Having access to the markets

A point of view from a developing country

During November 2001, the International Monetary Fund stated that the basis to achieve economic growth and poverty reduction is having free access to international markets. The strong emphasis goes to the extreme in which they establish that no country would be able to reach economic growth being immerse in a protectionist and isolated economic scheme.
Nevertheless, would having free access to international markets guarantee economic growth by itself? In order to answer this, we shall understand first who have been applying this approach, how they did and the most important above all: achieved results.
Inward Foreign Direct Investment flows (IFDI), among other variables, may evidence the openness level of an economy. From 1980 to 2008, the statistics from IMF reveals an average annual flow of US$393 billion of IFDI for developed economies. Whereas developing economies reach less than the half of this amount in the same period (43%).
Developed countries have a clear emphasis to keep their inflation under control, and also high standards in health, education and security. In addition they potentiate their local companies. This combination enables the country to compete among others enhancing a more likely panorama to succeed in local and foreign markets.
Applying a free access to foreign markets, from a developing country standing point of view, without having a complementary local development policy could be prejudicial. Taking an inward perspective, and under an scenario in which we have a negative commercial balance and some foreign direct investment challenging local companies could displace the national productive structure by bigger foreign companies. And from an outwards perspective, a nation with a poor productive system would not be able to take advantage of the opportunities of having free access to international markets to increase their revenue.
In addition, having inflows of foreign investment without a joint development policy, could lead to a lost opportunity to concatenate the national productive system and facilitate knowledge transference. For instance, Korea was successful doing this by applying their approach known as Knowledge Based Economy since the 60’s (and we already know the clear results they got as country).
In this sense, some specialists from Georgia State University and the Central University of Finance and Economics of China, were able to point out that foreign investment (FI) in developed economies was sensitive to taxation policy, whereas developing countries FI were sensitive to governance measures and corruption. For both cases, FI showed to be sensitive to the infrastructure level as well.
Therefore, a developing economy must give the same priority to their development policy and access to foreign markets policy at the same time. They must be seen as complements. Anyway, struggling to succeed in free markets without any strategy that potentiate local advantages is inconvenient.