Ekonomi Internasional Pertemuan ke-11: Perdagangan dan Pertumbuhan Ekonomi Slide 1 Chapter 8: Perdagangan Internasional Indonesia

Static Gain and Dynamic Gain Gains from Free Trade Slide 2 Chapter 8: Perdagangan Internasional Indonesia

Static Gain from Trade Slide 3  Increases in economic well-being, holding resource and technology constant, that accrue to a country engaging in international trade  Static gain consists of two components: 1) Consumption gains Trade enables country to consume a bundle of goods/services beyond its PPF 2) Production gains Trade creates a redistribution in an economy’s productive resources into its comparative- advantage industries and hence increases the overall output

Static gain from trade Slide 4 T S PPF F CIC 1 A B C CIC 2 D Kondisi autarki adalah titik A Ketika perdagangan bebas dimungkinkan, akan tetapi produksi tidak diperkenankan berubah, konsumsi tetap meningkat ke titik B Pergerakan dari A ke B merupakan consumption gain from trade Ketika sumberdaya diperkenankan berubah ke arah keunggulan komparatif, produksi bergerak dari A menuju D dan konsumsi bergeser ke titik C (CIC yg lebih tinggi)

Dynamic Gain from Trade Slide 5  Increases in economic well-being that accrue to an economy because trade expands the resources of a country or induces increases in the productivity of existing resources. How? 1) Trade need not be restricted to trade in final- consumption goods Trade in factors of production will increase the stock of capital and therefore will increase productive capacity of a country → trade raises the overall rate of growth of the economy 2) International trade may enhance international diffusion of technological advance

Dynamic Gain from Trade Slide 6 3) International trade is procompetitive  Greater competition encourages more efficient production  As competition destroys industry rents, fewer resources are devoted to wasteful rent-seeking behavior 4) If economies of scale in production exist, then the dynamic gains from trade accrue because trade expands the size of the market  Industries are able to move farther down their average- cost curves, bringing down price in the process  Encourage industries to step up investments in R&D, thus in aggregate will raise the overall level of technology of the country

Dynamic Gain from Trade Slide 7 5) International trade can enlarge the pool of savings that is available to fund investment purchases, through:  Trade will lead to a higher national incomes. A higher level of national incomes lead to a higher levels of savings, thus a greater availability of funds for investment spending  International trade allows a country to borrow savings from other countries. Ex: a country that imports more goods than its exports. Under this circumstance, the country is taking in funds from abroad for financing its deficit

Types of strategies Trade and Development Slide 8 Chapter 8: Perdagangan Internasional Indonesia

Primary-Export-Led Development Policies Slide 9  Government programs designed to exploit natural comparative advantage by increasing production of a fewer exports goods most closely related to a country’s resource base and exporting them in return for manufactured goods produced elsewhere  In addition of static and dynamic gains, there are another benefits from this strategy: 1) There’s a possibility of underutilized of certain factors on autarky. Opening trade will encourage more intensive use of them 2) This strategy can serve to entice the inflow of foreign capital 3) This strategy may have linkage effects. Linkage effects: benefits to other industries or sectors of an economy that occur as one industry expands

Critics Slide 10  The world markets for primary products do not grow fast enough to support development  Over time, the price of primary-products exports relative to manufactured-goods imports tend to fall. The fall are accounted to:  The sluggish demand in industrialized countries will put downward pressure on the growth of primary- product prices  If the government of developing countries pursue export-expansion policies, then supplies of these products will rise on world markets, again tending to deflate prices

Outward-Looking Development Policies Slide 11  Government support for manufacturing sectors in which a country has potential comparative advantage  This type of strategy includes government policies such as:  Keeping relatively open markets so that internal prices reflect world prices  Maintaining an undervalued exchange rate so that export prices remain competitive in world market  Imposing only minimal intervention on factor markets so that wages and rents reflect true scarcity

Import-Substitution Development Policies Slide 12  Policy that seek to promote rapid industrialization by erecting high barriers to foreign goods to encourage local production  The weaknesses of this strategy are:  The industry who enjoy the protection will try to preserve and increase the protection. So, the barriers to trade will grow over time  They tend to limit the development of industries that supply inputs to the protected industries