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February 8, 2011
North-South Economic Relations: The Main IssuesThe origins of inequalityThe role of international regimes in
preserving or increasing that inequalityThe role of commodity and raw materials
trade in preserving or increasing inequalityImport substitution vs. export-led growth as
strategies for industrial growth in the Third World
Consequences of PovertyLack of access to
food, shelter, and education
Feelings of helplessness and insecurity
Low self-esteem
Garbage dump harvestingin Phnom Penh, Cambodia
Gross National Income per Capita, Purchasing Power Parity Method, 1980-2006, in Dollars, in High-, Middle-, and Low-Income Countries
Source: World Bank, World Development Indicators 2008, online data.
Hobson’s Theory of Economic ImperialismUnequal Distribution of Income
Capitalism
Surplus production
Overseas outlets
imperialism
war John Hobson
Lenin’s Theory of ImperialismUnequal Distribution of Income
Capitalism
Surplus capital
Overseas outlets
imperialism
war
Revolution
-
Vladimir I.Lenin
Declining Terms of Trade Theory• Developing countries (LDCs) depend upon
exports of raw materials and agricultural commodities
• Prices of LDC exports decline over time relative to price of their imports (mostly manufactured goods)
• Until LDCs diversify their economies, they will remain poor
Raul Prebisch
Prices of ExportsPrices of Imports
Why do they decline?• Competition among LDCs for export markets• High population growth rates in LDCs• Low bargaining power of LDC unions• Oligopolistic markets for IC goods
SirArthurLewis
Policies Recommended by Raul PrebischIndustrialization through Import SubstitutionRegional IntegrationIncreased South-South Trade and Investment
FlowsPopulation Control
Import SubstitutionHigh tariff barriers on imports of
manufactured goods to encourage domestic manufacturing (“infant industries”)
Tariff barriers are supposed to be reduced when domestic manufacturers become internationally competitive
Regional integration (helps to deal with limits imposed by small internal markets)
ExamplesDairy Farming in JamaicaCorporacion Venezolana de Guayana in
VenezuelaPosco (steel manufacturing) in KoreaBohemia (beer) in MexicoEarly automobile industry in Japan
1936 ToyotaModel AA Sedan
Why Import Substitution Bogs Down• Inward FDI displaces domestic manufacturers• Country develops trade deficit because
exports are not competitive while both domestic and MNC firms import expensive inputs for assembly plants and light manufacturing
• Government often turns to subsidies and state enterprises to encourage deepening of manufacturingThis is called the “deepening
of import substitution”
Examples of Crises of Import SubstitutionMexicoIndiaBrazilKoreaTaiwan
See chapters 4-7 of Episode 2 in The CommandingHeights documentary.
Export-Led GrowthInitial period of import substitutionReduce tariffs on inputs for manufacturingAdopt new incentives for exports:
export processing zonesnew trade-oriented infrastructuresubsidies for exporting firmsexport performance requirements for MNCs
ExamplesJapanKoreaTaiwanHong KongSingaporeChileChinaIndia
Per Capita Income in the Four Asian Tigers, 1975-2006
Sources: World Development Indicators 2008; and (for Taiwan only)Taiwan Economic Statistics 6 (May 2008). The data for Taiwan are GNP per capita; for the others GDP per capita at purchasing power parity.
Per Capita Income in China and India, 1980-2006
Source: World Development Indicators 2008.
The Millennium Development GoalsEradicate extreme poverty and hungerAchieve universal primary educationPromote gender equality and empower womenReduce child mortalityImprove maternal healthCombat HIV/AIDS, malaria, and other diseasesEnsure environmental sustainabilityDevelop a global partnership for development
Source: http://www.un.org/millenniumgoals/
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