The focal point of the paper is to evaluate and analyze the reason behind export-led growth or export-oriented industrialization in a country and the result that lead to an economic crisis down the road in that country.
For the purpose it is essential to understand the meaning of export-led growth or EOI (export-oriented industrialization). EOI or Export-Oriented Industrialization occurs in a specific scenario where a country uses its competitive advantage to gear up its economy and industrialization procedure with the help of export.Under such parameters the country formulates it’s economic and trade policies in accordance to the advantage of this Export-Oriented Industrialization. In this situation the host nation is forced to pursue an open market economic policy where the domestic market is subjected to be accessible for foreign exporters.
This is the price that the nation pays for getting access to foreign country’s market in terms of export.To make the procedure smooth the government of the host nation implies several policies that are in alignment with the promotion of Export-Oriented Industrialization and devaluation of the national currency becomes an absolute necessity under such circumstances thus the exchange rate of the national currency becomes floating and thereby vulnerable. The government also supports the Export-Oriented Industrialization by means of reducing the tariff barriers thus making the local market vulnerable to foreign investors.In East Asia countries like Singapore, Taiwan, South Korea and Japan this affects of Export-Oriented Industrialization has been visible. However, it should be stated that the fundamental economic development of these countries soon after the Second Word War was due to the Export-Oriented Industrialization policies taken up by the respective governments and today it has become their economic characteristic.
It should be remembered that World Trade Organization has been an extremely influential and instrumental international institution in the promotion of Export-Oriented Industrialization policies in these countries. As mentioned all these factors came back as a ramifying agent to these countries’ economies as Export-Oriented Industrialization made the markets extremely sensitive. The economic crisis of 1998 swept across these countries that practiced and were exposed to Export-Oriented Industrialization.The main reason behind this crisis was the stagnation of economy in terms of diversity of products and this resulted in an unstable form of economy.
The fundamental problem lies in the fact that with the implementation of Export-Oriented Industrialization the national currencies weakens and with the open market policies the local trades becomes vulnerable in the competition with multinational players who along with the advantage of the capacity of huge capital generation and tariff benefit are able to marginalize the local traders.The ultimate result appears as an economic fall out with the aspects of unstable national currency formulation. This becomes very difficult to handle for the national commerce forum and the finance ministry and often it is seen that the condition becomes out of bound and the national economy then depends on the developments in the international arena which is not at all a favorable condition for any country. King, 2006) However, it should always be stated that in order to maintain the economic equilibrium and sustainable growth rate it is important to stabilize Export-Oriented Industrialization with proper policies of import substitution industrialization.
Otherwise the economy becomes extremely vulnerable as it is seen in the case of countries like Singapore, Taiwan, South Korea and Japan during 1998.
