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Chapter 10- Trade Policy in Developing Countries

Chapter 10- Trade Policy in Developing Countries - Chapter...

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Chapter 10: Trade Policy in Developing Countries Reading Notes May 1, 2008 Import-Substituting Industrialization o World War II until 1970: many developing countries attempted to accelerate development by limiting imports of manufactured goods to foster a manufacturing sector serving the domestic market o Infant Industry Argument: use tariffs or import quotas as temporary measures to get industrialization started. US, Germany and Japan all used trade barriers to help foster industrialization o Problems with the Infant Industry Argument 1) Not always good to try to move today into industries that will have a comparative advantage in the future Example: South Korea and automobile industry 2) Protecting manufacturing does no good unless the protection itself helps mark the industry competitive “Pseudoinfant Industry” Why don’t private investors develop the industry without government help? o Market failure justifications for Infant Industry protection Imperfect Capital Markets A developing country may not have a set of financial institutions (efficient stock markets and banks) that would
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