Chapter 11: Dilemmas of Development

You have made a series of choices as the Secretary of Economic Development of Kashmir. Let's analyze each of your choices.

The Washington Consensus model of economic development champions unregulated liberal capitalism. The competition drives your domestic firms to continuously innovate and charge lower prices. Some unprotected firms will get priced out, and Kashmir will experience economic volatility sometimes. Overall, your domestic economy will grow and improve over time.

Import-substituting industrialization is a market-controlling strategy that avoids international economic linkages to support national champion firms instead. High tariffs decrease the importation of manufactured goods into Kashmir, while subsidies streamline domestic industrialization. In the short term, this strategy will result in solid growth and industrialization, but in the long term, the high tariff walls and subsidies will suppress incentives for national champion firms to innovate and charge lower prices. The subsidies will also slowly run up Kashmir's deficits and create a national debt.

Closing Kashmir off from international financial flows mean your firms will not have reliable access to necessary foreign capital. Spurning foreign direct investment means your markets will not benefit from multinational enterprises bringing over technology, labor, capital, and managerial expertise from their developed countries. Furthermore, if Kashmir experiences financial crisis, you will have to resolve your economic problems on your own as you rejected official development assistance and multilateral institutions' loans. You have shielded your firms from the volatility of international financial flows, but you have severely lowered the potential growth the Kashmiri economy could experience as a result.

Overall, you have done a subpar job as the Kashmiri economy will be stable but stagnant, which means you have failed one of your two goals of stability and growth.