FREC 410
International Ag. Trade & Marketing
Trade, Growth,
and
Economic Development
Dr. Titus Awokuse
http://www.udel.edu/FREC/Awokuse/FREC410_webpage.htm
2
What is Economic Development?
Overview
!
Most of the world’s ___________ in LDCs (83%)
!
70% of world output produced by high income
nations
!
Why are some countries so much poorer than
others?
!
Views about development plays a major role in
!
Development is the multidimensional process
involving major changes in:
" acceleration
" reduction
" social
determining _________________
of income inequality
structures
" popular
attitudes
" national
_____________
" eradication
3
of ____________________
of ____________
4
1
Characteristics of LDCs
Key Goals of Economic Development
!
!
!
To increase the availability and widen the
distribution of basic life sustaining goods (food,
shelter, health, protection)
To expand the range of ____________________
changes
To raise levels of living
" higher
___________
" more jobs
" better educations, etc.
!
!
!
!
!
!
Low levels of living
Low levels ____________________
High rates of population growth and
dependency burdens
high and rising _________________________
Significant dependence on agriculture and
primary commodity exports
Dominance, ______________, and vulnerability
in international relations
5
Growth & Development Theories
Classifications of LDCs
!
!
! Three
World Bank
" Low
United Nations
" OPEC:
Stages of Growth Theories
! Harrod-Domar
! Karl
developed: 44 _________________
" Developing
Major Theories
"Linear
/ Middle / Upper / High income
" Least
6
Bucher
! W.W.
nations: 88 non-OPEC nations
13 ___________________
Rostow
"Structural
Change Theory
"_________________________
7
8
2
Harrod-Domar Model of growth
!
Implications of Harrod-Domar Model
Let:
1)
s= S/Y
- where S = savings;
Y=national income
2)
I=∆K
- where I = investment;
K=capital stock
3)
k= K/Y
- or k=∆K/∆Y
#
S=I
!
5) Substitute 1, 2, and 3
into 4 to get:
!
The ________________ of GNP in a country is
determined by:
"
sY= ∆K or sY= k∆Y
"
the rate of savings
"
re-arranging gives:
"
_________________________ (capital-output ratio)
s/k = ∆Y/Y
!
This is ___________________
for income growth rate
- investment must come
________________
The __________________________________
that is saved, (and/or the higher the output from
a given stock of capital), _______________ the
economy of a country will grow
9
Implications of Harrod-Domar Model
!
Main obstacle/constraint to development is:
"
low level of new ___________________
"
If a country cannot generate sufficient savings to
achieve the ____________________, the
savings gap can be filled through either foreign
aid or private foreign investment
"
10
Criticism of Harrod-Domar Model
!
Although ___________________ are necessary
conditions for accelerated rates of economic
growth, they are not sufficient conditions
!
LDCs still need other conditions, such as:
"
Physical and ___________________________
!
Well integrated commodity and _________________
Justification for _______________________
!
Highly developed transportation and telecom systems
and technical assistance from DCs to LDCs
!
Well trained and educated labor force
!
Efficient _________________________
11
12
3
Rostow’s Stages of Growth
1)
Traditional Society
2)
The Pre-conditions for Take-off
3)
The Take-off
4)
5)
Rostow’s Stages of Growth
1) Traditional Society
#
Ag-based society with _______________ social
structure with little opportunity for vertical mobility
The Drive to Maturity
#
Output grows only if cultivated land expands
The Age of High Mass Consumption
#
Lack of ________________________ constrains
productivity and yield
13
Rostow’s Stages of Growth
14
Rostow’s Stages of Growth
2) The Pre-conditions for Take-off
3) The Take-off
#
Period when for laying foundation for economic
transformation
#
Knowledge of ___________________________
leads to higher productivity
#
Appearance of _____________________ who are
willing to mobilize savings and take risks
#
Emergence of effective ________________________
#
Savings and investments rise to level greater than
population growth
15
#
Economic growth comes to dominate society
#
Industry expands rapidly and _______________ rise
from _________________ of national income
#
Revolutionary increase in ag and industry
#
Rapid expansion of urban areas and _____________
#
Within ___________, significant transformation of the
basic structure of the economic, social, and political
systems --- able to maintain steady rate of growth
16
4
Rostow’s Stages of Growth
Rostow’s Stages of Growth
4) The Drive to Maturity
#
#
#
Savings and investment rates rises to ________
of national income
Expansion to new and more ________________
and tech
__________________________________ that
promoted take-off and apply new and advance
tech over a wide range of industries
5) The Age of High Mass Consumption
#
Leading sectors of economy shifts to producing
__________________________ and services
#
Additional allocation of resources, through political
process, toward creation of social programs and
providing ___________________
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18
Rostow’s Stages of Growth
Rostow’s Stages of Growth
Rostow argued that:
Role of Agriculture
#
#
#
Provide food for ____________________ and
labor force working in manufacturing
#
All advanced nations already through the take-off stage
#
LDCs still in traditional or “___________________” stage
#
________________________ of the modern
industrial sector
#
Provide much of the _____________________
expansion of the industrial sector
LDCs only need to follow certain set of rules to move into
the “take-off” stage
Principal rule from the Harrod-Domar model:
generate high levels of __________________ and
_______________________ to generate investment to
accelerate economic growth
19
20
5
Limitations of Linear Stages Theories
!
The ___________________ did not always work
!
Saving and investment are ______________ but
__________________ conditions for growth
!
Theories ignores the importance of external
Structural Change Theory
of
Economic Development
_____________________
!
Anti-agriculture
21
22
Structural Change Theory
•
Lewis Two-Sector Surplus Labor Theory
Structural Change Theory
! Lewis
Traditional sector
" Overpopulated,
Two-Sector Surplus Labor Theory
! Patterns
•
•
" Marginal
of development Theory
Chenery Model
•
productivity of labor (MPL) =0 (surplus labor)
Modern industrial sector
" High
productivity
" Receives
23
__________________________
_________________________________
24
6
Criticisms of Lewis Theory
Lewis Two-Sector Surplus Labor Theory
•
Focus is on the _____________________________
& growth of output and employment in the modern
Assumes that ____________________________ (and
•
sector
!
Three of its key assumptions do not fit LDC’s institutional
and economic realities
employment creation) is proportional to the rate of capital
Speed of ___________________ determined by rate of
formation in modern sector:
industrial investment and _______________________ in
!
urban sector
!
!
Investment derived from _________________________
Ignores _____________________ of profits abroad
Re-investment in “labor-saving” rather than “_______________”
tech (anti-developmental economic growth)
over wages (fixed level, but greater than wages in
traditional sector)
25
Patterns of development Theory
Criticisms of Lewis Theory:
•
Assumes competitive modern-sector labor mkt
!
!
•
26
Wages rise __________________________________,
but due to strikes and labor unions
•
Focus on time-based sequential process of
transformation experienced LDCs
•
Unlike previous models, this model perceives S and I
as necessary, but ___________________________
•
Empirical analysis emphasize both domestic and
international ______________________________
Higher wages paid by _________________________
Assumes ______________________________ and
full employment in urban areas
!
Researchers found the _________________________
!
Urban surplus labor assumption is more valid
!
!
27
Domestic: resource endowments; population size; govt
policies
International: access to foreign K & tech; int’l trade
28
7
Patterns of development Theory
•
In addition to ________________________,
comprehensive structural changes are also
required for __________________________ to a
modern economic system
!
Welfare, Growth, and Trade
Transformation of production and composition of
consumer demand;
!
International trade and _____________________
!
Changes in socio-economic factors, etc.
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30
Effect of Growth on Trade
!
Changes in factor endowments
Recall H-O Assumptions
"
2x2x1
"
CRTS
"
(K/L)y > (K/L)x
"
Etc…
!
Balanced growth
"
Occurs when _____________________ at same rate
(CRTS), then K/L and productivity of K and L remain
the same and w/r _______________________.
!
Effects of __________________ on trade depends on the
source of growth
"
If increase in L is mainly children and non-working
dependents, growth may not be as expected
!
__________________ of growth are:
"
See graph (in class):
" Changes
in factor endowments
" Technical
progress
31
32
8
Changes in factor endowments
!
Hicksian Technical Progress
Imbalanced growth
"
!
"
Then K/L increase and the relative productivity of K ________
while (w/r) rises. Also, real per capita income increases
because output increases while L _____________ increase.
Occurs when only L grows:
!
Neutral Technical Progress:
!
Occurs when only K grows:
"
Increase in both K and L ______________________
"
K/L ratio is the same before and after tech change
"
But now ___________ is used to produce given output
"
See graph (in class):
Then K/L decrease and the relative productivity of L declines
while (w/r) falls. Also, real per capita ____________________
because output increases by smaller proportion than L.
"
See graph (in class):
33
34
Hicksian Technical Progress
!
Hicksian Technical Progress
Labor-saving Technical Progress:
"
K
"
New level of output _____________________ to
produce same output
"
E.g. using machines on assembly line instead of
people
"
See graph (in class):
!
> L i.e. (K/L)
35
Capital-saving Technical Progress:
"
K
< L i.e. (K/L)
"
Same level of output produced with less K
"
See graph (in class):
36
9
General Effects of Growth on Trade
at constant Px/Py
General Effects of Growth on Trade
at constant Px/Py
!
Neutral:
!
"
If production of the _____________ commodity grows
proportionately the same as production of the
importable commodity, then trade (exports and
imports) increases at the same rate.
"
If consumption of the ______________ commodity
grows proportionately the same as consumption of
the exportable commodity, then again trade grows at
the same rate.
Protrade:
"
If production of the exportable commodity grows
proportionately more than the _____________ of the
importable commodity, then trade grows at a greater
than proportionate rate.
"
If consumption of the importable commodity grows
proportionately more than the ________________ of
the exportable commodity, then again trade grows at
a greater than proportionate rate.
37
38
General Effects of Growth on Trade
at constant Px/Py
!
Antitrade:
"
"
If ______________of the importable commodity
grows proportionately more than the production of
the exportable commodity, then trade grows at a
less than a proportionate rate.
The End?
If _________________of the exportable commodity
grows proportionately more than the consumption
of the importable commodity, then again trade
grows at a less than a proportionate rate.
39
40
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