You are a high ranking official for the small country of Freedonia among other small countries. El Presidente has requested you to prepare a proposal for the path to greater economic prosperity. As he is extremely busy, he has requested a concise proposal for your recommendations…2-3 pages.
You know that he has spoken to consultants that have offered two alternatives: export-led development and import substitution. The latter of which was tried by Freedonia before and met with limited success. It was based on assembly activities of autos where all components were imported. While this was thought to be the vehicle to ride into future prosperity, it has not worked out well, as domestic demand was met wages have stagnated and employment has shrunk a bit.
Export-led development has worked well for many countries in SE Asia. However, you are concerned that increased automation in the rest of the world might not provide the necessary level of employment should this path be chosen. After all, to be competitive you need to offer quality for less…and less may mean lower wages or matching the automation of the industrialized world.
There is a baby boom underway in Freedonia and El Presidente knows that the economy must provide meaningful employment for the up and coming cohort of working age men in order to keep them off the streets so that he can keep his job (the perks of which he really enjoys!).
Here is what you know:
Economic structure % of GDP Economic Structure by % of employment
Agriculture 40% Agriculture: 15%
Manufacturing: 20% Manufacturing: 25%
Services: 40% Services: 50%
Capital:
National debt: 0 (strong ability to borrow)
Bank deposits: 110% of GDP
Trade
Freedonia is basically a free trade country with the exception of autos and fine Scotch whisky.
Exports: Agriculture 65% (fruits and vegetables, wheat, pork, and cotton – all unprocessed)
Manufactured goods 10% (semi-finished iron and unprocessed copper)
Services: 25% (tourism)
Imports: Agriculture: 5% (fine Scotch whisky for El Presidente and friends)
Manufacturing: 80% (vehicle components, iPhones, and military equipment)
Services: 15% (tourism related, and consultants)
International relations: Bordering countries are reasonably friendly and import foodstuffs from Freedonia. They do not purchase autos from Freedonia but import them a first world country. Freedonia is not permitted to export autos assembled there by contract.
What do you recommend?
