Reference no: EM132970616
Country X is a small country with a population of 25,000, GDP per capita at $ 5,000 (USD) and a fairly high Gini-coefficient at .50. the country has a monarchical system of government. The primary industry in the country is agriculture, with sugar, dairy products and cocoa being important products which have mostly been exported in the raw form and the earnings are used to purchase most needed manufactured products and many services. Although, there are already a few small light manufacturing and service firms in the country, but these sectors of the economy are less developed than the agriculture sector. The agriculture sector consists of mostly small, and fairy inefficient, farmers. One suggestion to improve the economy has been to remove barrier to foreign investment and allow foreign investment to come into the country and make a industrial agriculture industry, which is likely to increase the productivity of the agricultural sector and national GDP, but also put out of business many small farmers. Another suggestion is to try to develop a chocolate/candy industry where the higher value-added parts of the value chain, manufacturing and selling the final product, as well as the lower value-added activities of producing the raw materials are done within the country. However, it has been questioned whether a chocolate company from a developing economy will have a competitive advantage over chocolate companies from wealthier countries and there does not appear to have enough private capital or private interest in developing this industry. Other suggestions for the economy include diversification into a variety of sectors of the economy such as light manufacturing and service industries and therefore not being as dependent on the chocolate industry for exports and used to pay for imports. Thus, the country would be more self-sufficient and less vulnerable to shocks coming from a global drop in prices of sugar, cocoa and dairy products.
1. If a person were using the infant industry model as a guide, what would be the most likely suggestions? Explain your answer in detail.
2. If a person were using mercantilism as a guiding principle, what would be the most likely suggestions? Explain your answer in detail.
3. If a person were taking a free market approach, what would be the most likely suggestions? Explain your answer in detail.
4. If you were paid to advise the government, what would be your suggestions? Link your suggestions to theories and approaches studied in class.
How would you expect your suggestions in answer 4 to impact total GDP, national prosperity, different segments of society and income inequality? Explain your answer using the theories and frameworks from the course.