information for export, and gives marketing support.

o Other practices that encourage exports: Export credit, export insurance, transportation facilities, infrastructure development, etc. exports are encouraged.

The industrial rises of newly industrializing countries are most likely to occur in interrelated sectors such as automobiles, steel and machinery. Protective policies that pave the way for export products are maintained. This policy is continued until domestic producers achieve competitive cost and quality level in international markets.

Stages of Export-Based Industrialization Strategy

o A production structure is created to meet foreign demand with technology-intensive export products. The production and export of unskilled labor-intensive goods is transformed into the production and export of qualified (skilled) labor-intensive goods in a short time.

o It is ensured that production is carried out on an international scale through multinational companies. Multinational companies that undertake the carrier of global capital; shifts its investments to these countries in order to benefit from cheap labor in developing countries. In this context, it may allow the transfer of legacy technologies to developing countries.

Developing countries that adopt an open growth strategy follow policies that will allow their economies to open up in order to enable multinational companies to invest in their territories. The export sector, which is used in this sense, can be the leading sector for development while triggering the forward and backward related sectors. The increase in the foreign demand for export goods can also increase the domestic demand, and the overall development can be accelerated. Entrepreneurs from underdeveloped countries, who are constantly faced with competition for quality and price in international markets, have to follow new technologies, and growth steps come automatically.

The Path to Follow for the Strategic or Baby Industries

Important branches of industry, which cause import dependency and require high-tech production, are known as "strategic" in developed countries and "baby industry" in underdeveloped countries.

Both the import substitution industrialization and the export-based industrialization strategy are based on infant industry theory and/or mercantilist, that is, foreign trade practice based on protectionism. This theory was first applied with the foreign trade policy reform in England in 1721. In the 1800s, the United States was able to reinvigorate its industry by resorting to tariffs, export subsidies, and other means of protection against British goods. The German economist Friedrich List brought conceptual integrity to the infant industry thesis in the 1840s.

The main points of the national technology strategy advocated by List are as follows:

o Giving importance to mental capital,

o Establishing mutual interaction between 'mental capital' and 'material capital',

o Encouraging the import of foreign technology as a means of acquiring the latest technology,

o Recognition of opportunities and opportunities for talented people to invest,

o Improving the quality of the workforce, leaving countries with high technical capacity and developed countries.

Following policies that will encourage brain drain,

o Understanding the leading role of the manufacturing sector in economic progress,

o Having a very long-term view of history in developing and implementing economic policies.

List wanted to show the politicians who have a say in the administration of the country, the ways of defeating underdevelopment in order for Germany to surpass England. In fact, List argued that while the British weakened their rivals with military force, they protected their nascent (baby) industries against foreign competition, but brought free trade to the fore when they achieved technological and industrial superiority over their rivals. List's work inspired Germany, which became the first example in the world to follow a systematic industrial policy and develop its economy scientifically. The example of Germany has brought along the economic nationalism doctrine, which guides trade policy and economic development, to be seen as a legitimate way.

All of the developing countries have used customs duties, subsidies and export incentives together and at various levels in the sectors they have set as targets. This is the same method adopted by industrialized countries during their development.

Export both provides the necessary foreign exchange to buy technological products (including machinery-equipment) from industrialized countries and forces domestic manufacturers to produce at high international quality standards. In this framework, it has been adopted as a correct international economic policy to protect new industries, especially those that are considered strategic from fields such as energy and defense industry, until they gain competitive power in international markets. The macroeconomic indicator of economic development is defined by the Gross Domestic Product (GDP).

Within the scope of the baby industry strategy, the strategic use of protectionist measures can create a more conducive domestic economic environment for growth, especially by securing fragile economies. On the other hand, this situation may bring along the problem that baby industries are not exposed to international competition and therefore never develop as desired.

As a result, while a country continues its development efforts, it has to take industrialization as the basis of development. In this context, reducing dependency on imports, producing some products to be imported domestically instead of importing them, in other words, following import substitution industrialization, ensures the protection of the country's foreign exchange stock, reduction of foreign dependency and the development of the industry in the short term. However, after a while, it is expected that the domestic production will be able to sell goods abroad and develop in a way that will serve the export-based industrialization strategy. Also, a country may not have the resources to invest in all areas. For this reason, first of all, taking into account the realities of the country, the political will should choose an industry branch of strategic importance, mobilize its resources for this industry branch, protect this industry until it develops, support it with the necessary incentive mechanisms, and treat it like a baby.

Some References That We Used In Our Article

Becker JD. (1991). Modernization and Development: An Empirical Study of South Korea and Brazil, Illinois Wesleyan University Honor Projects, Paper 4, <http://digitalcommons.iwu.edu/polisci_honproj/4>, s.e.t. 26.04.2017.

Chang HJ, Grabel I. (2016). Development Again, Alternative Economic Policies Book, (Translated by Emre Özçelik), 2nd Edition, Ankara, İmge Publishing House.

Glass AJ, Saggi K. (1998) International Technology Transfer and The Technology Gap, Journal of Development Economics, Elsevier Science B.V., 55:369-398.

Heywood A. (2015). Key Concept in Politics and International Relations. Translation: Basic Concepts of Politics and International Relations, Bakırcı F, 4th Edition, Ankara, BB 101 Publications 12.

Minns J. (2006). The Politics of Developmentalism, Palgrave Macmillan, UK.

Ozdas MN. (2000). Science and Technology Policy and Turkey, Turkish Scientific and Technical Research Council Publication, <http://www.inovasyon.org/pdf/nimetbook.pdf>, p.e.t. 20.04.2017.

Saatcioglu C. (2010). Science and Technology Policies Implemented in the Framework of the National Innovation System: The Case of Israel, EU and Turkey, Journal of Social Sciences, 2005/1:180-198 <https://earsiv.anadolu.edu.tr/xmlui/bitstream/hvele/11421/461 /249667.pdf?sequence=1&isAllowed=y>, set 14.04.2017.

Taban S, Snow M. (2016). Development Economics, Ekin Publishing House, 3rd Edition, Bursa.

Tiryakioglu M. (2016). Akçomak İS in Foreign Capital, Technology and Development Relationship, Poverty Traps, pp.550-562. et al. (2016). Science, Technology and Innovation, Concepts, Theories and Politics, Istanbul Bilgi University Press 561, Istanbul, 1st Edition.

Ulaş D. (2008). Reasons for Multinational Companies to Use and Terminate Joint Venture Strategy, Ankara University Journal of SBF, 59(2):152-178 <http://www.politics.ankara.edu.tr/magazine/pdf/59/2/Ulas_Dilber.pdf>, p.e.t. 17.04.2017. (Gilpin, 2017: p.266-267

Wallerstein I. (2006). Developmentism and What After Globalization?, (trans.) Kavuncu OY, Globalization Readings, (Edit.) Kudret Bülbül, Kadim Publications, Ankara, 139–151.

Yildirim E. (2004). Economic Structure and Economies of Scale, Dergipark, 65-82 <http://dergipark.gov.tr/download/article-file/50014>, s.e.t. 27.03.2018.