Jan 25, 2018 in Economics

Structural Theory

The structural theory of economic development is based on changing the economic structures of the developing countries from subsistence grounded economy to an industrialized and urban-based one (Bitar 43). The developing countries mostly practice subsistence production for their own consumption. In support of this theory, Sir William Arthur Lewis  argues that the traditional agrarian system has a lot of idle labor that can be utilized in the industrial sector and be more productive. If the labor that is idle in the subsistence production sector could be utilized in a more productive manner in the industrial sector, then a country stands a chance of growth and economic development (Coleman, and Nixon 36). Hollis Burnley Chenery, also in support of this model, argues that the route that a state will follow in developing its economy depends on its resources, size, as well as its current income level and virtual advantage proportional to other countries.

Hollis advocates that for a country to advance its economy, it must work from its level upwards. This means that a country must work to improve its current economic conditions to record an economic growth in the long run (Kalecki 78). Therefore, since most developing countries have high levels of illiteracy, high levels of mortality rate, and high level of food shortages, they need to work on eradicating these problems. For a country to industrialize it must have enough work force to supply the industries with labor; therefore, the levels of education have to be improved. In the industrialization process, the number of industries to be constructed at a time depends on the country size and its capital capacity. According to the structuralism, economic development is gradual and is achieved through the accomplishment of numerous smaller strategies (Kalecki 78). This theory has faced a lot of criticism because of its incompetence.

The theory puts its emphasis on the shift from an agrarian system to an industrialized one. According to the critics, this shift would lead to heavy inequalities between the urban areas and the rural areas (Coleman, and Nixson 38). The urban areas would develop inevitably while the rural areas would be demising down. The assumption that there is a surplus labor in the agrarian sector is criticized since this labor is just seasonal and, if it were transferred to the industrial sector, the agriculture sector would collapse. The critics of this model point out that the model does not have a framework. That is, the model does not outline clearly what should be done to achieve economic development in the developing countries.

Theories of Trade

The Mercantilism theory argues that a nation may accumulate economic wealth through encouraging exports and dispiriting imports. The reality of this theory was achieved through government intervention, colonization, and trade surpluses. The colonizers are a good example of the reality of this model; they ensured trade surplus through exporting raw materials from the colonies to their home countries. They then exported finished goods to other countries and made it hard and almost impossible to import to their countries. Government intervention is realized through the imposition of tariffs or sanctions on imports and giving subsidies for expanding their exports (Bitar 43).

The absolute advantage theory argues that a nation may accumulate economic wealth through producing goods more cheaply than another country, using equal or fewer resources. This theory implies that a country should produce what it can best produce. This model advocates that trade should be allowed to flow freely as driven by the market forces of demand and supply. That is, trade should not be restricted through imposing of tariffs, sanctions, or subsidies. It also points out that the main goal should be making cheap products available to the nationals in abundance, as well as ensuring that the living standards of the nationals are improved (Kalecki 79). Through this model, national wealth is measured by considering the living standards of the people but not the money the country has in store.

The Importance of Trade

Trade enables countries to learn new ideas from each other. When countries are trading with each other, every country learns from the other and receives mutual benefits. Each country has its field of specialty, different from that of the trading partner’s one (Coleman, and Nixson 37). There is transfer of economic ideas, which help countries grow and advance economically. For example, developing countries borrow construction ideas from the developed ones. Most developing countries have no infrastructure; therefore, in case of infrastructure construction, they borrow the ideas that were used to construct such a piece of infrastructure in the developed countries (Bitar 43). Secondly, through trade, countries are able to access and consume what it does not produce. Countries need to consume products, which they do not produce, or services not available in their country. In such cases, trade plays a major role in making these products, goods, and services available. For instance, the developing countries have shortages of skilled labor force; therefore, they have to import professional labor from the developed countries. Third, trade creates a balance amongst economies and reduces the risk of collapsing. If an economy was independent, and collapsed, it would be hard to revive it (Kalecki 78). With trade, countries are dependent; therefore, even if an economy threatens to collapse, corrective measures are employed early enough to remedy. Trade is important in the world economy since there is no single country that can make the world economy on its own. It is only through trade that any country realizes its economic wealth.


Rolls-Royce is a company that specializes on engines and has its branches located in Germany, the US, England, Asia, Singapore, and Alesund. Rolls is a thriving company in its operations and it is making remarkable profits through basing its operations on niche markets. Contrary to the other companies, Rolls is making investments in the high-wage countries. It decided to invest here because, in the high wage countries, it is getting government support and property protection of high intellectual property and information. It is facing stiff competition from renowned companies and governments. For example, as said in the article, China and India are eradicating thousands of engineers to boost their home industries. The major problem that Rolls is facing is the deficiency of skilled labor. The company is lacking technical skills that it is looking for in engineers. As a result, it is suffering from labor shortage. The shortage in staffs has cost the company millions of dollars since the company is forced to decline contracts.

Rolls invest in Norway because of the support the government provides

As stated in the article, government’s support is vital if a company wants to do quality engineering. The government plays a significant role in protecting a company’s intellectual property and providing an environment conducive for investment. Another reason for Rolls to move its plant to Norway; is that Norway is leading in improved shipping building in the world. With this withstanding, then it has better workforce skilled in shipbuilding. Although there is a shortage in staffing as compared to other countries, Norway is far much better. The third reason is that there is a great demand for marine engines in Norway because of its operation in the rough Arctic and the North Sea. Because of many breakages in the ocean, there is a great demand for marine engines today. With the increased water travel, there is a rise in demand for more ships and other marines. Therefore, this existed as a market niche, and it was a good opportunity for Rolls to utilize.

Norway emphasizes on efficiency and knowhow over labor cost; therefore, the workers need to be skillful and educated. The Western countries seek to produce quality products; thus, they require train workforce that is rich in skills. In addition, the legal requirements for industry laborers demand skilled workers to reduce risks, as well as to produce standard products. In Norway, the wages are high as well as the living standards; for workers to be paid lavishly, they need to be satisfactorily skilled. There is the existence of the security system that is concerned with the welfare of workers, which governs the hiring standards. Through this system, Norway is able to ensure that employees the companies hire are qualified; hence, they can reduce the firing rates. In an attempt to satisfy the regulations of the security system, the companies do not hire employees who are not satisfactorily qualified to avoid the need to fire them soon after the hiring.

China, on the other hand emphasizes on labor cost cut down and mass production over efficiency and knowhow. With the increased demand of the China made products both locally and internationally, skills in production have been less a concern. The China government is working towards improving the market of its local products in the local market. To achieve this objective, there has been a loose hand on the production regulations and requirements. Less skilled workers are paid cheaply; thus, the labor cost of production is cutting down greatly. This results in low prices products thus raising their demand internationally, although they are rather substandard one. The production requirements of China are favorable when compared to those of the Western countries; this gives a loophole for producers to be reckless and, eventually, unskilled workers get into the system.

China’s government does not give sufficient support for a business to thrive. Rishton, quoted in the article, asserts that, for a company to do quality engineering, government support is vital. Therefore, being an essential, it becomes hard for a company that deals with fundamental engineering to thrive in China. According to the researches outlined in the critique, most foreign investors in China are complaining of intellectual property security. China does not protect the proprietary information of foreign investors. The researches showed that investors lost millions of money because of leakage of their proprietary information to competitors. In addition, China is committed to training workforce to improve the value of its products; thus, this objective contradicts helping or even safeguarding the welfare of foreign investors. The government cannot protect the foreign investors since it is working towards improving the market of their local products.

These intellectual properties are not secondary but basic ones

Since these concerns have contributed to Rolls decision of not investing in China, they must have been basic to the company’s operations. Having noted that staff shortages are a problem to the company, China’s objective of training works to help improve its local products will complicate the shortage problem. Finally, leakage of a company’s proprietary information to its competitors would cause great damages resulting in huge losses. The information of any company is its power and its advantage over its competitors. The leakage of this information is a huge blow to the company. 


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