Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 13 The Trade Policy Debate: Export Promotion, Import Substitution, and Economic Integration

Copyright © 2006 Pearson Addison-Wesley. All rights reserved.

Chapter 13

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

Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-2

Trade Strategies for Development: Export Promotion versus Import Substitution

Export promotion: looking outward and seeing trade barriers– Primary-commodity export expansion



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


Figure 13.1



The IS industrialization strategy and results


Tariff Structures and Effective Protection

p

ppt

The nominal tariff rate, t, is

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

(13.1)


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

(13.2)


Table 13.1



The IS industrialization strategy and results Foreign-exchange rates, exchange controls,

and the devaluation decision


Figure 13.2


Summary and Conclusions: Trade Optimists and Trade Pessimists

Trade pessimist arguments Trade optimist arguments The industrialization strategy approach to

export policy


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


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


Table 13.2


Trade Policies of Developed Countries: the Need for Reform

Rich-nation tariff and nontariff trade barriers and the 1995 Uruguay Round (see figure 13.3 for quantitative impact )


Figure 13.3


Trade Policies of Developed Countries: the Need for Reform

Rich-nation tariff and nontariff trade barriers and the 1995 Uruguay Round

WTO—1995 Doha Round—2001


Concepts for Review

Adjustment assistance Autarchy Common market Customs union Depreciation Devaluation Dual exchange rate Doha Development

Agenda

Economic integration Economic Union Effective rate of

protection Exchange control Exchange rate Export promotion Flexible exchange rate


Concepts for Review (cont’d)

Free-market exchange rate

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



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



Uruguay Round Value added

Wage-price spiral World Trade

Organization (WTO)

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Copyright © 2006 Pearson Addison-Wesley. All rights reserved. Chapter 13 The Trade Policy Debate: Export Promotion, Import Substitution, and Economic Integration