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

2. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-2 Trade Strategies for Development: Export Promotion versus Import Substitution n Export promotion: looking outward and seeing trade barriers –Primary-commodity export expansion

3. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-3 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

4. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-4 Figure 13.1

5. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-5 Trade Strategies for Development: Export Promotion versus Import Substitution n The IS industrialization strategy and results

6. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-6 Tariff Structures and Effective Protection The nominal tariff rate, t, is Where p ′ is the tariff-inclusive price p is the free trade price (13.1)

7. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-7 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 (13.2)

8. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-8 Table 13.1

9. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-9 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

10. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-10 Figure 13.2

11. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-11 Summary and Conclusions: Trade Optimists and Trade Pessimists n Trade pessimist arguments n Trade optimist arguments n The industrialization strategy approach to export policy

12. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-12 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

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

14. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-14 Table 13.2

15. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-15 Trade Policies of Developed Countries: the Need for Reform n Rich-nation tariff and nontariff trade barriers and the 1995 Uruguay Round (see figure 13.3 for quantitative impact )

16. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-16 Figure 13.3

17. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-17 Trade Policies of Developed Countries: the Need for Reform n Rich-nation tariff and nontariff trade barriers and the 1995 Uruguay Round n WTO—1995 n Doha Round—2001

18. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-18 Concepts for Review n Adjustment assistance n Autarchy n Common market n Customs union n Depreciation n Devaluation n Dual exchange rate n Doha Development Agenda n Economic integration n Economic Union n Effective rate of protection n Exchange control n Exchange rate n Export promotion n Flexible exchange rate

19. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-19 Concepts for Review (cont’d) n Free-market exchange rate 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

20. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-20 Concepts for Review (cont’d) 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

21. Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 13-21 Concepts for Review (cont’d) n Uruguay Round n Value added n Wage-price spiral n World Trade Organization (WTO)