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

Chapter 13 Slide 2 Copyright © 2003 Pearson Education, Inc. The Trade Policy Debate: Export Promotion, Import Substitution, and Economic Integration Chapter 13

Chapter 13 Slide 3 Copyright © 2003 Pearson Education, Inc. Trade Strategies for Development: Export Promotion versus Import Substitution n Export promotion: looking outward and seeing trade barriers –primary-commodity export expansion

Chapter 13 Slide 4 Copyright © 2003 Pearson Education, Inc. Trade Strategies for Development: Export Promotion versus Import Substitution n Export promotion: looking outward and seeing trade barriers –primary-commodity export expansion –expanding manufactured good exports n Import substitution: looking inward but still paying outward –tariffs, infant industries, and protection

Chapter 13 Slide 5 Copyright © 2003 Pearson Education, Inc. Figure 13.1 Import Substitution and the Theory of Protection

Chapter 13 Slide 6 Copyright © 2003 Pearson Education, Inc. Trade Strategies for Development: Export Promotion versus Import Substitution n The IS industrialization strategy and results

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

Chapter 13 Slide 8 Copyright © 2003 Pearson Education, Inc. Tariff Structures and Effective Protection The nominal tariff rate, t, is Where p is the tariff-inclusive price p is the free trade price

Chapter 13 Slide 9 Copyright © 2003 Pearson Education, Inc. Tariff Structures and Effective Protection The effective tariff rate, g, is Where v is the value added per unit of output, inclusive of the tariff v is the value added per unit of output under free trade

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

Chapter 13 Slide 11 Copyright © 2003 Pearson Education, Inc. Trade Strategies for Development: Export Promotion versus Import Substitution n The IS industrialization strategy and results n Foreign-exchange rates, exchange controls, and the devaluation decision

Chapter 13 Slide 12 Copyright © 2003 Pearson Education, Inc. Figure 13.2 Free-Market and Controlled Rates of Foreign Exchange

Chapter 13 Slide 13 Copyright © 2003 Pearson Education, Inc. Summary and Conclusions: Trade Optimists and Trade Pessimists n Trade pessimist arguments n Trade optimist arguments

Chapter 13 Slide 14 Copyright © 2003 Pearson Education, Inc. Reconciling the Arguments: The Data and Consensus n Neither the trade optimists nor the trade pessimists are always right n There are many factors that determine whether trade is good or bad for a country

Chapter 13 Slide 15 Copyright © 2003 Pearson Education, Inc. South-South Trade and Economic Integration: Looking Outward and Inward n The growth of trade among developing countries n Economic integration: theory and practice n Regional trading blocks and the globalization of trade

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

Chapter 13 Slide 17 Copyright © 2003 Pearson Education, Inc. South-South Trade and Economic Integration: Looking Outward and Inward n The growth of trade among developing countries n Economic integration: theory and practice n Regional trading blocks and the globalization of trade

Chapter 13 Slide 18 Copyright © 2003 Pearson Education, Inc. Trade Policies of Developed Countries: the Need for Reform n Rich-nation tariff and nontariff trade barriers and the 1995 Uruguay Round

Chapter 13 Slide 19 Copyright © 2003 Pearson Education, Inc. Figure 13.3 The Poor Face High Tariffs

Chapter 13 Slide 20 Copyright © 2003 Pearson Education, Inc. Trade Policies of Developed Countries: the Need for Reform n Rich-nation tariff and nontariff trade barriers and the 1995 Uruguay Round n The problem of adjustment assistance n Domestic economic policies

Chapter 13 Slide 21 Copyright © 2003 Pearson Education, Inc. Concepts for Review n Adjustment assistance n Autarchy n Common market n Customs union n Depreciation n Devaluation n Dual exchange rate n Economic integration n Economic Union n Effective rate of protection n Exchange control n Exchange rate n Export promotion n Flexible exchange rate n Free-market exchange rate

Chapter 13 Slide 22 Copyright © 2003 Pearson Education, Inc. Concepts for Review, contd n General Agreement on Tariffs and Trade (GATT) n Globalization n Import substitution n Infant industry n International commodity agreements n Inward-looking development policies n Multi-Fiber Arrangement (MFA) n New protectionism n Nominal rate of protection n Nontariff trade barriers

Chapter 13 Slide 23 Copyright © 2003 Pearson Education, Inc. Concepts for Review, contd n Official exchange rate n Outward-looking development policies n Overvalued exchange rate n Parallel exchange rate n Quotas n Regional trading bloc n Rent seeking n Synthetic substitutes n Tariffs n Trade creation n Trade diversion n Trade liberalization n Trade optimists n Trade pessimists

Chapter 13 Slide 24 Copyright © 2003 Pearson Education, Inc. Concepts for Review, contd n Uruguay Round n Value added n Wage-price spiral n World Trade Organization (WTO)