Matakuliah
Tahun
: <<EKONOMI PEMBANGUNAN>>
: <<2009>>
The Trade Policy Debate
Pertemuan 8
A large part of the developing world has not
yet reaped the benefits of globalization :
many countries have continued to lose
ground
(IMF, World Economic Outlook, 1997)
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Material Outline
• Export promotion versus import substitution
• Trade policies of Developed Countries
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Trade strategies for Development : Export Promotion
versus Important Substitution
• Out ward – looking development policies
Encourage not only free trade but also the free
movement of capital, workers, enterprises and
student, the multinational enterprise, and an open
system of communications
• In ward – looking development policies
Stress the need for LDCs to evolve their own styles
of development and to control their own destiny
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Export Promotion : Looking-outward and
seing Trade Barriers
• Primary – commodity Export Expansion: limited
demand, shrinking Markets
• Expanding exports of Manufactured Goods:
some successes, many barriers.
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Import Substitution: Looking in-ward but still
paying outward
• Tariffs, Infant industries, and the theory of
protection
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Import Substitution and the Theory of Protection
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Trade pessimist arguments
1) The limited growth of world demand for primary
exports
2) The secular deterioration in the terms of trade
for primary producing nations
3) The rise of “new protectionism” against the
exports of LDC manufactured and processed
agricultural goods
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Trade Optimist Arguments
1. It promotes competition, improve resource allocation,
and economies of scale in areas where LDCs have a
comparative advantage. Costs of production are
consequently lowered
2. It generates pressures for increased efficiencies,
product improvement, and technical change, thus
raising factor productivity and further lowering costs
of production
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Trade Optimist Arguments
3. It accelerates overall economic growth, which raises
profits and promotes greater saving and investment
and thus furthers growth
4. It attracts foreign capital and expertise, which are in
scarce supply in LDCs
5. It generates needed foreign exchange that can be
used to import food if the agricultural sector lags
behind or suffers droughts or other natural
catastrophes
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Trade Optimist Arguments
6. It eliminates costly economic distortions caused by
government interventions in both the export and
foreign-exchange markets and substitutes market
allocation for the corruption and rent-seeking
activities that usually result from an overactive
government sector
7. It promotes more equal access to scarce resources,
which improves overall resource allocation.
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Trade policies of Developed Countries :
1) Tariff and non tariff barriers to LDC exports
2) Adjustment assistance for displaced workers in
developed country industries hurt by freer access
of labor – intensive, low cost LDC exports
3) The general impact of rich – country domestic
economic policies on developing economies.
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