FREC 410
International Ag. Trade & Marketing
Agricultural Trade Policies:
in Developing / Transition Economies
Dr. Titus Awokuse
http://www.udel.edu/FREC/Awokuse/FREC410_webpage.htm
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Overview
Why Consider Trade Policy for LDCs?
„
Less Developed Countries (LDCs) vs. Developed Countries
„
_____ of the world’s population in LDCs
„
_____ of world output produced by high income nations
„
Why are some countries so much poorer than others?
„
„
In contrast to industrialized nations, LDCs face different economic
challenges:
________________________
Have less non-human capital and fewer skilled labor
„
Majority in tropical climates
Capital
„
Views about economic development plays a major role in
„
markets work less efficiently
Barriers to lending to the most productive uses
Labor
determining trade policy
are different in LDCs
„
markets work less efficiently
Wage gaps between expanding and declining sectors are
greater than in __________________________________
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Import-Substituting Industrialization (ISI)
Trade Strategies for Development
„
„
Inward-looking development policies
Advocate
greater ____________________
on trade
Restrictions on immigration and MNEs
Focus on indigenous “learning by doing” in manufactures
„
Restrictions
Dev
of indigenous technologies specific to a nation’s
___________________________
„
Since
most high-income countries are ____________
Historical precedence: US, Germany, Japan
„
ISI gained popularity in the _________________
LDC
Outward-looking development policies
Encourage
Inward looking development policies
Emphasis on industrialization in LDCs as a sure
path to overall economic improvement
______________ and free movement of K, L,
faced declining world mkt for their primary products
faced growing BOP deficits on their current accounts
expected ______________ to “save” them
& MNE
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Arguments for the ISI Strategy
„
Arguments for the ISI Strategy
Infant industry argument
Potential
gains in tech knowledge and ______________
Firms need time learn the business and to achieve EoS
Will
grow up to be competitive in int’l market and no
longer _______________________
„
„
Positive terms of trade effect
BOP
improves when fewer consumers goods
are imported
Replacing
imports with local production may
_____________________
Import tariff as source of revenue for poor
nations in ____________________________
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Works
best for large _____________________
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Trade Policy Choices for LDCs: Ghana
„
Trade Policy Choices for LDCs: Ghana
A free trade policy that accepts and exploits the
country’s _________________________
„
Exports
of primary products: cocoa, coffee
No taxation of exports or imports
„
Forcing
Ghanaians to buy more expensive domestic
steel, TVs, airline services
A policy that taxes its traditional exports … to raise
„
A policy to favor new export lines, specifically in
manufactured goods
funds for _____________________________
Taxation
A policy that taxes and restricts imports … to
protect and subsidize new industries serving the
_________________________
Subsidize
of exports of cocoa & coffee
exporters of clothing or __________________
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How ISI Should Work
„
How ISI Should work
ISI strategy is to accelerate LDC dev by:
„ Protect
replacing
imports in _____________ with
domestic production
„
Set
Impose
import restrictions on competing goods
Subsidize target domestic manufacturing
sectors
„
barriers or quotas on _______________
up local industry to produce these goods
Joint
domestic Manufacturing sector
from ___________________
Strategy involves:
tariff
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„ _______
ventures _______________________
Stages of ISI Implementation
tax and investment incentives to set up plants
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Three Stages of ISI Implementation
Does ISI Really Work?
Final
goods imports are targeted for
replacement
„ Consumer
goods imports are targeted
„ Computers,
Does
„
_______________________________
Sophisticated
A study of 41 countries shows that income growth is
negatively correlated with antitrade policies such as ISI
goods, auto assembly, food processing
Intermediate
„ Steel,
„
manufactured _______________
„
ISI ____________ work as expected
… WHY?
precision machine tools
ISI Work in practice?
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Reasons ISI Didn’t Really Work
„
Infant industry argument not ____________________
„
Many infant industries never grew up
Production inefficiencies from ___________________ and
costly subsidies
„
High cost firms with domestic monopoly power
Negative net welfare costs
Export-Promotion (EP) Strategy
Other factors were responsible for lack of comparative
advantage in manufacturing:
lack of skilled labor, entrepreneur, and ______________________
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Import-Substitution: Review
Export-Promotion (EP) Strategy
Inward looking development policies
„ Emphasis on industrialization in LDCs
„
„
Historical
„
„
Achieved fame in the 1980’s
policy of choice by most IMF and ______________
precedence: ___________________
„
East Asian Economic Miracle
“High
Performance Asian Economies” (HPAEs)
Dramatic economic growth from 1960s to 1980’s by
the “Four Tigers”
Arguments for the ISI Strategy
Infant industry argument
Import tariff as ____________________
Positive terms of _______________
All
four experienced very high growth rates:
Annual GDP growth rates of 8-9%
„ New development classification:
„
Alternative policy is export promotion
“___________________________________” (NICs)
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Explaining the Success of EP Strategy
„
Export-Promotion (EP) Strategy
„
Increased openness to int’l trade
Opposite policy to ISI
Outward
orientation
„ Stimulate exports
„ “little” or no import restrictions
Policies that expand trade beyond marketdetermined limits
Favored by developed nations and int’l organizations
Uses various fiscal, trade and exchange rate
measures to promote trade
Still
had some trade restrictions, but lower than
others
„
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Very strong exports-orientation
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„
How Does EP Should Work?
Explaining the Success of EP Strategy
Emphasis on exports of manufactured goods
„
Target
„
Low
interest loans to ______________________
Govt funding for relevant R&D
non-primary exports
Footware, textiles, automobiles, computers, etc.
Reduce
Govt
„
import duties and _______________
through loans with lower interest rates
„
Easier bank credits to exporters
Other favorable factors
High
savings rate … ability to finance high rates of
investments
High level of _______________________
export subsidies
„
Favorable industrial policies
„
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Investment in human capital
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The End
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