23%20Trade%20Policy%20in%20Developing%20Countries

23%20Trade%20Policy%20in%20Developing%20Countries - Trade...

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1 1 Trade Policy in Developing Countries •In t rodu c t ion • Import-Substituting Industrialization • Trade Liberalization • Export Oriented Industrialization 2 Introduction • Trade is important for developing countries. – Developing countries exports average about 35%. – Developed countries exports average about 20%. • Developing countries are the source of about one-third of all world exports. 3 Introduction Two basic questions for developing countries: 1. What role can trade and trade policy play in economic development? 2. How can trade and trade policy be used to boost income and economic growth in poor countries? 4 Introduction
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2 5 Introduction Exploiting these comparative advantages leads to exports of: 1. Foods, 2. Fuels, 3. Other primary products, and 4. Less-skilled-labor-intensive manufactures. 6 Introduction Developing countries trade-policy choices: 1. A trade policy that accepts and exploits the country’s comparative advantages in land and natural resources and the export of primary products. 2. A trade policy that attempts to enhance the gains from exporting primary products by raising the world price of these products. 7 Introduction Developing countries trade-policy choices: 3. A policy that taxes and restricts imports to protect and subsidize new industries serving the domestic market . 4. A trade policy that encourages the development of new industries whose products can be readily exported . 8 Introduction Developing countries are different in that they face more formidable challenges than developed countries: 1. Capital markets work less efficiently. 2. Labor markets work less efficiently.
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3 9 Introduction • Changing views about economic development have had a major role in determining trade policy. • Trade policy in many developing countries was strongly influenced by the belief that the key to economic development was creation of a strong manufacturing sector . 10 Import Substituting Industrialization • The strategy of encouraging domestic industry by limiting imports of manufactured goods is known as import-substituting industrializa- tion (ISI) . 11 Import Substituting Industrialization Arguments for ISI: 1. Many developing countries were skeptical about the possibility of exporting manufactured goods. 2. Some advocates believed that the world economy was rigged against new entrants. 3. In many cases, ISI policies dovetailed naturally with existing political biases. 12 Import Substituting Industrialization • The Infant Industry Argument: – Import-substituting industrialization was often justified on the basis of the infant industry argument .
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4 13 Import Substituting Industrialization • The Infant Industry Argument: – To allow new manufacturing firms to get a start, governments should temporarily support new industries until they have grown strong enough to
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This note was uploaded on 02/09/2011 for the course ECON 181 taught by Professor Kasa during the Fall '07 term at Berkeley.

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23%20Trade%20Policy%20in%20Developing%20Countries - Trade...

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