Trade and Development
Benjamin Graham
Lecture 10: Trade and Development
Benjamin Graham
Today’s Plan
• Reading quiz
• Trade and Development
Lecture 10: Trade and Development
Benjamin Graham
Reading Quiz (1)
• What kinds of trade problems do developing nations face in seeking
to reap the gains from trade?
• A. Problems related to having their exports concentrated in only one
or a few primary products.
• B. Agricultural export subsidies of advanced nations.
• C. Tariffs on agricultural products and textiles
• D. A and C
• E All of the above
Lecture 6: Barriers to Trade
Benjamin Graham
Quiz (2)
• Which of the following is not considered a primary product?
A. Raw materials
B. Fuels
C. T-shirts
D. Agricultural goods
IR 213: Introduction
Benjamin Graham
Reading Quiz (3)
• If advanced nation’s wages are forced down by competition from
countries with lower labor costs and abusive labor conditions, this is
called
• A. Elasticity of Labor
• B. Cost and Demand Differences
• C. Social dumping
• D. Labor subsidization
• E. Labor darwinism
Lecture 6: Barriers to Trade
Benjamin Graham
Colonial Legacies
•
Many of todays poor countries are former colonies
• But not all former colonies are poor
• It matters who you were colonized by and how you were colonized
• Economic institutions
• Political institutions
• Infrastructure
• Human capital
Lecture 7: Domestic Politics of Trade
Benjamin Graham
The Colonial Archetype
•
Colonial government:
•
•
•
Low investment in infrastructure or human capital
Produce raw materials (mining, agriculture)
Trade exclusively with colonial metropole on unfavorable terms
(mercantilism)
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Legacies of Colonialism
•
Colonies were governed better where the colonists actually resided
themselves
•
Less malaria -> less colonists dying -> more colonists staying
• US, Canada, Australia (genocide) and South Africa (Apartheid)
• Colonists continued to rule after colonial ties ended.
Lecture 7: Domestic Politics of Trade
Benjamin Graham
If nothing else, hope that you were
colonized by the Brits
•
The Brits hired locals into their civil service
•
•
•
•
Developed local capacity & human capital
When they left, this civil service persisted
India is a prominent example:
•
Hundreds of languages, 30 of which have at least 1 million
speakers, several major religions, huge regional economic
imbalances
•
Picture ruling all the Americas as a single country -- only
harder
Also, the common-law system and English
Lecture 7: Domestic Politics of Trade
Benjamin Graham
If nothing else, hope that you were
colonized by the Brits
•
•
•
The core questions:
Was there investment investment in education and infrastructure?
Were there efficient courts, rule of law, etc?
• Did the protection of these courts extend to locals, or just
colonizers?
• Did these institutions survive when the colonizers exited?
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Development after Decolonization
• Developing countries export raw materials, import manufactured
goods
• “Terms of trade” favor rich countries: at the time, raw materials
(commodities) were becoming cheaper relative to manufactured
goods.
•
Powerful MNCs often struck deals with poor-country governments
that were not good for the developing country.
• Decolonization was an economic disappointment
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Development after Decolonization
• Neocolonialism
• Dependency Theory:
• “Core” wealthy states enrich themselves at the expense of “peripheral”
states
• International division of labor with unskilled labor at the periphery and
skilled labor at the core
• Peripheral states cannot develop due to their place in the “World System”
• System is static and peripheral states cannot join the core
• Poverty at the periphery is necessary to sustain wealth at the core
• Recommendation: Poor states should withdraw from the global economy
• Import-substituting industrialization (ISI)
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Review
• Why were you better off being colonized by the British?
• A. Have you seen King Leopold’s Ghost?
• B. The brits trained locals to serve in the civil service (i.e. the
bureaucracy)
• C. The common law system has historically better for business because
it adapts better over time.
• D. English is a convenient second language in the global economy
• E. All of the above
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Review
• Economic development following decolonization was, generally speaking:
• A. A disaster – way below expectations
• B. A welcome respite after colonial oppression
• C. A runaway success
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Dependency Theory over Time
• Dependency theory is Marxist in origin
• Like Marxism more generally, it provided a compelling explanation
for a set of facts at one time
• But made bad predictions going forward
• Empirical problems for dependency theory
• Peripheral states can grow wealthy (and have)
• The poor countries that have developed most successfully have
been primarily trade-dependent
• Import-substituting industrialization failed (by most measures)
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Import-Substituting Industrialization
•
Core prescriptions:
•
•
•
Tax agriculture and subsidize key industries
Protect those industries with high tariffs
Aim for economic self-sufficiency (i.e. autarky)
• Rapid industrialization: By 1970s many developing countries are
self-sufficient in manufacturing
•
Costs:
•
•
•
These industries are inefficient, produce low quality goods
Temporary subsidies become permanent
No gains from trade!!!!
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Export-Oriented Industrialization
• Similar in many ways to ISI:
• Tax agriculture (also keep wages low), subsidize key industries
• But subsidize exports in particular
• “National Champions” model
• South Korea is the archetypical case
•
Cheap labor provides the key competitive advantage
• Government investment helps develop higher value-added
industries.
• But government intervention has its risks...
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Checking Understanding
• In import substituting industrialization and export oriented
industrialization, who gets taxed to fund government subsidies of
selected industries?
• A. Other industries
• B. Farmers
• C. Banks
• D. Industrial workers via an income tax
• E. Sales tax on consumer goods
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Checking Understanding
• What is the core advantage of export-oriented industrialization over
import substituting industrialization
• A. ISI involves the government picking winners, leading to
corruption. In EOI the government doesn’t pick winners.
• B. In ISI subsidies intended to be temporary can become
permanent. This can’t happen in EOI
• C. In ISI, states give up most of the gains from trade. EOI is all
about maximizing the gains from trade.
Lecture 7: Domestic Politics of Trade
Benjamin Graham
ISI didn’t die easily
• Theories don’t die just because the facts become inconvenient
• Entrenched domestic political interests
• The 1980s debt crisis sealed the deal
• The IMF essentially forced countries off of ISI
• Conditional loans:
• We’ll bail you out, but only if you adopt the policies we
prescribe
Lecture 7: Domestic Politics of Trade
Benjamin Graham
The Washington Consensus
• Neoliberal economic policy
• Liberalize trade
• Privatize state-owned assets
• Fiscal austerity to fix current account deficits
• Open up to foreign capital and foreign investment
•
Turns out, this hurts a lot
• Taking away the government safety-net in poor countries has high
human costs
•
“bitter medicine” that may not even work
• Economic pain = political instability
Lecture 7: Domestic Politics of Trade
Benjamin Graham
Group Questions
• There is a strong empirical finding that people with a college
education, and especially people with a graduate degree, are more
likely to support free trade. Why do you think this is?
Lecture 7: Domestic Politics of Trade
Benjamin Graham
No One Has Time
•
Take the complex and render it simple
• Any fool can do the reverse
•
Be brief
• Write long drafts and cut them back
• Never use two words where you can use one
•
Organization is king
• Facilitate skimming
• You work hard as a writer to make reading easy
• The more complex the ideas, the simpler the prose
Lecture 16: Paper Writing Workshop
Benjamin Graham
How to facilitate skimming
• There are 2 jobs:
• 1. Articulate your argument
• 2. Provide the evidence to back it up
• Skimmable means the reader can understand the argument easily
while reading only intro paragraph and topic sentences
• If they want evidence for a given point, they know what paragraph to
read
Lecture 16: Paper Writing Workshop
Benjamin Graham
How to facilitate skimming (2)
• Clear thesis statement
• Introduction as roadmap
• Topic sentences that make the point of the paragraph
• Evidence should be where I expect it
• In longer papers, subject headings and subheadings are crucial
• May be needed even in a paper this short
Lecture 16: Paper Writing Workshop
Benjamin Graham
Writing a good intro to a short paper
• If necessary, BRIEFLY provide the reader the relevant facts re: the
topic
• AVOID generalities and broad statements. Get to the thesis quickly.
• Deliver the thesis statement
• BRIEFLY and SIMPLY give the main points you will use to back up
your thesis
• Each of these points will get its own paragraph/section in the body
Lecture 16: Paper Writing Workshop
Benjamin Graham
Writing good body paragraphs
• One paragraph = 1 new idea
• relates back to the thesis statement
• 1/2 a page max (3-6 sentences)
• Topic sentence identifies the new idea,
• and starts to do the work of the paragraph
• Sound reasoning, detailed and specific evidence round out the remaining
sentences
• Final sentence ties the evidence back to the thesis statement
• Only sometimes necessary -- may already be obvious
Lecture 16: Paper Writing Workshop
Benjamin Graham
The Conclusion
• In longer papers, it is necessary to re-summarize the whole paper
• In short papers, this can be redundant
• However, it can still be good to restate the thesis
• In some types of writing, the intro provides the motivation, or the puzzle
• Tells the reader why he/she should be interested
• This can sometimes be taken for granted
•
You can use your conclusion to:
• give broader implications
• speculate about extensions of the argument
• relate your argument to other ideas/debates
Lecture 16: Paper Writing Workshop
Benjamin Graham