ECONOMIC GROWTH Inward and Outward

The aim of inward looking policies is to enable a country to diversify independently in a controlled way until it has built a strong domestic manufacturing base. Clearly, this approach would be most effective where a countrys domestic market is large enough to enable industries to benefit from Economies of Scale. Once achieved the industry would be strong enough to cope with foreign competition. Outward looking policies seek to foster development through international linkages. Governments perusing these policies are likely to favour an open economy, in order to gain the full benefits of international exchange.

Advantages of industrialisation 1.
Diversification of the economy through the growth of the manufacturing sector reduces over reliance on any one sector. For instance in times of falling commodity prices, the damage caused by this may be offset by the income generated from the manufacturing sector. The terms of trade of developing countries dependent on primary sector, has tendered to decline over the years. (Prebisch Singer hypothesis). Industrialisation could help such countries to improve their terms of trade. Job creation as manufacturing sector expands. Prices of manufactured goods tend to fluctuate less as they are not subjected to unforeseen changes in weather or crop disease as agriculture goods are. Therefore national income levels may not fall as much. Manufactured goods have a high YEd than primary products (because this sector has a higher value added than primary products). So as world incomes rise demand for manufactured outputs will rise more than proportionately, contributing more significantly to GDP than primary outputs does. Value added: the value added on to the raw materials through the manufacturing process.

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Disadvantages of industrialisation. 1. Industrialisation could create significant external costs. In terms of pollution( caused by
high energy requirements), congestion and urbanisation related issues. 2. Imposes huge strains on non-renewable resources (fossil fuels) as more energy is required to run factories and to operate machinery. Since the main motive is profit motivation, sustainability of resources may be neglected. 3. Capital intensive industrialisation that replaces labour may achieve growth but at the cost of rising unemployment. In turn this may also cause rise in income inequality. 4. If the country has a clear comparative advantages in primary products. Industrialisation could lead to an inefficient allocation of resources.