Problems of Growth and Stability
New Horizons in International Business series
Edited by Pier Carlo Padoan, Paul A. Brenton and Gavin Boyd
Chapter 10: Real economies and financial sectors in industrializing countries
Gavin Boyd Most industrializing countries are not coordinated political economies, because of diverse problems of integration and institutional development. Political will for comprehensive and resourceful engagement with the tasks of promoting growth is generally lacking. To the extent that these tasks are taken up, domestic difficulties tend to be made more serious by external factors, in contexts of dependent and therefore vulnerable involvement in the world economy. The most pervasive problem is capital flight to industrialized states, in search of stable and substantial returns: prospects for the home economies are not rated highly, and confidence in their financial systems is not encouraged, as these are weak and poorly regulated. While the financing available for domestically based growth is thus limited, export-led development is hindered by the discriminatory trade policies implemented by industrialized states. These policies restrict opportunities for the export of manufactured products from developing countries: outward-oriented manufacturing at rising technological levels is thus hindered. Low labour costs in these developing countries attract investment by Western and Japanese corporations building international production systems, but with cross-border dispersals of production processes that in effect limit technology transfers. The foreign firms meanwhile gain host-country market strengths and acquire local enterprises, thus indirectly contributing to the capital flight that assists higher industrialization in the West and in Japan. When industrializing countries do achieve export-led growth, through the efforts of national firms, in cooperation and rivalry with Western and Japanese transnational corporations, they tend to attract portfolio investment from the USA and Europe. This...
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