Chapter 13 Slide 1Copyright © 2003 Pearson Education, Inc.

Chapter 13 Slide 2Copyright © 2003 Pearson Education, Inc.

The Trade Policy Debate: Export Promotion, Import Substitution, and Economic Integration

Chapter 13

Chapter 13 Slide 3Copyright © 2003 Pearson Education, Inc.

Trade Strategies for Development: Export Promotion versus Import Substitution Export promotion: looking outward and

seeing trade barriers– primary-commodity export expansion

Chapter 13 Slide 4Copyright © 2003 Pearson Education, Inc.

Trade Strategies for Development: Export Promotion versus Import Substitution Export promotion: looking outward and

seeing trade barriers– primary-commodity export expansion– expanding manufactured good exports

Import substitution: looking inward but still paying outward– tariffs, infant industries, and protection

Chapter 13 Slide 5Copyright © 2003 Pearson Education, Inc.

Figure 13.1 Import

Substitution and the

Theory of Protection

Chapter 13 Slide 6Copyright © 2003 Pearson Education, Inc.

Trade Strategies for Development: Export Promotion versus Import Substitution The IS industrialization strategy and

results

Chapter 13 Slide 7Copyright © 2003 Pearson Education, Inc.

Chapter 13 Slide 8Copyright © 2003 Pearson Education, Inc.

Tariff Structures and Effective Protection

p

ppt

The nominal tariff rate, t, is

Wherep’ is the tariff-inclusive pricep is the free trade price

Chapter 13 Slide 9Copyright © 2003 Pearson Education, Inc.

Tariff Structures and Effective Protection

v

vvg

The effective tariff rate, g, is

Wherev’ is the value added per unit of output,inclusive of the tariffv is the value added per unit of outputunder free trade

Chapter 13 Slide 10Copyright © 2003 Pearson Education, Inc.

Chapter 13 Slide 11Copyright © 2003 Pearson Education, Inc.

Trade Strategies for Development: Export Promotion versus Import Substitution The IS industrialization strategy and

results Foreign-exchange rates, exchange

controls, and the devaluation decision

Chapter 13 Slide 12Copyright © 2003 Pearson Education, Inc.

Figure 13.2 Free-Market and Controlled Rates of Foreign Exchange

Chapter 13 Slide 13Copyright © 2003 Pearson Education, Inc.

Summary and Conclusions: Trade Optimists and Trade Pessimists Trade pessimist arguments Trade optimist arguments

Chapter 13 Slide 14Copyright © 2003 Pearson Education, Inc.

Reconciling the Arguments: The Data and Consensus Neither the trade optimists nor the trade

pessimists are always right There are many factors that determine

whether trade is good or bad for a country

Chapter 13 Slide 15Copyright © 2003 Pearson Education, Inc.

South-South Trade and Economic Integration: Looking Outward and Inward The growth of trade among developing

countries Economic integration: theory and

practice Regional trading blocks and the

globalization of trade

Chapter 13 Slide 16Copyright © 2003 Pearson Education, Inc.

Chapter 13 Slide 17Copyright © 2003 Pearson Education, Inc.

South-South Trade and Economic Integration: Looking Outward and Inward The growth of trade among developing

countries Economic integration: theory and

practice Regional trading blocks and the

globalization of trade

Chapter 13 Slide 18Copyright © 2003 Pearson Education, Inc.

Trade Policies of Developed Countries: the Need for Reform Rich-nation tariff and nontariff trade

barriers and the 1995 Uruguay Round

Chapter 13 Slide 19Copyright © 2003 Pearson Education, Inc.

Figure 13.3 The Poor Face High Tariffs

Chapter 13 Slide 20Copyright © 2003 Pearson Education, Inc.

Trade Policies of Developed Countries: the Need for Reform Rich-nation tariff and nontariff trade

barriers and the 1995 Uruguay Round The problem of adjustment assistance Domestic economic policies

Chapter 13 Slide 21Copyright © 2003 Pearson Education, Inc.

Concepts for Review Adjustment

assistance Autarchy Common market Customs union Depreciation Devaluation Dual exchange rate Economic integration

Economic Union Effective rate of

protection Exchange control Exchange rate Export promotion Flexible exchange rate Free-market exchange

rate

Chapter 13 Slide 22Copyright © 2003 Pearson Education, Inc.

Concepts for Review, cont’d

General Agreement on Tariffs and Trade (GATT)

Globalization Import substitution Infant industry International

commodity agreements

Inward-looking development policies

Multi-Fiber Arrangement (MFA)

New protectionism Nominal rate of

protection Nontariff trade barriers

Chapter 13 Slide 23Copyright © 2003 Pearson Education, Inc.

Concepts for Review, cont’d Official exchange rate Outward-looking

development policies Overvalued exchange

rate Parallel exchange rate Quotas Regional trading bloc

Rent seeking Synthetic substitutes Tariffs Trade creation Trade diversion Trade liberalization Trade optimists Trade pessimists

Chapter 13 Slide 24Copyright © 2003 Pearson Education, Inc.

Concepts for Review, cont’d

Uruguay Round Value added

Wage-price spiral World Trade

Organization (WTO)