Matakuliah
Tahun
: <<EKONOMI PEMBANGUNAN>>
: <<2009>>
Trade Theory and Development Experience
Pertemuan 7
The opening of a foreign trade …..
Sometimes works a sort of industrial
revolution in a country whose resources were
previously under developed
- John Stuart Mill, 1846
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Material Outline :
• The importance of International Trade and
Finance
• The importance of trade for development
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4
The importance of trade for development :
1. LDC Exports : Trends and Patterns
For the vast mayority of low – and middle – income
developing countries, the export of primary
commodities (food, food products, raw materials,
minerals, and fossil flues) still accounts for more than
three – quarters of their total export earnings.
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The importance of trade for development :
2 Importance of exports to different developing nations
A critical dimension of the Third World’s merchandise
trade balance – the excess or deficit in the value of its
exports relative to its imports – relates to the
commodity composition of that trade
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The importance of trade for development :
3. Demand elasticities and export earnings instability
Demand patterns for different commodity groups
reveal that in the case of primary products, the
income elasticity of demand is relatively low – the
percentage increase in quantity of primary products
demanded by importers (mostly rich nations) will rise
by less than the percentage increase in their GNP’s.
By contrast, for fuels, certain row materials, and
manufactured goods, income elasticity is relatively
high.
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Trade theory and development : The Traditional
Arguments
1. Trade is an important stimulator of economic growth
2. Trade tends to promote greater international and domestic
equality by equalizing factor prices, raising real incomes of
trading countries, and making efficient use each nation’s and
the world’s resource endowments
3. Trade helps countries achieve development by promoting
and rewarding the sectors of the economy where individual
countries possess a comparative advantage, whether in
terms of labor efficiency or factor endowments
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Trade theory and development : The Traditional
Arguments
4. In a world of free trade, international prices and costs of
production determine how much a country should trade in
order to maximize its national welfare. Countries should
follow the dictates of the principle of comparative advantage
and not try to interfere with the free workings of the market
5. To promote growth and development, an outward-looking
international policy is required.
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