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International Economics
Mordecai E. Kreinin
Part I
International Trade Relations
Copyright ©2002 South-Western/Thomson Learning.
All rights reserved.
CHAPTER 8
Selected Trade Problems
of Developing Countries
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OVERVIEW
 Alternative Trade Approaches to
Development
 U.N. Conference on Trade and Development
 Generalized System of Preferences
 Regional Integration Among Developing
Nations
C8-3
Important Concepts
 Import substitution
 Export promotion
 U.N. Conference on
Trade and development
(UNCTAD)
 Short-run commodity
price fluctuations
 Integrated Commodity
Program (Common Fund)
 Donor country
 Generalized System of
Preferences (GSP)
 Rules of origin
 Polarization
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Alternative Trade Approaches to
Development
 Import substitution—discriminates in
favor of import-competing, against export
industries

Harms agriculture, rural income; develops
excess capacity
 Widens internal market
 Tendency to use capital intensive techniques
regardless of factor endowments
 Capital flows don’t generate export earnings,
aggravate debt-servicing problem
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Alternative Trade Approaches to
Development
 Export promotion—stimulates investment,
employment, GDP growth

Duty-free processing zones

Maquiladoras

India, 1991-2001

Access to developed countries’ markets for
LDCs
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U.N. Conference on Trade and
Development
 Forum for LDCs to press demands in trade and
development
 Demands concerning primary products

Violent short-run price fluctuations in exports
 Integrated Commodity Program


Buffer stock agreements
IMF compensatory finance facility, STABEX of EU
 Manufactured products
 WTO negotiation participation


Trade-creation effect
Trade-diversion effect
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The Generalized System of
Preferences
 Introduced by Japan, Western Europe, 1971-1972
 Preferential access to industrial markets granted,
but limited by each country’s restrictions
 U.S. scheme
 EU scheme
 Japanese scheme
 Effect of Tokyo and Uruguay rounds on GSP
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Regional Integration Among
Developing Nations





Mercusor
ASEAN
West African Common Market
Central American Common Market
Trade diversion, trade creation effects on
LDCs
 Polarization of economic activity
 Lack of adequate transportation facilities
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Summary
 Selected trade problems of developing countries
 Import substitution
 Export promotion
 Reforms involve less government intervention in
economy, promote integration into global
economy
 UNCTAD: buffer stocks schemes demanded for
stabilization of 18 primary commodity prices
 GSP, restrictions
 LDC’s interested in regional integration to
expand market size
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