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Unformatted text preview: ECON 4411A, Fall 2011 Development Economics Summary Notes: Week 12, Lesson A Trade Patterns and Comparative advantage Quote of the day: Plan your life at New Years, your day at dawn Japanese proverb World Trading Patterns Post the historic conference in Bretton Wood, New Hampshire, the multilateral organization, General Agreement on Trade and Tariffs (GATT) was formed. This new trading order (with an aim to decrease trade barriers) and the rapid economic growth worldwide post the 2nd world war, led to an increase in world export. Between 1960 and 1968, exports grew by about 7.3% and grew even faster yearly up until 1973 when the sharp increase of oil prices of the 70s led to a recession for developed countries. After the recession of the 70s, exports began to grow again but not as fast as in the 60s. For developing countries, exports have systematically increased (Table 16.1 in Ray pp 622, captures the changes in exports over time for LDCs). Economists believe this growth would have been even greater but for the resurgence of protectionalism in both LDCS and DCs post the oil shocks of the 70s. Of particular interest is the rapid growth in Asia. The Asian export growth was in double digits through out the 80s. This growth actually exceed the overall average for developing countries by a factor of 2. This rapid growth in Asia was triggered mainly by growth in the newly industrialized economies [Hongkong, Korea, Singapore and Taiwan]. Even in the 70s when most parts of the world had a drop in export growths, these countries held growth of over 13% per annum. The export strategies adopted by these countries have also been adopted by Indonesia, Malaysia and the Philippines and Thailand. Recently China has also also followed these export oriented strategies. Latin America has also grown in exports in the 80s but not compared to Asia. Sub-Saharan Africa has had the least increase in export growth among LDCs. Even post the general slump of 1973-82, export growth has still been below 2%. Unfortunately, despite the great performance in Asia, LDCs share of world trade had decreased by the mid 90s. Developed countries actually increased their share in the value of world trade, from around 66% in 1960 to 73% in 1991. The simple explanations were first, the rest of the developing world did not match Asias performance. Second, primary product prices since the 1980s have been declining, which is the primary export of most LDCs especially in Africa (for example food, fuels, minerals). Table 16.2, pp623 of Ray provides evidence of this primary export bias for most LDCs. However, despite the large bias of LDCs exports in primary products, there has been a change in the composition of exports from developing countries over 1 the last three decades. LDCs have increased significantly their share of man- ufactured exports. The shift is particularly pronounced in Asia (China taking on a prominent role since the late 80s), but is a general feature for developing countries as a whole though less significant changes have occurred in Africa.countries as a whole though less significant changes have occurred in Africa....
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