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Unformatted text preview: Strategies of Economic Development- Comparative Advantage-Definition: countries should specialize in the products that they can make the best of, at a lower opportunity cost than another party-Alleged comparative advantage of DCs (developed countries) & LDCs (least developed countries)-What was the strategy and how did the globally accepted strategy come about:-Colonial origins but continued in post-colonial era [in Latin America, especially] * explains how trade can create value for both parties even when one can produce all goods with fewer resources than the other. The net benefits of such an outcome are called gains from trade Characteristics in LDCs 1. Promote trade 2. Specialize economicallyon 1-2 primary products (i.e. agricultural products or minerals) *Meanwhile, DCs produce & export manufactured goods Based on Theory of Comparative Advantage- Formulated in DCs [England]- Efficiency: specialize in what best at doing; then, trade to get wanted goods that other countries produce better- Theory vs. Practice: whose INTERESTS best served?- DCs supported & LDC ELITES developed vested interest in the economic model LDC Problems with Comparative Advantage 1. Dependence on 1-2 exports 2. Dependent on worst exports: primary good fluctuate, but manufactured goods did not fluctuate much, which DCs usually produced a. Prices of primary products are more volatile than industrial goods pricesWHY? [Supply-side issue] b. Product substitution problem: of primary goods (i.e. if Columbian coffee is too expensive, people still can buy Mexican coffee) [Demand-side issue] c. Declining terms of trade between primary vs. industrial goods, between DCs & LDCs 3. World market, not costs, set prices 4. Impact of the Great Depressionsupply of LDCs products remained while demand plunged Import Substitution Industrialization (ISI) Definition: a trade and economic policy based on the premise that a country should attempt to reduce its foreign dependency through the local production of industrialized products. The term primarily refers to 20th century development economics policies, though it was advocated since the 18th century.economics policies, though it was advocated since the 18th century....
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