Chapter 14 Trade Policies for Developing Countries

1. Chapter 14 Trade Policies for DevelopingCountries Link to syllabus

2. W. Arthur Lewis, 1915-1990 Born St. Lucia (Caribbean) Educated at LSE Taught at U. of Manchester, under Hayek, and at Princeton Adviser to the UN, gov’t of Ghana, Nobel Prize, 1979 “Economic Development with Unlimited Supplies of Labor” 1954

3. Fig. 14.1 page 318. Growth Ratesof GDP &GDP/capita

4. Trade Policy Alternatives for Developing Countries (p. 319) • Focus on exporting primary products • Attempt to raise the world prices of primary products that are exported • Protect and encourage new industries that produce products sold into the local market • Encourage new industries that produce products that are exported

5. RaúlPrebisch, 1901 - 1985 Born in a province of Argentina. Parents were German immigrants. Studied at University of Buenos Aires, where he later taught. During the 1930s he moved from classical orthodoxy to a form of Keynesianism. In 1948 he was the first director of ECLA, [CEPAL]and in 1950 promulgated what became known as the Prebisch-Singer hypothesis, which argued against free trade because of an alleged trend toward falling terms of trade for raw materials. Although he is said to have favored ISI, he was often critical of its excesses. From 1964-1969 he led UNCTAD, a UN body that worked for Third World countries.

6. Why Declining Terms of Trade? Engel’s Law – that as incomes grow, people spend less on food Increased supply with growth of what were called LDCs Technological change, generated in Developed countries, to their advantage: New products that require less raw materials 4) There was a significant amount of hostility to MNCs and to the industrial countries, who were accused of biasing trade to their favor 5) Protectionist policies in the industrial countries, which would typically reduce demand for LDC exports

7. Figure 14.2 page 325Relative price of primary products

8. Import Substituting Industries (pp. 333-) • Potential strengths • Infant industries can grow up • Developing government can get much-needed revenue • The country’s international terms of trade can improve • Information on demand is acquired cheaply • Actual experience • Deadweight losses from resource misallocation • Developing countries practicing or adopting freer-trade policies grow more quickly mt believes that Pugel exaggerates the failure of ISI, in Latin America and elsewhere, but it is undeniable that ISI is now out of favor.

9. Figure 14.3 page 329. Cartel as profit maximizing monopoly

10. Back to list P. 369 Bade/Parkin EYE ON THE PAST Oil Price Cycles in the U.S. and Global Economies

11. Erosion of Cartel Power (p. 330) • Declining demand as buyers respond by switching to substitutes • Increasing responsiveness of competing supply from non-cartel producers • Declining share of the cartel’s production in the world market • Cheating by the cartel members

12. Crude Oil Prices

13. U.S. Petroleum Production, Consumption, Imports Source: U.S. DoE

14. Figure 14.4 page 337Changing mix of exports from LDCs

15. Figure 13.5 page 331Trade reform inTransition economies Different text