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Chapter 14

Trade Policies for Developing Countries

Trade Policies for Developing Countries This chapter examines trade issues affecting developing countries. It begins by noting differences between high-income developed or industrialized countries and low- and medium-income developing countries, as well as differences among the developing countries. Some developing countries are growing quickly, while others are stagnating or declining. The comparative advantages of developing countries (relative to industrialized countries) derive from abundance of unskilled labor and, for many, abundance of natural resources, as well as a tropical climate for agriculture.

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Slide21
知识点8
案例4
习题60

Knowledge Points

知识点

manual

Which Trade Policy for Developing Countries?

2.The four arguments in favor of ISI are the infant-industry argument, the developing-government argument, the chance to improve the terms of trade for a large importing country, and economizing on market information. The conditions under which ISI is likely to be better than alternative strategies include the following.

  • Exports of goods and services are about 37 percent of GDP in developing countries, vs. 28 percent for developed countries.
  • Developing countries are the source of about 46 percent of all world exports.
  • About 42 percent of exports by developing countries go to industrialized countries, but these are only about 38 percent of industrial-country imports.
manual

Are the Long-Run Price Trends Against Primary Producers?

The comparative advantages of developing countries (relative to industrialized countries) derive from abundance of unskilled labor and, for many, abundance of natural resources, as well as a tropical climate for agriculture. Furthermore, financial capital markets and labor markets are less efficient in developing countries.

  • Many developing countries have exports concentrated in one or a few primary products such as petroleum, coffee, cotton, gold, sugar, timber, diamond, and bauxite/aluminum.
  • Raul Prebisch and others have argued that adverse price trends for primary products trap these developing countries into declining incomes relative to incomes in industrialized countries.
manual

International Cartels to Raise Primary-Product Prices

The comparative advantages of developing countries (relative to industrialized countries) derive from abundance of unskilled labor and, for many, abundance of natural resources, as well as a tropical climate for agriculture. Furthermore, financial capital markets and labor markets are less efficient in developing countries.

  • How big could the cartel opportunity be? That is, if a group of nations or firms were to form a cartel, as OPEC did, what is the greatest amount of gain they could reap at the expense of their buyers and world efficiency?
  • If all the cartel members could agree on simply maximizing their collective gain, they would behave as though they were a perfectly unified profit-maximizing monopolist.
manual

Import-Substituting Industrialization (ISI)

Import-substituting industrialization (ISI) was the dominant policy in the 1950s and 1960s, and it is still important today. At its best, it is an application of the infant-industry argument, guided by the existence of a market for the goods produced by the new domestic producers, with tariff revenues that may be justified by the developing-government argument, and it can also improve the country’s terms of trade by reducing demand for imports.

  • at Its Best
  • The infant industry argument:
  • Places
manual

Trade Policy Alternatives for a Developing Country

Trade Policies for Developing Countries

  • Focus on exporting primary products.
  • Attempt to raise the world prices of primary products that are exported.
  • Protect and encourage new industries that produce products sold into the local market.
manual

Challenges Faced by Developing Countries

The comparative advantages of developing countries (relative to industrialized countries) derive from abundance of unskilled labor and, for many, abundance of natural resources, as well as a tropical climate for agriculture. Furthermore, financial capital markets and labor markets are less efficient in developing countries.

  • Another difference is in factor input markets.
  • Capital markets
  • work less efficiently in many developing countries in channeling money to the most productive uses.
manual

The Relative Price of Primary Products, 1900-2017

The comparative advantages of developing countries (relative to industrialized countries) derive from abundance of unskilled labor and, for many, abundance of natural resources, as well as a tropical climate for agriculture. Furthermore, financial capital markets and labor markets are less efficient in developing countries.

  • Many developing countries have exports concentrated in one or a few primary products such as petroleum, coffee, cotton, gold, sugar, timber, diamond, and bauxite/aluminum.
  • Raul Prebisch and others have argued that adverse price trends for primary products trap these developing countries into declining incomes relative to incomes in industrialized countries.
manual

Classic Monopoly as an Extreme Model for Cartels

One possible approach to the problem of declining primary product prices is to form international cartels to raise their prices. OPEC did this for oil in the 1970s. The analysis of a cartel as a group that has monopoly power because it controls a large part of the world’s production indicates the limits to this power and why cartels usually erode over time.

  • The cartel members acting as a monopoly would try to find the price level that would maximize the gap between their total export sales revenues and their total costs of producing exports.

Cases

案例与情境

Special Challenges of Transition: The international economics of the sit ...

Special Challenges of Transition: The international economics of the situation probably favor a country like Ukraine reorienting itself toward the European Union. Ukrainian export producers will benefit from better access to buyers in high-income European countries. Competition with productive firms and demanding buyers in these European countries will force Ukrainian firms to improve product quality and control costs.

查看原始摘录

Special Challenges of Transition: The international economics of the situation probably favor a country like Ukraine reorienting itself toward the European Union. Ukrainian export producers will benefit from better access to buyers in high-income European countries. Competition with productive firms and demanding buyers in these European countries will force Ukrainian firms to improve product quality and control costs. Ukrainian buyers (both households and firms that need production inputs) will benefit from better access to products produced by European firms. In contrast, the main advantage to a country like Ukraine from strengthening its orientation toward Russia and its customs union with several other CIS countries is that Russia is the main supplier of fuels to Ukraine. In addition, to the extent that strengthening Ukraine’s legal system (including contract laws and enforcement and

One possible approach to the problem of declining primary product prices ...

One possible approach to the problem of declining primary product prices is to form international cartels to raise their prices. OPEC did this for oil in the 1970s. The analysis of a cartel as a group that has monopoly power because it controls a large part of the world’s production indicates the limits to this power and why cartels usually erode over time.

查看原始摘录

One possible approach to the problem of declining primary product prices is to form international cartels to raise their prices. OPEC did this for oil in the 1970s. The analysis of a cartel as a group that has monopoly power because it controls a large part of the world’s production indicates the limits to this power and why cartels usually erode over time. Demand becomes more elastic over time, new competing supplies from outside the cartel enter the market, increasing the noncartel supply elasticity and decreasing the cartel’s market share, and cheating by cartel members often increases over time. The large decrease of oil prices during 2014-2016 shows the importance of the new noncartel supply (increased U.S. production of crude oil using hydraulic fracturing and horizontal drilling). The ability of OPEC to work with Russia and several other non-OPEC oil-producing countries to reduce

Import-substituting industrialization (ISI) was the dominant policy in t ...

Import-substituting industrialization (ISI) was the dominant policy in the 1950s and 1960s, and it is still important today. At its best, it is an application of the infant-industry argument, guided by the existence of a market for the goods produced by the new domestic producers, with tariff revenues that may be justified by the developing-government argument, and it can also improve the country’s terms of trade by reducing demand for imports.

查看原始摘录

Import-substituting industrialization (ISI) was the dominant policy in the 1950s and 1960s, and it is still important today. At its best, it is an application of the infant-industry argument, guided by the existence of a market for the goods produced by the new domestic producers, with tariff revenues that may be justified by the developing-government argument, and it can also improve the country’s terms of trade by reducing demand for imports. However, because the terms of trade effects are usually small, it imposes substantial economic costs through deadweight losses—it often results in domestic industries that have high costs, domestic monopoly power, and low-quality products. Countries like Taiwan and South Korea that have shifted from a policy of ISI to a more outward-oriented policy that encourages development through exporting usually grow faster with the outward-oriented policy,

8.The prediction is that the shift to an outward oriented policy ...

8.The prediction is that the shift to an outward oriented policy will result in an increase in India’s growth rate, so that it is higher than India’s growth rate was before the shift, and probably also that it is among the higher growth rates for developing countries. The data shown in Figure 14.1 are consistent with the prediction.

查看原始摘录

8.The prediction is that the shift to an outward oriented policy will result in an increase in India’s growth rate, so that it is higher than India’s growth rate was before the shift, and probably also that it is among the higher growth rates for developing countries. The data shown in Figure 14.1 are consistent with the prediction. India’s rate of growth of per capita GDP was 4.9 percent during 1990-2016, which is substantially faster growth than the 2 percent India achieved during 1970-1990. India’s 4.9 percent growth rate is also among the higher growth rates shown for developing countries.

Exercises

习题与答案

题目 1Which Trade Policy for Developing Countries?

While developing countries have about ________ of the world's population, they produce less than ________ of the world's output.

  • A) 5/6; 1/4
  • B) 7/8; 1/8
  • C) 2/3; 1/3
  • D) 6/7; 1/2

正确答案：D | 6/7; 1/2

难度：1 Easy Bloom's：Remember

题目 2Which Trade Policy for Developing Countries?

Identify the correct statement.

  • A) In many of the industrialized countries, the income per person declined between 1990 and 2016.
  • B) Most of the developing countries have been growing at the same rate since 1990.
  • C) The average product per person has grown faster in the developing countries than in the industrialized countries since 1990.
  • D) The developing countries are expected to catch up with the average per capita income in the industrialized countries in the near future.

正确答案：C | The average product per person has grown faster in the developing countries than in the industrialized countries since 1990.

难度：1 Easy Bloom's：Remember

题目 3Which Trade Policy for Developing Countries?

Which of the following is true of developing countries?

  • A) More than 40 percent of the exports by developing countries go to the industrialized countries.
  • B) Exports of goods and services on average are about only 10 percent of gross domestic product in developing countries.
  • C) Exports from the developing countries comprise about three-quarters of industrial-country imports.
  • D) Developing countries are the source of about 60 percent of all world exports.

正确答案：A | More than 40 percent of the exports by developing countries go to the industrialized countries.

难度：2 Medium Bloom's：Understand

题目 4Which Trade Policy for Developing Countries?

Which of the following has been observed in the developing countries during 1990-2016?

  • A) The dispersion in the growth rates of the developing countries has been negligible during 1990-2016.
  • B) The East Asian countries like South Korea, Singapore, and Taiwan reported negative growth rates.
  • C) Countries like China and Vietnam reported positive but low growth rates.
  • D) Several of the countries in Eastern Europe and Central Asia that were making a transition from a centrally planned economy to a market-based economy reported a decline in the per capita income.

正确答案：D | Several of the countries in Eastern Europe and Central Asia that were making a transition from a centrally planned economy to a market-based economy reported a decline in the per capita income.

难度：2 Medium Bloom's：Understand

题目 5Which Trade Policy for Developing Countries?

In comparing growth rates of per capita gross domestic product (GDP) in developing countries over the period of 1990-2016, the highest growth rates were reported in the ________ countries while the lowest growth rates have been reported in the ________ countries.

  • A) European and Central Asian; Latin America and the Caribbean
  • B) East Asian and the Pacific; Sub-Saharan African
  • C) Latin America and the Caribbean; East Asian and the Pacific
  • D) East Asian and the Pacific; South Asian

正确答案：A | European and Central Asian; Latin America and the Caribbean

难度：1 Easy Bloom's：Remember

题目 6Which Trade Policy for Developing Countries?

Developing countries tend to have comparative advantages in

  • A) only capital-intensive goods.
  • B) only skilled-labor-intensive goods.
  • C) land-intensive and unskilled-labor-intensive goods.
  • D) both skilled-labor and capital-intensive goods.

正确答案：C | land-intensive and unskilled-labor-intensive goods.

难度：1 Easy Bloom's：Remember

题目 7Which Trade Policy for Developing Countries?

According to comparative advantage theory, the developing countries are expected to export

  • A) high-tech manufactured goods.
  • B) sophisticated capital equipment.
  • C) primary products.
  • D) specialized software services.

正确答案：C | primary products.

难度：1 Easy Bloom's：Remember

题目 8Which Trade Policy for Developing Countries?

Countries having comparative advantages based on land and in various natural resources are most likely to

  • A) export manufactured goods.
  • B) experience biased growth.
  • C) experience rapid accumulation of capital.
  • D) export products like gold, coffee, or cocoa.

正确答案：D | export products like gold, coffee, or cocoa.

难度：2 Medium Bloom's：Understand

题目 9Which Trade Policy for Developing Countries?

Suppose Country A is a major exporter of limestone in the world market. Which of the following policies can be taken by the government of Country A to enhance the gains from exporting limestone by raising its world price?

  • A) Taxing limestone exports
  • B) Subsidizing export of limestone
  • C) Subsidizing the extraction of limestone
  • D) Setting a price ceiling on the limestone sold in the domestic market

正确答案：A | Taxing limestone exports

难度：2 Medium Bloom's：Understand

题目 10Which Trade Policy for Developing Countries?

An example of policies designed to encourage new local industries serving the domestic market would be

  • A) taxing exports of manufactured goods.
  • B) subsidizing imports to the domestic market.
  • C) imposing import tariffs or otherwise restricting imports.
  • D) removing all trade restrictions and price supports.

正确答案：C | imposing import tariffs or otherwise restricting imports.

难度：1 Easy Bloom's：Remember

题目 11Which Trade Policy for Developing Countries?

An example of policies designed to encourage the development of new industries whose products can be readily exported would be

  • A) taxing exports of skilled-labor-intensive goods.
  • B) subsidizing imports to the domestic market.
  • C) providing subsidies to domestic industries that exploit the country's comparative advantage.
  • D) imposing tariffs on imports of skilled-labor-intensive goods.

正确答案：C | providing subsidies to domestic industries that exploit the country's comparative advantage.

难度：1 Easy Bloom's：Remember

题目 12Which Trade Policy for Developing Countries?

Which of the following was a main economic policy goal of the Soviet Union?

  • A) Export promotion
  • B) National self-sufficiency
  • C) Privatization
  • D) Deindustrialization

正确答案：B | National self-sufficiency

难度：1 Easy Bloom's：Remember

Manual Preview

教师手册摘录

Trade Policies for Developing Countries

This chapter examines trade issues affecting developing countries. It begins by noting differences between high-income developed or industrialized countries and low- and medium-income developing countries, as well as differences among the developing countries. Some developing countries are growing quickly, while others are stagnating or declining.

The comparative advantages of developing countries (relative to industrialized countries) derive from abundance of unskilled labor and, for many, abundance of natural resources, as well as a tropical climate for agriculture. Furthermore, financial capital markets and labor markets are less efficient in developing countries. Given these differences, a developing country must decide what trade policy (and other government policies) to adopt. (1) It can focus on exporting primary products based on the country’s comparative advantage in natural resources and its tropical climate. (2) It can adopt a policy that tries to raise world prices for its export of primary products by joining international cartels or taxing its exports. (3) It can tax and restrict imports of manufactured goods to develop new domestic industries through import substitution. (4) It can promote and subsidize new export products, especially manufactured goods. Given the less efficient capital and labor markets, there may be a role for an active government trade policy. The box “Special Challenges of Transition” discusses the roles of trade and trade policy in the efforts by the developing countries of Central and Southeastern Europe and the former Soviet Union to shift from communist central planning to more market-oriented economies.

Some developing countries rely on primary products for most of their exports. Evidence indicates that these countries appear to have experienced a slow deterioration in their terms of trade over time. It appears that the adverse effects of Engel’s Law and the development of synthetic substitutes have been more important than the limits of natural scarcity and slow growth of productivity in primary-goods production. The conclusions are tentative, because there are biases in the data—declining transport costs and faster unmeasured quality improvements for manufactured goods (including new manufactured products).

Slide Outline

课件线索

  • Trade Policy Alternatives for a Developing Country
  • Which Trade Policy for Developing Countries?
  • Challenges Faced by Developing Countries
  • Are the Long-Run Price Trends Against Primary Producers?
  • The Relative Price of Primary Products, 1900-2017
  • International Cartels to Raise Primary-Product Prices
  • Classic Monopoly as an Extreme Model for Cartels
  • A Cartel as a Profit Maximizing Monopoly
  • What Determines the Cartel Price?
  • The Erosion of Cartel Power
  • Import-Substituting Industrialization (ISI)
  • Actual Experience with

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