The Trade Policy Debate: Export
Promotion, Import Substitution,
and Economic Integration
Chapter 13
Trade Strategies for
Development: Export Promotion
versus Import Substitution
ν
Export promotion: looking outward and
seeing trade barriers
– primary-commodity export expansion
Trade Strategies for
Development: Export Promotion
versus Import Substitution
ν
Export promotion: looking outward and
seeing trade barriers
– primary-commodity export expansion
– expanding manufactured good exports
ν
Import substitution: looking inward but
still paying outward
– tariffs, infant industries, and protection
Trade Strategies for
Development: Export Promotion
versus Import Substitution
ν
The IS industrialization strategy and
results
Nominal Rate of Protection
The nominal tariff rate, t, is
p′ − p
t=
p
Where
p’ is the tariff-inclusive price
p is the free trade price
Effective Rate of Protection
The effective tariff rate, g, is
v′ − v
g=
v
Where
v’ is the value added per unit of output,
inclusive of the tariff
v is the value added per unit of output
under free trade
Trade Strategies for
Development: Export Promotion
versus Import Substitution
ν
ν
The IS industrialization strategy and
results
Foreign-exchange rates, exchange
controls, and the devaluation decision
Summary and Conclusions:
Trade Optimists and Trade
Pessimists
ν
ν
Trade pessimist arguments
Trade optimist arguments
Reconciling the Arguments: The
Data and Consensus
ν
ν
Neither the trade optimists nor the trade
pessimists are always right
There are many factors that determine
whether trade is good or bad for a
country
South-South Trade and Economic
Integration: Looking Outward
and Inward
ν
The growth of trade among developing
countries
South-South Trade and Economic
Integration: Looking Outward
and Inward
ν
ν
ν
The growth of trade among developing
countries
Economic integration: theory and
practice
Regional trading blocks and the
globalization of trade
South-South Trade and Economic
Integration: Looking Outward
and Inward
ν
ν
ν
ν
The growth of trade among developing
countries
Economic integration: theory and
practice
Regional trading blocks and the
globalization of trade
Rich-nation tariff and nontariff trade
barriers and the 1995 Uruguay Round
South-South Trade and Economic
Integration: Looking Outward
and Inward, cont’d
ν
ν
The problem of adjustment assistance
Domestic economic policies
Concepts for Review
ν
ν
ν
ν
ν
ν
ν
ν
Adjustment
assistance
Autarchy
Common market
Customs union
Depreciation
Devaluation
Dual exchange rate
Economic
integration
ν
ν
ν
ν
ν
ν
Effective rate of
protection
Exchange control
Exchange rate
Export promotion
Flexible exchange
rate
Free-market
exchange rate
Concepts for Review, cont’d
ν
ν
ν
ν
ν
General Agreement
on Tariffs and Trade
(GATT)
Globalization
Import substitution
Infant industry
International
commodity
agreements
ν
ν
ν
ν
ν
Inward-looking
development
policies
Multi-Fiber
Arrangement (MFA)
New protectionism
Nominal rate of
protection
Nontariff trade
barriers
Concepts for Review, cont’d
ν
ν
ν
ν
ν
ν
Official exchange
rate
Outward-looking
development
policies
Overvalued
exchange rate
Parallel exchange
rate
Quotas
Regional trading
bloc
ν
ν
ν
ν
ν
ν
ν
ν
Rent seeking
Synthetic substitutes
Tariffs
Trade creation
Trade diversion
Trade liberalization
Trade optimists
Trade pessimists
Concepts for Review, cont’d
ν
ν
Uruguay Round
Value added
ν
ν
Wage-price spiral
World Trade
Organization (WTO)