Trade as a Key to Economic Growth and Development A Keynote Address MFT and UNDP Trade Forum, Pyongyang, DPR Korea, 4-5 May 2005 Peter Drysdale Australian National University

Background  trade a key engine of growth  no country developed without international integration  high living standards require openness  but no simple relationship between trade and growth

Gains from Trade  Smith, Ricardo and Mill and comparative advantage  three channels of trade gains for growth  response to relative price differences  leads to gains from more efficient resource use

Origins of Comparative Advantage  role of relative factor endowments  H-O and other theories  capital: labour ratio changes over time with capital accumulation  trade transition to high growth

Dynamic Gains from Trade  trade transfers knowledge and technology  trade delivers cheap and high quality capital goods  trade promotes industrial upgrading

Evidence  trade policy environment  trade leads income growth  growth of trade in manufactures  experience of China and Australia with trade liberalisation

World Trade in Manufactures, Source: World Trade Organisation

China's GDP and Trade Dependence,

Australia’s GDP and Trade Dependence,

Empirical Studies  econometric studies of openness and growth  openness premium to growth  methodological and other questions

East Asian Experience  East Asia as exemplar of open growth  question of state intervention  pattern of catching-up industrially  labour-intensive export specialisation

GDP and Trade Dependence for Eastern Asian Economies

Average Tariff Rates by Region

Asia’s Share in Labour Intensive Exports

Asia’s Share in Capital Intensive Exports

Asia’s Share in Technology Intensive Exports

Foreign Direct Investment  source of technology as well as capital  role in re-locating production and access to industrial markets  requirements policy environment

Other Policies and Institutions  market economy institutions and the state  corruption and governance  macro management and financial market  education

Conclusion  openness induces the institutional change  openness central to achieving higher welfare  practical issues but principles relevant to all economies, including DPR Korea