Matakuliah : <<EKONOMI PEMBANGUNAN>>
Tahun : <<2009>>
The Trade Policy Debate
Pertemuan 8

A large part of the developing world has not yet reaped the benefits of globalization : many countries have continued to lose ground
(IMF, World Economic Outlook, 1997)
Bina Nusantara University 3

Material Outline
• Export promotion versus import substitution
• Trade policies of Developed Countries
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Trade strategies for Development : Export Promotion versus Important Substitution
• Out ward – looking development policies
Encourage not only free trade but also the free movement of capital, workers, enterprises and student, the multinational enterprise, and an open system of communications
• In ward – looking development policies
Stress the need for LDCs to evolve their own styles of development and to control their own destiny
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Export Promotion : Looking-outward and seing Trade Barriers
• Primary – commodity Export Expansion: limited demand, shrinking Markets
• Expanding exports of Manufactured Goods: some successes, many barriers.
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Import Substitution: Looking in-ward but still paying outward
• Tariffs, Infant industries, and the theory of protection
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Import Substitution and the Theory of Protection
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Trade pessimist arguments
1) The limited growth of world demand for primary exports
2) The secular deterioration in the terms of trade for primary producing nations
3) The rise of “new protectionism” against the exports of LDC manufactured and processed agricultural goods
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Trade Optimist Arguments
1. It promotes competition, improve resource allocation, and economies of scale in areas where LDCs have a comparative advantage. Costs of production are consequently lowered
2. It generates pressures for increased efficiencies, product improvement, and technical change, thus raising factor productivity and further lowering costs of production
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Trade Optimist Arguments
3. It accelerates overall economic growth, which raises profits and promotes greater saving and investment and thus furthers growth
4. It attracts foreign capital and expertise, which are in scarce supply in LDCs
5. It generates needed foreign exchange that can be used to import food if the agricultural sector lags behind or suffers droughts or other natural catastrophes
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Trade Optimist Arguments
6. It eliminates costly economic distortions caused by government interventions in both the export and foreign-exchange markets and substitutes market allocation for the corruption and rent-seeking activities that usually result from an overactive government sector
7. It promotes more equal access to scarce resources, which improves overall resource allocation.
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Trade policies of Developed Countries :
1) Tariff and non tariff barriers to LDC exports
2) Adjustment assistance for displaced workers in developed country industries hurt by freer access of labor – intensive, low cost LDC exports
3) The general impact of rich – country domestic economic policies on developing economies.
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