trade strategies for development: export promotion versus import substitution
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Trade Strategies for Development: Export Promotion versus Import Substitution. Export promotion: looking outward and seeing trade barriers primary-commodity export expansion expanding manufactured good exports Import substitution: looking inward but still paying outward - PowerPoint PPT PresentationTRANSCRIPT
Chapter 13 Slide 1Copyright © 2003 Pearson Education, Inc.
Trade Strategies for Development: Export Promotion versus Import Substitution Export promotion: looking outward and
seeing trade barriers– primary-commodity export expansion– expanding manufactured good exports
Import substitution: looking inward but still paying outward– tariffs, infant industries, and protection
Chapter 13 Slide 2Copyright © 2003 Pearson Education, Inc.
Drawbacks of ISI Protection Inefficiency Protection Foreign Ownership Profits Remitted Copy MDC Technologies High Capital Intensities
Little benefit to abundant labor / Limited learning Import capital goods weak backward linkages Forward linkages penalized: Brazilian computers for
Brazilians. Protection Overvaluation
• Traditional exports hurt – urban vs. rural bias• Capital intensity further encouraged
Chapter 13 Slide 3Copyright © 2003 Pearson Education, Inc.
Overvaluation
How?– Run down reserves / borrow more reserves– Reduce imports via tariffs and NTBs– Ration available foreign exchange
• Dual exchange rates / preferred customers/ rent seekers
Why not?– Hurt exporters: reduced sales / reduced value of
proceeds– Nation lives beyond means … temporarily– Eventual sharp devaluation:
• Import Prices CoL Wage–Price Spiral Worsened B of P Currency Crisis
Chapter 13 Slide 4Copyright © 2003 Pearson Education, Inc.
Chapter 13 Slide 5Copyright © 2003 Pearson Education, Inc.
Why Tariffs? Government revenue Discourage imports/Improve b of p Foster economies of scale Reduce dependency on MDCs Attract FDI – they get in under tariff barrier
EFFECTIVE RATE OF PROTECTION• Net nominal tariff relative to value added
Chapter 13 Slide 6Copyright © 2003 Pearson Education, Inc.
Chapter 13 Slide 7Copyright © 2003 Pearson Education, Inc.
Trade pessimists– Slow growth of demand for primary products
Low Income Elasticity/Increased Efficiency/Synthetics
– Terms of trade deterioration over time– MDC import barriers
Trade optimists– Competition efficiency– Economies of scale for efficient sectors– Attract foreign capital– Generate foreign exchange
Propels Growth – When World Demand is Strong
Chapter 13 Slide 8Copyright © 2003 Pearson Education, Inc.
South-South Trade and Economic Integration
Growth of trade among developing countries Economic integration: theory and practice
– Industrial complexes Economies of scale Regional trading blocks and the globalization of
trade– NAFTA: Mexican boom, ~ 1996 - 2000– Mercosur:
• Brazil / Argentina / Paraguay / Uruguay • Real depreciation Argentine Tariffs
– Andean Group• Colombia/Ecuador/Peru/Bolivia/Venezuela
Chapter 13 Slide 9Copyright © 2003 Pearson Education, Inc.
Chapter 13 Slide 10Copyright © 2003 Pearson Education, Inc.
Trade Policies of Developed Countries: the Need for Reform Rich-nation tariff and nontariff trade
barriers and the 1995 Uruguay Round The problem of adjustment assistance Domestic economic policies
Chapter 13 Slide 11Copyright © 2003 Pearson Education, Inc.
The Poor Face High Tariffs
Chapter 13 Slide 12Copyright © 2003 Pearson Education, Inc.
Concepts for Review Adjustment
assistance Autarchy Common market Customs union Depreciation Devaluation Dual exchange rate Economic integration
Economic Union Effective rate of
protection Exchange control Exchange rate Export promotion Flexible exchange rate Free-market exchange
rate
Chapter 13 Slide 13Copyright © 2003 Pearson Education, Inc.
Concepts for Review, cont’d
General Agreement on Tariffs and Trade (GATT)
Globalization Import substitution Infant industry International
commodity agreements
Inward-looking development policies
Multi-Fiber Arrangement (MFA)
New protectionism Nominal rate of
protection Nontariff trade barriers
Chapter 13 Slide 14Copyright © 2003 Pearson Education, Inc.
Concepts for Review, cont’d Official exchange rate Outward-looking
development policies Overvalued exchange
rate Parallel exchange rate Quotas Regional trading bloc
Rent seeking Synthetic substitutes Tariffs Trade creation Trade diversion Trade liberalization Trade optimists Trade pessimists
Chapter 13 Slide 15Copyright © 2003 Pearson Education, Inc.
Concepts for Review, cont’d
Uruguay Round Value added
Wage-price spiral World Trade
Organization (WTO)