Trade Policies For The Developing Nations

Trade Policies for the
Developing Nations
© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license
distributed with a certain product or service or otherwise on a password‐protected website for classroom use 1
CHAPTER OUTLINE
• Trade Policies for the Developing Nations
• Developing Nation’s Trade Characteristics
• Trade Problems of Developing Nations
• Stabilizing Primary Product Prices
• Aiding the Developing Nations
• Eco Growth Strategies –
Import Substitution vs Export‐Led Growth
• Case Studies – East Asia, China and India
2
Advanced and Developing Nations
• By real income
• Advanced nations
• High levels of gross domestic product per capita
• Longer life expectancies
• Higher levels of adult literacy
• North America, Western Europe, Australia, New
Zealand, and Japan
• Developing nations
• Low levels of GDP/Capita, shorter life expectancies
and lower levels of adult literacy
• Africa, Asia, Latin America, and the Middle East
3
4
Developing‐Nations Trade Characteristics
• Characteristics of developing‐nations trade
• Highly dependent on advanced nations
• Imports originate in advanced nations
• Exports mainly to advanced nations primarily in:
• Primary products
• Agricultural goods, raw materials, and fuels
• Simple Manufactured goods
• Textiles, Labour intensive, Low – Technology
• Trade among developing nations ‐ relatively minor
5
Developing‐Nation Trade Characteristics
• Developing nations – moving into exports of
manufactured products
• Investment in human capital and technology
• Higher educational levels
• Higher capital stock per worker
• Improvements in transport & communications
• Trade Reforms
• Liberalization of trade barriers
6
Tensions Between Developing and
Advanced Nations
• Poor nations
• Need to take advantage of international trade
• Problem: advanced world – increased barriers
to imports from developing nations
• Other problems:
• Structural weaknesses
• Nonexistent or inadequate institutions and policies
• Law and order, sustainable macroeconomic
management, and public services
7
Trade Problems of the Developing Nations
• Unstable export markets
• Exports ‐ concentrated in only one or a few
primary commodities
• Instability of prices and producer revenues
• Low price elasticities of demand and supply
• Falling commodity prices due to decreased
demand in advanced economies threatening
economic growth of exporting nations
• Close linkage between export earnings of
developing countries & advanced economies
8
9
10
• Worsening terms of trade
• Prices of exports relative to imports have fallen
• Import – manufactured goods traded in
monopolistic markets.
• Gains in productivity translate into higher earnings
and as incomes rise in third world, people spend
more on manufactured goods
• Export ‐ primary goods traded in competitive
markets and productivity gains result in lower
prices
11
• Limited market access
• Global protectionism
• Agriculture
• Labour‐intensive low – skill manufactured products
• Higher tariffs
• Major trading blocks: EU, NAFTA
• Some exceptions – GSP, AGOA, EBA
• Tariff escalation
• By developed and developing nations
• Quotas on imports
12
13
• Agricultural export subsidies of advanced
nations
• Discourages agricultural imports
• Displaces developing‐nation shipments to
advanced‐nation markets
• Results in unwanted surpluses which:
• Are often dumped on to the world markets
• Lead to decreasing prices for many agricultural
commodities sold by developing countries
• Reduces the export revenues of developing nations
14
Stabilizing Primary‐Product Prices
• International commodity agreements (ICAs).
• Attempt to stabilize export prices and revenues
of primary products
• Agreements between leading producing and
consuming nations of commodities
• Stabilizing prices
• Assuring adequate supplies to consumers
• Promoting economic development of producers
15
• Production and export controls
• Affect the price ‐ influence world supply
• Based on a target price
• Obstacles:
• Distribution of the limits among producing nations
• Entrance of new producers
• Producers have the incentive to cheat on output
restrictions
• Enforcement is difficult
16
• Buffer stocks
• Establishment of a producers’ association
(international agency)
• Prepared to buy and sell a commodity in large
amounts
• Supplies of a commodity
• Financed and held by the producers’ association
• Buffer stock manager
• Buys from the market when prices are falling
• Sells from the buffer stock when prices are high
17
18
• Buffer stock Advantages
• Can promote economic efficiency
• Can moderate the price inflation of the
industrialized nations
• Buffer stock – Problems
• Agreeing on a target price
• High costs of holding the stocks
• Poor decisions
19
• Multilateral contracts
• To hold the price within a target range
• Minimum price at which importers will purchase
guaranteed quantities
• Maximum price at which producing nations will sell
guaranteed amounts to the importers
• Advantage
• Less distortion of the market mechanism and the
allocation of resources
• Tend to furnish only limited market stability
20
Aiding the Developing Nations
• U. N. Monetary & Financial Conference
• Bretton Woods, New Hampshire, July 1944
• World Bank, International Monetary Fund
• To ease the transition from a wartime to a
peacetime environment
• To help prevent a recurrence of the turbulent
economic conditions of the Great Depression era
• Sources of funds to promote economic
development and financial stability
26
TRADE Does foreign direct investment hinder
CONFLICTS
or help economic development?
• Foreign direct investment
• Foreign firms
• Locate production plants in the domestic economy
• Acquire a substantial ownership position in a
domestic firm
• Restricted because of
• Nationalist sentiment
• Concerns ‐ foreign economic and political influence
• Fear of exploitation
• Resources of the host nation
27
CONFLICTS
• May encourage economic growth
• Increase in the stock of capital
• Higher productivity of labour
• Higher incomes
• Transfer of technological knowledge
• Can be restricted in a given industry for
national security purposes
• Deterioration in the global environment
28
CONFLICTS
• Impact varies considerably by type (e.g. apparel
manufacturers vs. mining companies)
29
• World Bank
• International organization
• Grants and Loans to developing nations
• In 2010 – loans by World Bank equaled $58 Bil
• Poverty reduction and economic development
• 187 member nations
• Jointly responsible for how the institution is
financed and how its money is spent
30
31
• International Monetary Fund (IMF)
• 187 nations
• A bank for the central banks of member nations
• Funds for the IMF come from
• Quotas (subscriptions)
• Pooled funds of member nations
• Make conditional loans to member nations
• Bailouts may contribute to moral‐hazard problem
• Restrictive monetary and fiscal policies conditions
‐ contractionary effect
32
Generalized System of Preferences (GSP)
• Generalized system of preferences (GSP)
• Non‐reciprocal tariff preferences to exports of
developing nations
• Since its origin in 1976, the U.S. GSP program
extended duty free treatment to 3000 items
• Attempts to promote economic development in
developing nations through increased trade
• Benefits reduced by imposing restrictions on
eligibility requirements
33
African Growth and Opportunity Act
(AGOA)
• Expanded the list of goods for which duty‐free
access to the U.S. market is allowed for eligible
African countries
• Started in 2000 by President Clinton; Continued
under Presidents Bush and Obama
• Has had an impact on exports from Africa,
particularly apparel exports, for which
generous import‐sourcing rules have been
important.
34
Everything But Arms (EBA)
• Allows for the importation into the EU of
virtually all goods (except armaments) both
duty‐free and quota‐free from Least Developed
Countries (LDCs)
• Significant overlap between the African
countries eligible for AGOA and the Least
Developed Countries (LDCs), but not complete.
35
Generalized System of Preferences
• Factors that erode GSP effectiveness
• Preferences
• Apply to products that already face relatively low
tariffs
• Tariff preferences
• Eroded by nontariff measures
• Products and nations
• Removed from GSP eligibility because of lobbying
by domestic interest groups in importing nations
36
• Aid for the development of infrastructure
• Transportation systems, communications,
energy generation, and banking services
• Relatively strong effects on economic growth
• Growth‐oriented aid
• Aid for disaster and humanitarian relief
• Food supply, water sanitation
• Less immediate effects on economic growth
37
• Proponents of aid programs
• Aid
• Enhanced poverty reduction
• Enhanced growth in some nations
• Prevented worse performance in other nations
• Shortcomings of aid
• Have more to do with donors than beneficiaries
38
• Critics of aid programs
• Aid:
• Fostered government bureaucracies
• Prolonged bad governments
• Favoured the wealthy in poor nations
• Likely to be squandered
• 40 years of aid – still widespread poverty
• Aid Programs Options
• Substantially altered, drastically cut, or eliminated
altogether
39
Aid and Developing Nations ‐ Stiglitz
• Excerpts of Professor Stiglitz views:
• Growing gap between advanced & developing
nations
• Developing nations face significant trade
barriers in markets of developed countries
• Developing nations face domestic problems of
job losses if they open up markets with no
safety nets
• Calls for more equitable treatment of
developing countries in trade negotiations
40
Economic Growth Strategies
• Import substitution
• Extensive use of trade barriers
• To produce goods which were formerly imported by
protecting domestic industries from import
competition through trade barriers
• Inward‐oriented
• Trade and industrial incentives favor production for
the domestic market over the export market
• Extension of Infant‐industry argument
41
• Advantages of import substitution
• Low risks of establishing a home industry to
replace imports
• Easier to protect from foreign competitors as
compared with having advanced nations
reduce their trade restrictions
• Foreign firms have an incentive to locate
manufacturing plants in a developing nation
42
• Disadvantages of import substitution
• Domestic industries
• No incentive to increase their efficiency
• Producers cannot avail of economies of scale
• Discriminates against all other producers
• Including potential exporting ones
• Very difficult to remove the restrictions once
placed
43
• Export‐led growth
• Export‐oriented policy
• Outward oriented ‐ links the domestic economy
to the world economy
• Promote growth through the export of
manufactured goods
• Trade controls ‐ nonexistent or very low
• Industrialization
• Natural outcome of development
44
• Advantages of export‐oriented policies
• Encourage industries in which developing
nations are likely to have a comparative
advantage
• Allow domestic producers greater scope for
exploiting economies of scale
• Impose a competitive discipline on domestic
firms that forces them to increase efficiency
45
• Disadvantages of export‐oriented policies
• Which industries? Which markets?
46
47
• Is Economic growth good for the poor?
• Developing nations with continuing growth
• Significant progress in decreasing poverty
48
East Asian Economies
• Economic success
• Highly diverse in natural resources,
populations, cultures, and economic policies
• High rates of investment
• High and increasing endowments of human
capital due to universal primary and secondary
education
49
50
• Foster competitiveness
• Invested in people
• Provided a favourable competitive climate for
private enterprise, although at times this was
managed by government
• Economies ‐ open to international trade
• Actively sought foreign technology
• Discouraged the organization of trade unions
• Free and competitive labour markets
• No minimum wage legislation
51
• Flying‐geese pattern of economic growth
• Nations gradually move up in technological
development
• By following in the pattern of nations ahead of
them in the development process
• Result of market forces
52
China’s Transformation to Capitalism
• 1970s
• Value of exports and imports
• Less than $15 billion
• 30th largest exporting nation
• Negligible participant in world financial markets
• 2005
• World’s second largest economy
• National output
• Over half that of the U.S.
• 60% larger than Japan’s
53
• Since 1970s, China’s “marketizing” its economy
• Greater competition
• Open to foreign investment and joint ventures
• Economic zones ‐ firms could keep foreign
exchange earnings and hire and fire workers
• Open to international trade
• Strong state‐owned corporations
54
• Reforms still needed addressing
• Cleanup of bankrupt state banks
• Creation of a social security system
55
India: Breaking Out of the Third World
• Rapidly improved economic performance
• Freer trade policies (since the early 1990s)
• Economy of India
• Agriculture, handicrafts, manufacturing,
services, software
• Two‐thirds of the Indian workforce –
agriculture
• Services ‐ growing sector
56
India: Breaking Out of the Third World
• Issues to sustain robust economic growth
• Improvement in infrastructure
• Roads, electric power generation, rail freight, and
ports
• High rate of population growth
• Major advantage ‐ almost limitless labour supply
and consumer demand
• Necessity of investing in education and health care
• Creating adequate opportunities for employment
57
Brazil Takes Off
• By 2011, Brazil’s economy the largest in Latin
America and world’s seventh largest
• 1990’s – Brazil established pro‐growth, open
economy attracting FDI and privatization
• Potential for Brazil to grow on a sustained basis
with population and natural resources
59

Trade Policies For The Developing Nations

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Trade Policies For The Developing Nations

Uploaded by

Copyright:

Available Formats

Trade Policies for the

You might also like