Date of Award/Publication

5-2008

Document Type

Thesis

Degree Name

M.S. in International Studies

Department

International Studies

Abstract

Economic growth is an extremely complex process, which depends on numerous variables such as capital accumulation, trade price fluctuations, currency exchange rates, political conditions, economic freedom, social conditions, income distribution, natural resource endowment, geographical characteristics, Research and Development, and many other factors. A highly debated prescription for growth - often directed toward Developing Countries (DCs) or " emerging economies"is the export-led growth hypothesis (ELGH). The export-led growth hypothesis postulates that export expansion is one of the main determinants of growth; it holds that the overall growth of countries can be generated by expanding exports-exports act as an "engine of growth." The previous form of development, which was promoted until the mid-1970s, was the import-substitution model. This model of development encouraged countries to build up their own domestic manufacturing capacity and substitute domestically produced goods for imports. The export-led growth model has become the standard model of development that the International Monetary Fund (IMF) recommends to all its client countries. Developing Countries, in an attempt to emulate the export-led growth model, have been shifting from inward-oriented policies to export promotion strategies. As a part of these new outward-oriented strategies, DCs began to stimulate exports using diverse mechanisms such as subsidies and tax exemptions. Many scholars have attributed the People's Republic of China's (PRC's) rapid growth to the export-Jed growth model of development. This paper sets out to explore the export-led growth hypothesis and illustrate that, while the PRC has followed the export-led growth model in the past, currently they are shifting away from this model and toward a domestic growth enhancing model of innovation-led growth - while retaining an outward oriented position in the world economy. In addition, this paper will fully develop an original innovation-led growth approach to development and apply the model to the PRC and the country's economic development shift. Due to this shift, China will be able to survive decreasing world demand and the recent problems concerning export safety apprehension regarding food stuffs and toys. Many scholars continue to contend that the export-led growth model is the most effective road to development for DCs; many of these scholars also contend that China is still following an export-oriented model of growth. In a speech at Harvard University in 1943 Winston Churchill said that ''the empires of the future wil 1 be empires of the mind." In the same respect, the battles of the future will be for talent. The c lash for talent will not be limited to companies. Globalization has created a global front line - the "balance of brains" has supplanted the " balance of power." Talent is one of the three-pillars of innovation. The other two are applied or investment-specific research and development and an economic environment with the freedom necessary for entrepreneurs to pursue ground-breaking new technologies, processes, and management techniques. The most striking aspect of innovation-led growth is its reach. All economies of the future will need to pursue the innovation-led growth strategy - Advanced Industrial Nations (AINs) as well as Developing Countries (DCs) and Emerging Markets will have to pursue innovation-led growth or risk falling behind in the global economic race to compete. Thus, while development scholars still debate whether the export-led growth strategy or import-substitution strategy is better for DCs and emerging economies, nations like China are already attempting to implement a new strategy - the innovation-led growth strategy.

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