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Chapter 13
The Trade Policy
Debate: Export
Promotion, Import
Substitution, and
Economic
Integration
Copyright © 2006 Pearson Addison-Wesley. All rights reserved.
Trade Strategies for Development: Export
Promotion versus Import Substitution

Export promotion: looking outward and
seeing trade barriers
– Primary-commodity export expansion
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13-2
Trade Strategies for Development: Export
Promotion versus Import Substitution

Export promotion: looking outward and
seeing trade barriers
– Primary-commodity export expansion
– Expanding manufactured good exports

Import substitution: looking inward but still
paying outward
– Tariffs, infant industries, and protection
Copyright © 2006 Pearson Addison-Wesley. All rights reserved.
13-3
Figure 13.1
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13-4
Trade Strategies for Development: Export
Promotion versus Import Substitution

The IS industrialization strategy and results
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13-5
Tariff Structures and Effective
Protection
The nominal tariff rate, t, is
p  p
t
p
(13.1)
Where
p′ is the tariff-inclusive price
p is the free trade price
Copyright © 2006 Pearson Addison-Wesley. All rights reserved.
13-6
Tariff Structures and Effective
Protection
The effective tariff rate, g, is
v  v
g
v
(13.2)
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
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13-7
Table 13.1
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13-8
Trade Strategies for Development: Export
Promotion versus Import Substitution


The IS industrialization strategy and results
Foreign-exchange rates, exchange controls,
and the devaluation decision
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13-9
Figure 13.2
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13-10
Summary and Conclusions: Trade
Optimists and Trade Pessimists

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Trade pessimist arguments
Trade optimist arguments
The industrialization strategy approach to
export policy
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13-11
Reconciling the Arguments: The
Data and Consensus

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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
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13-12
South-South Trade and Economic
Integration: Looking Outward and Inward

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The growth of trade among developing
countries
Economic integration: theory and practice
Regional trading blocks and the
globalization of trade
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13-13
Table 13.2
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13-14
Trade Policies of Developed
Countries: the Need for Reform

Rich-nation tariff and nontariff trade barriers
and the 1995 Uruguay Round (see figure
13.3 for quantitative impact )
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13-15
Figure 13.3
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13-16
Trade Policies of Developed
Countries: the Need for Reform



Rich-nation tariff and nontariff trade barriers
and the 1995 Uruguay Round
WTO—1995
Doha Round—2001
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13-17
Concepts for Review
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Adjustment assistance
Autarchy
Common market
Customs union
Depreciation
Devaluation
Dual exchange rate
Doha Development
Agenda
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Economic integration
Economic Union
Effective rate of
protection
Exchange control
Exchange rate
Export promotion
Flexible exchange rate
13-18
Concepts for Review (cont’d)
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Free-market exchange
rate
General Agreement on
Tariffs and Trade (GATT)
Globalization
Import substitution
Infant industry
International commodity
agreements
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Inward-looking
development policies
Multi-Fiber Arrangement
(MFA)
New protectionism
Nominal rate of protection
Nontariff trade barriers
13-19
Concepts for Review (cont’d)
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Official exchange rate
Outward-looking
development policies
Overvalued exchange
rate
Parallel exchange rate
Quotas
Regional trading bloc
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Rent seeking
Synthetic substitutes
Tariffs
Trade creation
Trade diversion
Trade liberalization
Trade optimists
Trade pessimists
13-20
Concepts for Review (cont’d)
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Uruguay Round
Value added
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Wage-price spiral
World Trade
Organization (WTO)
13-21