Download International Political Economy

Trade and Development
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Introduction
Domestic Interests , International Pressures ,
And protectionist Coalition
The Structuralism critique
Domestic and International elements of trade
and development strategies
Emerging problems with import substitution
industrialization .
The East Asian Model
Structural Adjustment and Political Reform
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Business trend in international arena has
changed a lot from 19th century till now
Free trade –protectionism- Free trade
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Trade and development policies in developing
countries have been strongly shaped by
political competition between rural based
agriculture and urban based manufacturing.
Most of developing countries used to be
agricultural export oriented. Most of the
were even mono exporters . Brazil .
As a result , developing countries have full
acces to land but not capital.
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Model of political dominance has been
changed in developing counties from WWI .
In Argentina and Chile , land lords were
controlling the government . (Oligarchy
Democracy) .
In other south American countries : Military
government which was supporting land lords
.
Later government started to support new
groups as a result of industrialization and act
upon
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In Asia and Africa, Agricultural based export
oriented economy was inherited from
Colonial time.
Enclave agriculture in Taiwan and South Korea
After the WWI and II ,many governments in
Developing countries rose as the result of
supporting import competing manufacturing
industries.
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Protectionism is a very good Argument for
supporting the import competing
manufacturing but it is not the enough
theoretical basis for an economic
development strategy
Structuralism : The shift of resources from
agriculture to manufacturing by using
appropriate strategies .
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According to structuralism market will not
promote investment in manufacturing
industries.
1- Complementary dement : Opening the
shoe factory in the field of corn .
2- Pecuniary external economics :
Interdependency among industries , steel and
auto making.
As a result government should have the bigpush.
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Structuralism also believes that international
trade has few benefits for developing
countries.
Singer –Prebisch theory : Talking about terms
of trade between core and periphery
countries . When the terms of trade is positive
, it is cheaper for you to import and more
beneficial to export
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Structuralism enabled governments to
transform the protectionist trade policies that
benefited their principle political supporters
into comprehensive state led development
strategies by providing intellectual
justification for state-led development
strategy.
Import-substitution industrialization or ISI
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Easy ISI : producing simple consumer goods ,
such as soda , beer , apparel , shoes and…
Rational :
1- existence of the large domestic demand
2- as Items were mature products , it is easy
to buy the technology
3- need for unskilled workers
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1- expansion of manufacturing activities
2- increasing the skilled labour
After a while it will stop bearing fruits
It will be time to work on export substitution
strategy which is also called Secondary ISI
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1- government planning
2- investment policy
3- trade barriers
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ISI redistribute the income
Income of the export oriented group
(agriculture) fall , while the income of import
competing group raise.
It resulted in rapid economic growth of
developing countries in 1960s and 1970s.
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ISI created two important economic
imbalances.
1- government budget : it tends to generate
persistent budget deficits because it
prescribe heavy government involvement in
the economy. Government invests in sectors
which are not interesting for private sector
2- Persistent current account deficit. It
reduces the possibility to export and increase
tendency to import
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Export will decline for two reasons
1- Manufacturing industries created through
import substitution were not competitive in
international markets
2- the policies of government to promote
industrialization will weaken the agriculture
It will be reinforced by tendency of
government to keep exchange rates high
Also administration of ISI will create
opportunities for rent seeking people
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While ISI was creating problems and deficit in
Latin America , East Asian countries had great
development and increase in export .
Why did east Asian countries out performed
all other developing countries in such scale?
Export oriented strategy
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IMF and World bank talk about using the free
market strategy
Other say that South Asian countries uses the
government intervention
By keeping the macro economic factors stable :
Inflation rate was lower
They managed to keep the control over exchange
rate
They followed the conservative fiscal policy
Stable macro economic factors helped opening
the market to international market
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East Asian Model of development :
 1- promoting labour intensive light industry
 2- emphasize on heavy industry
 3- targeting at skilled and research
development
Each stage has its own development polices and
as each stage reaches the limit of growth ,
government will take one step a head to the
next stage
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East Asian governments also promote export
1- by using low interest funds for exporters
2- deliberately undervaluing the exchange
rate
3- using the duty free areas for making sure
that exporters can purchase their
intermediate products duly
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Mostly promoted by IMF and World bank
By emphasize on changing those aspects of
developing economies that were most unlike
conditions in Asia and encouraging
governments to create stable macro
economic condition , liberalize trade and
privatize state owned enterprises
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Thank you
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