Analisis

There are two general types of trade orientation. First is outward orientation, and second is inward orientation. Myint (1984) observes five characteristics in each orientation. Outward orientation contains the following characteristics : [1] free trade and export expansion, [2] open domestic economy, [3] open for foreign assistance and capital flows, [4] open for foreign investment, and [5] open immigration. In contrast, inward orientation has the following characteristics : [1] protectionistic and import substitution, [2] closed domestic economy, [3] relying on domestic saving and resources, [4] limitation on foreign investment, and [5] limiting immigration.

         The World Bank (1987) defines trade orientations based on the following four indicators. First, effective rate of protection. The higher the effective rate of protection for domestic markets, the greater the bias toward import substitution. Second, the use of direct controls such as quotas and import licensing schemes. The

greater the reliance on direct controls on imports, the more inward oriented the economy. Third, the use of export incentives. Fourth, degree of exchange rate overvaluation. Inward orientation generally leads to an overvaluation of the exchange rate.

         The World Bank distinguishes four types of trade orientation (World Bank, 1987). The first is strong outward orientation. Under strong outward orientation, trade controls are either nonexistent or very low. Any disincentives to export resulting from import barri­ers are more or less counterbalanced by export in­centives. The effective exchange rates for importables and exportables are roughly equal.

         The next trade strategy is moderate outward orientation. When the outward orientation is moderate, the overall in­centive structure is biased toward production for domestic rather than export markets. But the aver­age rate of effective protection for the home mar­kets is relatively low and the range of effective pro­tection rates relatively narrow. The use of direct controls and licensing arrangements is limited, and although some direct incentives to export may be provided, these do not offset protection against imports. The effective exchange rate is higher for imports than for exports, but only slightly.

         The third is moderate inward orientation.  Under this type of trade orientation, the overall in­centive structure distinctly favors production for the domestic market. The average rate of effective protection for home markets is relatively high and the range of effective protection rates relatively wide. The use of direct import controls and licens­ing is extensive, and although some direct incen­tives to export may be provided, there is a distinct bias against exports, and the exchange rate is clearly overvalued. The last is strong inward orientation. Under strong inward orientation, the overall incen­tive structure strongly favors production for the domestic market. The average rate of effective pro­tection for home markets is high and the range of effective protection rates relatively wide. Direct controls and licensing disincentives to the tradi­tional export sector are pervasive, positive incen­tives to nontraditional exportables are few or non-existent, and the exchange rate is significantly overvalued.