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Lecture 8 Don DeVoretz Trade as a Handmaiden of Growth ? An Overview 1 2 QUESTIONS: • 1. How does trade affect rate and structure of LDC Growth? – Structure: • x’s/GDP =%, • % of mfg x’s. % of ag x’s • 2. What are conditions for Trade to act as an impetus to growth ? – What were the historical conditions is Canada ? 3 More Questions • 3. What are conditions for Trade to act as an impediment to growth ? – Income and price elasticities of demand • 4. What is the best set of commercial policies to follow to achieve growth through trade ? – Outward looking indices • convertibility, effective tariff rates 4 Final Questions • 5. How do you measure the trend in export and import prices ? • 6. Should LDC's join DC's in trade unions ? – What has happened to Mexico and Chile in Nafta ? 5 Trade: Facts and Figures • Facts: – Is there a story here ? – Is Trade a Handmaiden of Growth or Not ? • Growth in International Trade after 1970 (billions $1980) – Year 1970 • World Exports: 312 • % Developed 72% • % LDC’s 17% 1980 2,002 66% 28% 1986 2,113 69% 20% 1990 3,187 75% 17% 1995 3,555 77% 15% 6 B. Several Trends emerge • Ten fold increase in 25 years • Underdeveloped rise and fall of share owing to mineral and oil prices. • Cartels don’t work in long-run, OPEC, tin, coffee, cocoa, etc. • Within the developed-underdeveloped grouping is great variance; – .NICS’s South Korea, Hong-Kong, Singapore and Taiwan versus.India and ROW 7 NICS Patterns – Mfg. X’s as % of total X’s – 1965 1975 – Taiwan 46 83 – Korea 52 77 – HK 92 97 – Singapore 29 40 – Brazil 5 23 – Mexico 14 30 1990 93 94 96 73 53 44 %Total Exports 1965 1975 26 34 9 24 56 49 81 178 6 8 3 8 GDP 1990 51 32 50 132 6 19 8 C. What Do we Learn from NICS ? • Mfg is key. Why? – .Income and price elasticity of demand » [D(P*Q)/(P*Q)]/ [D( Y/Y)/(Y/Y)]> 0 – Business cycles can affect you – Exchange rate depreciation is often key to stability and growth 9 End of Show 10