Trade and Development

Trade and Development - Trade and Development Rich World...

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Unformatted text preview: Trade and Development Rich World Poor World Monday, 1 October 2007 Dr Michael Keating Trade Theory Liberal vs. Mercantilist Liberal: Adam Smith and David Ricardo Mercantilist: Friedrich List Adam Smith Individual pursuing their selfinterest promotes societal interests better than if they intend to promote it! Never attempt to make yourself what you can get cheaper in the marketplace SPECIALIZATION KEY PRINCIPLE of liberal political economy Tailors don't make their own shoes any more than Cobblers make their own clothes! The Invisible Hand What is prudent at the individual level is also prudent for the state as a whole Adam Smith and Trade TRADE Little Johnny specializes in apples Little Jenny specializes in pears If they trade apples for pears they are both happier; both better off; there is no need for any state to force them to engage in trade Both have maximised social happiness by pursuing their individual selfinterest... Individual economic freedom crucial to the betterment of society (the Wealth of Nations) Political freedoms necessary to underpin and protect these economic freedoms ABSOLUTE GAINS Adam Smith on Protectionism Protectionism national monopoly of the domestic market to secure domestic industry... Great for these industries but overall? Overall industrial employment cannot exceed capital investment capacity If domestic goods are as cheap then regulations are useless (people would by them anyway) If domestic goods more expensive then people are forced to pay higher prices Less capital to spend overall diminished revenues meaning less capital overall Global Trade Adam Smith: David Ricardo: States have such natural advantages over one another you struggle against them in vain Whether these are natural or acquired doesn't matter Either way it is still more advantageous to buy off one another i.e. to trade COMPARATIVE ADVANTAGE States should also specialize Wine for Butter maximising aggregate levels of production hence global wealth Friedrich List MERCANTILISM Free competition between two states only mutually beneficial if both are of equal levels of industrial development A state must therefore strengthen its industrial strength before entering into free competition with more advanced nations Protectionism may lower standards of living in the shortterm as they necessarily mean higher prices but this is outweighed by the medium to long term advantages of having these industries Free Trade vs. Protectionism Guns vs. Butter TERMS OF TRADE Realist and Mercantilist critiques Primary vs. Secondary commodities Returns to technology Coloniallegacy Trade Strategies John Ruggie's `Embedded Liberalism' Keynesian Orthodoxy FDR's `New Deal' Europe's Welfare State 1970s economic meltdown ImportSubstitution Industrialisation (ISI) ExportLed Industrialisation Globalization East Asian Tigers The `Washington Consensus' IMF/World Bank/US Treasury Thatcher, Reagan, Friedman, Hayek Trade Politics FreeTrade vs. Protectionism Bilateral Trade Agreements WTO OECD rhetoric vs. practice Multilateral Trade Agreements Deal making at the WTO Agriculture vs. Manufactures EU and US subsidies Doha `Development' Round US South Korea (Super 301s) Trade Evidence Growth of global trade outstripping global economic growth Trade core to wealth of OECD The `Triad' North America; Europe; East Asia Not really a global trading system at all at best a regional one Most developing states outside of global trading system The Economist 1997 p28 ...
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