Growth in Manufactured Goods
The quantity of imports that a given quantity of a coun exports can buy-say, how many bananas Country A must sell to Country B to purchase one refrigerator from Country B-is referred to as terms of trade. Historically, the prices of raw materials and agricultural commodities have not risen as fast as those of finished prod ucts, although they have risen faster during short periods. Over time, therefore, it takes more low-priced primary products to buy the same amount of high-priced manufactured goods
In addition, the quantity of primary products demanded does not rise as rapidly as manufactured products and services, due partly to people spending a lower percentage of income on food as their incomes rise and partly to raw-material-saving technologies. Further because commodities are hard to differentiate, producers must compete on price, whereas the prices of manufactured products can stay high because competition is based more on differentiation
Import Substitution and Export-Led Development
Traditionally, developing countries promoted industrialization by restricting imports in order to boost local production and consumption of products they would othenwise import. However,if the protected industries do not become efficient-an all-too-frequent outcome-local consumers may have to support them by paying higher prices or taxes. In contrast some countries such as taiwan and south korea,have achieved rapid economic growth by promoting the development of industries with export potential,an approach know as export-led development. In reality,it's not easy to distinguish between import substitution and export-led development. Industrialization may result initially in import substitution, yet export development of the same products may be feasible later.