1. Udviklingsøkonomi - grundfag Lecture 18 Trade and development: Introduction 1

2. Overview and plan for the lectures on trade Introduction: facts and concepts Arguments for free trade Arguments for active trade policy Import substitution Eksport promotion Cases – Thailand and the Philippines (students presentations based on Todaro) Conclusions 2

3. Trade in relation to GDP Source: World Data 1997, World Bank 3

4. The structure of exports Note: Does not always sum to 100 due to unspecified trade Source: Annual Report 1997, World Trade Organization, vol. II 4

5. Growth in world trade (fixed 1980 dollar) 5 500 1000 1500 2000 197019751980198519901965 World export (billion 1980 dollar) Year

6. Export of manufactured goods – selected countries Source: Diverse 6

7. Trade and growth in Nigeria and South Korea Source: World Data, 1997, World Bank. NigeriaSouth Korea 7

8. Commodity terms of trade (non oil-producing developing countries) 8 90 100 110 120 19701975198019851990 Terms of trade index (1975 = 100) Year 80 70

9. Bytteforholdet Vareprisbytteforholdet (Commodity terms of trade, Net barter terms of trade) Indkomstbytteforholdet (income terms of trade, capacity to import) Price index for exports Price index for imports Exported amount 9

10. Theories of trade Comparative advantage Heckscher-Ohlin model Demand for variety Increasing returns to scale 10

11. Gains from trade 11 Manufacturing A C DB Domestic price ratio International price ratio Agriculture P P 0 Third World (without trade, production and consumption occur at A; with trade, production is at B, consumption is at C; exports = BD; imports =DC)

12. Arguments for free trade Specialisation (traditional static effect) Better allocation of the factors of produciton Promotion of comparative advantage Market growth Linkage effects Investment Increased savings and investment Information/knowledge Exposure to foreign technology, know how, needs, tastes etc Constraints in the national economy are circumvented – foreign demand is tapped into Increasing returns of production are realised Increased “learning by doing” 12