Trade and Development

Introduction Domestic Interests , International

Pressures , And protectionist Coalition The Structuralism critique Domestic and International elements of

trade and development strategies Emerging problems with import substitution

industrialization . The East Asian Model Structural Adjustment and Political Reform

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Business trend in international arena has changed a lot from 19th century till now

Free trade –protectionism- Free trade

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Trade and development policies in developing countries have been strongly shaped by political competition between rural based agriculture and urban based manufacturing.

Most of developing countries used to be agricultural export oriented. Most of the were even mono exporters . Brazil .

As a result , developing countries have full acces to land but not capital.

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Model of political dominance has been changed in developing counties from WWI .

In Argentina and Chile , land lords were controlling the government . (Oligarchy Democracy) .

In other south American countries : Military government which was supporting land lords .

Later government started to support new groups as a result of industrialization and act upon

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In Asia and Africa, Agricultural based export oriented economy was inherited from Colonial time.

Enclave agriculture in Taiwan and South Korea

After the WWI and II ,many governments in Developing countries rose as the result of supporting import competing manufacturing industries.

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Protectionism is a very good Argument for supporting the import competing manufacturing but it is not the enough theoretical basis for an economic development strategy

Structuralism : The shift of resources from agriculture to manufacturing by using appropriate strategies .

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According to structuralism market will not promote investment in manufacturing industries.

1- Complementary dement : Opening the shoe factory in the field of corn .

2- Pecuniary external economics : Interdependency among industries , steel and auto making.

As a result government should have the big-push.

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Structuralism also believes that international trade has few benefits for developing countries.

Singer –Prebisch theory : Talking about terms of trade between core and periphery countries . When the terms of trade is positive , it is cheaper for you to import and more beneficial to export

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Structuralism enabled governments to transform the protectionist trade policies that benefited their principle political supporters into comprehensive state led development strategies by providing intellectual justification for state-led development strategy.

Import-substitution industrialization or ISI

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Easy ISI : producing simple consumer goods , such as soda , beer , apparel , shoes and…

Rational : 1- existence of the large domestic demand 2- as Items were mature products , it is

easy to buy the technology 3- need for unskilled workers

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1- expansion of manufacturing activities 2- increasing the skilled labour

After a while it will stop bearing fruits It will be time to work on export substitution

strategy which is also called Secondary ISI

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1- government planning 2- investment policy 3- trade barriers

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ISI redistribute the income Income of the export oriented group

(agriculture) fall , while the income of import competing group raise.

It resulted in rapid economic growth of developing countries in 1960s and 1970s.

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ISI created two important economic imbalances.

1- government budget : it tends to generate persistent budget deficits because it prescribe heavy government involvement in the economy. Government invests in sectors which are not interesting for private sector

2- Persistent current account deficit. It reduces the possibility to export and increase tendency to import

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Export will decline for two reasons 1- Manufacturing industries created through

import substitution were not competitive in international markets

2- the policies of government to promote industrialization will weaken the agriculture

It will be reinforced by tendency of government to keep exchange rates high

Also administration of ISI will create opportunities for rent seeking people

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While ISI was creating problems and deficit in Latin America , East Asian countries had great development and increase in export .

Why did east Asian countries out performed all other developing countries in such scale?

Export oriented strategy

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IMF and World bank talk about using the free market strategy

Other say that South Asian countries uses the government intervention

By keeping the macro economic factors stable : Inflation rate was lower They managed to keep the control over

exchange rate They followed the conservative fiscal policy Stable macro economic factors helped opening

the market to international market

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East Asian Model of development : 1- promoting labour intensive light industry 2- emphasize on heavy industry 3- targeting at skilled and research

development Each stage has its own development polices

and as each stage reaches the limit of growth , government will take one step a head to the next stage

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East Asian governments also promote export

1- by using low interest funds for exporters 2- deliberately undervaluing the exchange

rate 3- using the duty free areas for making sure

that exporters can purchase their intermediate products duly

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Mostly promoted by IMF and World bank By emphasize on changing those aspects of

developing economies that were most unlike conditions in Asia and encouraging governments to create stable macro economic condition , liberalize trade and privatize state owned enterprises

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Thank you

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