1 / 33

Trade and Development I: Import Substitution Industrialization

Trade and Development I: Import Substitution Industrialization. READING ASSIGNMENT: Oatley – Chapter 6. Plan. Interests & Institutions explanation for ISI Economic justification for ISI What is ISI? The effect. Part 1: Interests & Institutions explanation for ISI.

dagmar
Download Presentation

Trade and Development I: Import Substitution Industrialization

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Trade and Development I: Import Substitution Industrialization READING ASSIGNMENT: Oatley – Chapter 6

  2. Plan • Interests & Institutions explanation for ISI • Economic justification for ISI • What is ISI? • The effect

  3. Part 1: Interests & Institutions explanation for ISI

  4. Up through WWI, developing countries had liberal trade policies • (um… colonialism?) • After independence, who were the winners from globalization? • Did they have political power? • By late 1950s, turned protectionist • Trade politics in developing countries dominated by urban-rural cleavage

  5. Generally, developing countries are abundantly endowed with land and poorly endowed with capital… • Agriculture is the ________-________ sector • EXPORT ORIENTED SECTOR • Manufacturing is the ________-________ sector • IMPORT-COMPETING SECTOR • So, land-owners should be ___-free-trade • PRO- • Owners of capital should be ___-free-trade • ANTI-

  6. Recall Rogowski’s model • Capital is a highly “specific factor” • Land is a highly “specific factor” • (In his model, labor is a mobile factor)

  7. Pro-trade  Pro-trade  CLASS CONFLICT URBAN-RURAL CONFLICT Examples: Peron in Argentina, Vargas in Brazil Anti-trade  Anti-trade  Pro-trade  Pro-trade  URBAN-RURAL CONFLICT CLASS CONFLICT Anti-trade  Anti-trade 

  8. Smoot-Hawley, Great Depression Developing

  9. Part 2: Economic justification for ISI

  10. Intellectual justification:Structuralist argument • The shift of resources from agriculture to manufacturing would not occur unless the state adopted appropriate industrial policy

  11. International Anti-trade stance • Haberler Report: • Von Haberler – Harvard economist (Austrian origin) • GATT 1957 report: • Decline in the terms of trade for primary producers • From 1955: commodity prices fell by 5%, industrial prices rose by 6% • 1964 United Nations Conference on Trade and Development (UNCTAD)  Group of 77 • (Von Haberler did not mean that there was a systematic long-term (secular) decline in the terms of trade. He left Harvard in 1971 for American Enterprise Institute) •  Singer–Prebisch Theory: Intellectual justification for ISI

  12. A G77 advance • Pushed for the Generalized System of Preferences (GSP) – manufactured exports from developing countries gained preferential access to advanced industrialized countries’ markets

  13. A G77 failure • New International Economic Order – • Attempt to create an international trade system whose operation was subordinate to development needs of the world’s poor countries • Inspired by the Organization of Petroleum Exporting Countries (OPEC) – used their control of oil to improve their terms of trade in the early 1970s • OPEC’s rate of success has been mixed • With other commodities, collective action problems have proven too severe

  14. Part 3: What is ISI?

  15. Import Substitution Industrialization • Industrialize by substituting domestically produced goods for manufactured items they previously imported • Typically called “ISI”

  16. Easy ISI • Develop domestic manufacturing of simple consumer goods • Soda, beer, apparel, shoes, furniture What do you mean by “easy”? Easy how? How is it easy? • Large domestic demand preexisting • Requires “Low-Tech” machines • Requires “low-skilled” labor Ya know… “easy.”

  17. Asia & Latin America • Both practiced “easy” ISI • But then Asian countries switched to an EXPORT-ORIENTED STRATEGY: • Producing manufactured goods that can be sold in international markets • EXPORT rather than produce exclusively for the domestic market • Latin America moved to “SECONDARY ISI”…

  18. SECONDARY ISI • Production of consumer durable goods, intermediate inputs, and the capital goods needed to produce consumer durables • E.g., automobiles (Argentina, Brazil, Chile) • Begin by importing auto pieces and assembling them domestically • Gradually, increase the % of locally produced parts

  19. Government policies to promote ISI • Trade barriers • Investment in activities the private sector would not produce: • Roads, transportation networks, electricity, telecommunications • Large-scale operations – steel plants, auto plants • State-owned Enterprises (& mixed-owned) • Chemical, telecommunications, electricity, railways, metal fabrication • Tax policies: • “Taxed” agricultural exports through “Marketing Boards” • Marketing Board – purchased crops from farmers at below-world market prices, then sell them on the world market at world market prices

  20. Closer look @ Brazil • Labor-abundant, capital scarce • Late 19th century – slave labor • 1877-78 Grande Seca (Great Drought) in the cotton-growing northeast, led to major turmoil, starvation, poverty and internal migration • Slavery abolished 1884 • Still, primary commodities – #1: Coffee – dominate until the Great Depression • Drop in prices hurt land owners again – this time a coup • 1930 Getulio Vargas • Pursues the easy ISI stage – Protectionism promotes light manufacturing • Transition to 2ndary ISI in 1950s…

  21. Oatley 2011: pages pg. 126-127

  22. http://www.youtube.com/watch?v=cbOdUqf-mUI

  23. Argentina’s Bicentennial Celebration: http://www.boston.com/bigpicture/2010/05/argentinas_bicentennial.html

  24. Results • How did they pay for industrialization? • Borrowed • How did they pay it back? • Latin American Debt Crisis (1982) • The Lost Decade • IMF to the rescue? • Washington Consensus • Dismantle the state’s presence in the economy

  25. KOREA after WWII • Japan defeated  Power of foreign colonizer  local groups • Initially land-owners dominate (1950s), then land-reform (still 1950s… why?) •  Increases the relative power of emerging urban-industrial sector • So back in the 1950s, land-owners would have been pro-free trade • Why did Korea use to have a relative abundance of land & a comparative advantage in agriculture (land-owners pro-trade)… • … but today has a relative abundance of capital & a comparative advantage in manufactures (capital-owners pro-trade)… • Remember – “relative” abundance – relative to what? • The other factor • 1950: The opportunity cost of manufactured goods was higher in terms of agricultural goods inside of Korea than it was on the outside world. So Land-owners could get their manufactured goods cheaper through trade. (So could owners of capital… but they would also lose their livelihood!) • NOW: The opportunity cost of agricultural goods is higher in terms of manufactured goods inside of Korea than it is on the outside world. So capital-owners can get their agricultural goods cheaper through trade. (So can land-owners… but they will also lose their livelihood!)

  26. Non-traded goods sector? • Goods that do not enter into international trade • Costly/impossible to transport (houses) • Must be performed locally (haircuts, auto repair, public utilities, face-to-face services) • (THE INTERNET IS CHANGING SERVICE-SECTOR) • Civil servants, teachers, military personnel • Do not face competition from foreign trade • Benefit when the price of traded goods decline • But what if your customers lose from trade?? • How mobile are customers? • If you are in urban-services (rural-services), you may be tied to the fate of the owners of capital (land)…

  27. Consumers always benefit from trade…? • What if they face a time-consistency preference problem? • Eat cheap unhealthy food today, pay the health price in 20 years • Me, I shop at Whole Foods! • But is the effect on healthcare? • Others eat unhealthy food today, I pay the health price in 20 years • Negative healthcare-cost externalities from cheap food • An externality is an effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account • Multinational corporations moving into China are simultaneously investing in Pepsi, Coca-cola, Junk food, and medical technologies that millions of people will need in the future from eating this food (diabetes medicine, coronary artery disease medicine/surgery, …) • Do we need market solutions? Domestic political solutions? International political solutions? Is protectionism going to save us?

  28. http://www.foodincmovie.com/ • http://www.thedailyshow.com/video/index.jhtml?videoId=232260&title=robert-kenner

  29. Take-homes • Political motivation for ISI: • Losers from trade in Latin America (urban sector) gain political power • Intellectual justification for ISI: • Declining terms of trade for primary products • Asia & LA both practice “easy” ISI • LA moves to Secondary ISI

  30. Thank youWE ARE GLOBAL GEORGETOWN!

More Related