Chapter10InternationalTradeandEconomicGrowthChapter10InternationalTrad1Thereisagreatdiversityamongthedevelopingcountriesintermsoftheirincomepercapita.Whyaresomecountriessomuchpoorerthanothers?Forabout30yearsafterWorldWarIItradepoliciesinmanydevelopingcountrieswerestronglyinfluencedbythebeliefthatthekeytoeconomicdevelopmentwascreationofastrongmanufacturingsector.Thebestwaytocreateastrongmanufacturingsectorwasbyprotectingdomesticmanufacturersfrominternationalcompetition.IntroductionThereisagreatdiversityamo2IntroductionTable1:GrossDomesticProductPerCapita,1999(dollars)IntroductionTable1:GrossDom3Definition&TypesofGrowth

DefinitionofGrowthIncreasesinfactorendowmentsFactor-savingtechnologicalprogressTypesofGrowthBalancedGrowthBiasedGrowth:ImportReplacing(IR)GrowthExportExpanding(EE)Growth

Example:China——laborabundant,Rice:labor-intensive,Steel:capital-intensiveExportrice&ImportsteelDefinition&TypesofGrowthD4Thebalancedgrowth——bothindustriesgrowatthesamerate.SteelRiceBalancedGrowthThebalancedgrowth——bot5IRGrowth

“進口替代型增長”指的是進口替代行業(yè)的生產能力增長得比較快，從而使得國內生產增加，一部分原來進口的商品被國內的產品替代了。SteelRiceIRGrowth“進口替代型增長”指的是進口替代行業(yè)6FromWorldWarIIuntilthe1970smanydevelopingcountriesattemptedtoacceleratetheirdevelopmentbylimitingimportsofmanufacturedgoodstofosteramanufacturingsectorservingthedomesticmarket.Themostimportanteconomicargumentforprotectingmanufacturingindustriesistheinfantindustryargument.Import-SubstitutingIndustrializationFromWorldWarIIuntilthe197Import-SubstitutingIndustrializationTheInfantIndustryArgumentItstatesthatdevelopingcountrieshaveapotentialcomparativeadvantageinmanufacturingandtheycanrealizethatpotentialthroughaninitialperiodofprotection.Itimpliesthatitisagoodideatousetariffsorimportquotasastemporarymeasurestogetindustrializationstarted.Example:TheU.S.andGermanyhadhightariffratesonmanufacturinginthe19thcentury,whileJapanhadextensiveimportcontrolsuntilthe1970s.Import-SubstitutingIndustrial8Import-SubstitutingIndustrializationProblemswiththeInfantIndustryArgumentItisnotalwaysgoodtotrytomovetodayintotheindustriesthatwillhaveacomparativeadvantageinthefuture.Example:Inthe1980sSouthKoreabecameanexporterofautomobiles,whereasinthe1960sitscapitalandskilledlaborwerestillveryscarce.Protectingmanufacturingdoesnogoodunlesstheprotectionitselfhelpsmakeindustrycompetitive.Example:PakistanandIndiahaveprotectedtheirheavymanufacturingsectorsfordecadesandhaverecentlybeguntodevelopsignificantexportsoflightmanufacturesliketextiles.Import-SubstitutingIndustrial9MarketFailureJustificationsforInfantIndustryProtectionTwomarketfailuresareidentifiedasreasonswhyinfantindustryprotectionmaybeagoodidea:ImperfectcapitalmarketsjustificationIfadevelopingcountrydoesnothaveasetoffinancialinstitutionsthatwouldallowsavingsfromtraditionalsectors(suchasagriculture)tobeusedtofinanceinvestmentinnewsectors(suchasmanufacturing),thengrowthofnew

industrieswillberestricted.AppropriabilityargumentFirmsinanewindustrygeneratesocialbenefitsforwhichtheyarenotcompensated(e.g.start-upcostsofadaptingtechnology).Import-SubstitutingIndustrializationMarketFailureJustifications10PromotingManufacturingThroughProtectionImport-substitutingindustrializationThestrategyofencouragingdomesticindustrybylimitingimportsofmanufacturedgoodsManyless-developedcountrieshavepursuedthisstrategy.Hasimport-substitutingindustrializationpromotedeconomicdevelopment?Manyeconomistsarenowharshlycriticaloftheresultsofimportsubstitution,arguingthatithasfosteredhigh-cost,inefficientproduction.Import-SubstitutingIndustrializationPromotingManufacturingThroug11Whynotencouragebothimportsubstitutionandexports?Atariffthatreducesimportsalsonecessarilyreducesexports.Untilthe1970smanydevelopingcountrieswereskepticalaboutthepossibilityofexportingmanufacturedgoods.Inmanycases,import-substitutingindustrializationpoliciesdovetailednaturallywithexistingpoliticalbiases.Import-SubstitutingIndustrializationWhynotencouragebothimport12Table2:ExportsasaPercentageofNationalIncome,1999Import-SubstitutingIndustrializationTable2:ExportsasaPercenta13ResultsofFavoringManufacturing:ProblemsofImport-SubstitutingIndustrializationManycountriesthathavepursuedimportsubstitutionhavenotshownanysignsofcatchingupwiththeadvancedcountries.Example:InIndia,after20yearsofeconomicplansbetweentheearly1950sandtheearly1970s,itspercapitaincomewasonlyafewpercenthigherthanbefore.Import-SubstitutingIndustrializationResultsofFavoringManufactur14Whydidn’timport-substitutingindustrializationworkthewayitwassupposedto?Theinfantindustryargumentwasnotasuniversallyvalidasmanypeopleassumed.Import-substitutingindustrializationgenerated:HighratesofeffectiveprotectionInefficientscaleofproductionHigherincomeinequalityandunemploymentImport-SubstitutingIndustrializationWhydidn’timport-substituting15Import-SubstitutingIndustrializationTable3:EffectiveProtectionofManufacturinginSomeDeveloping Countries(percent)Import-SubstitutingIndustrial16EEGrowth“出口擴張型增長”則指的是出口行業(yè)生產能力的增長超過其它行業(yè)，使得生產和出口都得到了進一步擴張。SteelRiceEEGrowth“出口擴張型增長”則指的是出口17Export-OrientedIndustrialization:theEastAsianMiracleFromthemid-1960sonward,exportsofmanufacturedgoods,primarilytoadvancednations,wasanotherpossiblepathtoindustrializationforthedevelopingcountries.HighperformanceAsianeconomies(HPAEs)Agroupofcountriesthatachievedspectaculareconomicgrowth.Insomecases,theyachievedeconomicgrowthofmorethan10%peryear.Export-OrientedIndustrializat18TheFactsofAsianGrowthTheWorldBank’sdefinitionofHPAEscontainsthreegroupsofcountries,whose“miracle”beganatdifferenttimes:Japan(afterWorldWarII)Thefour“tigers”:HongKong,Taiwan,SouthKorea,andSingapore(inthe1960s)Malaysia,Thailand,Indonesia,andChina(inthelate1970sandthe1980s)TheHPAEsareveryopentointernationaltradeExample:In1999,exportsasashareofgrossdomesticproductinthecaseofbothHongKongandSingaporeexceeded100%ofGDP(132and202respectively).Export-OrientedIndustrialization:theEastAsianMiracleTheFactsofAsianGrowthExpor19TradePolicyintheHPAEsSomeeconomistsarguethatthe“EastAsianmiracle”isthepayofftotherelativelyopentraderegime.ThedatainTable10-4suggeststhattheHPAEshavebeenlessprotectionistthanotherlessdevelopingcountries,buttheyhavebynomeansfollowedapolicyofcompletefreetrade.LowratesofprotectionintheHPAEshelpedthemtogrow,buttheyareonlyapartialexplanationofthe“miracle.”Export-OrientedIndustrialization:theEastAsianMiracleTradePolicyintheHPAEsExpor20Table4:AverageRatesofProtection,1985(percent)Export-OrientedIndustrialization:theEastAsianMiracleTable4:AverageRatesofProt21IndustrialPolicyintheHPAEsSeveralofthehighlysuccessfuleconomieshavepursuedindustrialpolicies(fromtariffstogovernmentsupportforresearchanddevelopment)thatfavorparticularindustriesoverothers.Mosteconomistshavebeenskepticalabouttheimportanceofsuchpoliciesbecause:HPAEshavefollowedawidevarietyofpolicies,butachievedsimilarlyhighgrowthrates.Theactualimpactonindustrialstructuremaynothavebeenlarge.Therehavebeensomenotablefailuresofindustrialpolicy.Export-OrientedIndustrialization:theEastAsianMiracleIndustrialPolicyintheHPAEs22OtherFactorsinGrowthTwofactorscanexplaintherapidgrowthinEastAsia:HighsavingratesRapidimprovementinpubliceducationTheEastAsianexperiencerefutesthat:Industrializationanddevelopmentmustbebasedonaninward-lookingstrategyofimportsubstitution.Theworldmarketisriggedagainstnewentrants,preventingpoorcountriesfrombecomingrich.Export-OrientedIndustrialization:theEastAsianMiracleOtherFactorsinGrowthExport-23SmallandLargeCountryGeographicalEconomicSmallCountry:it’sshareinworldtradeistoosmalltoaffecttheinternationalpricesoftheexportedorimportedgoodsLargeCountry:it’sshareinworldtradeisbigenoughtoaffecttheinternationalpriceofexportsorimportsSmallandLargeCountryGeograp24IRGrowthinaSmallCountry1.RelativePrice:

nochange2.Production:

ricereduce;steelincrease3.Trade:

Bothreduce4.Welfare:

BetteroffSteelIRGrowthRiceP1P2C1C2IRGrowthinaSmallCountry1.25EEGrowthinaSmallCountry1.RelativePrice:

nochange2.Production:

riceincrease;steelreduce

3.Trade:

Bothincrease4.Welfare:

BetteroffEEGrowthSteelRiceP1P2C1C2EEGrowthinaSmallCountry1.26Summary(smallcountry)RybczyskiTheorem(羅勃津斯基定理)：在商品相對價格不變的情況下，某種生產要素的增長會使密集使用該要素的商品生產擴大，使密集使用其他要素的商品生產縮小。Summary(smallcountry)Rybczysk27CaseStudy:“DutchDisease”WhentheNetherlandsdevelopednaturalgasfieldsundertheNorthSeain1970s,alotresourcesofthecountrywereattractedtothisindustry.Sothatthemanufacturingsectorsuffered.SimilarproblemshappenedinBritain,Norway,Australia,andMexico.Thiscaseisusuallycalled”DutchDisease”Reason:resourceswereattractedtogasindustrybecauseofhigherprofitsExportofnaturalresource——appreciation——foreigndemandfortraditionalexportsreduced.

CaseStudy:“DutchDisease”When28IRGrowthinaLargeCountryRelativepriceofsteel

dropProduction:

SteelincreaseRiceuncertainTrade:

UncertainWelfare

BetterthansmallcountrySteelRiceSmallcountry

Largecountry

A

B

C

IRGrowthinaLargeCountryRe29EEGrowthinaLargeCountryRelativepriceofsteel

UpProduction:

RiceincreaseSteelincreaseTrade:

Exportincrease&importreduce

Welfare

betterthanbefore-growth,butworsethansmallcountrySteelRiceSmallcountry

Largecountry

A

B

C

EEGrowthinaLargeCountryRe30Aspecialcase:

"ImmiserizingGrowth"

Duringthe1950s,someanalystsarguedthat:theexport-biasedgrowthbypoornationswouldworsentheirtermsoftradesothattheywouldbeworseoffthaniftheyhadn’tgrownatall.Thissituationisknownas“ImmiserizingGrowth”Example：LatinAmericancountriesin30sAspecialcase:

"Immiserizing31EconomicModelThreeconditions:strongexport-biasedgrowth

Largecountrytheworlddemandforthisproductisinelastic.steelriceEconomicModelThreeconditions32SummaryH-Omodelinterprettheroleofresourceintrade:Countrytendtoexportgoodsthatareintensityinthefactorwithwhichtheyareabundantlysupplied.Economicgrowthaffectsmallcountriesandlargecountriesdifferently.SummaryH-Omodelinterpretthe33Chapter10InternationalTradeandEconomicGrowthChapter10InternationalTrad34Thereisagreatdiversityamongthedevelopingcountriesintermsoftheirincomepercapita.Whyaresomecountriessomuchpoorerthanothers?Forabout30yearsafterWorldWarIItradepoliciesinmanydevelopingcountrieswerestronglyinfluencedbythebeliefthatthekeytoeconomicdevelopmentwascreationofastrongmanufacturingsector.Thebestwaytocreateastrongmanufacturingsectorwasbyprotectingdomesticmanufacturersfrominternationalcompetition.IntroductionThereisagreatdiversityamo35IntroductionTable1:GrossDomesticProductPerCapita,1999(dollars)IntroductionTable1:GrossDom36Definition&TypesofGrowth

DefinitionofGrowthIncreasesinfactorendowmentsFactor-savingtechnologicalprogressTypesofGrowthBalancedGrowthBiasedGrowth:ImportReplacing(IR)GrowthExportExpanding(EE)Growth

Example:China——laborabundant,Rice:labor-intensive,Steel:capital-intensiveExportrice&ImportsteelDefinition&TypesofGrowthD37Thebalancedgrowth——bothindustriesgrowatthesamerate.SteelRiceBalancedGrowthThebalancedgrowth——bot38IRGrowth

“進口替代型增長”指的是進口替代行業(yè)的生產能力增長得比較快，從而使得國內生產增加，一部分原來進口的商品被國內的產品替代了。SteelRiceIRGrowth“進口替代型增長”指的是進口替代行業(yè)39FromWorldWarIIuntilthe1970smanydevelopingcountriesattemptedtoacceleratetheirdevelopmentbylimitingimportsofmanufacturedgoodstofosteramanufacturingsectorservingthedomesticmarket.Themostimportanteconomicargumentforprotectingmanufacturingindustriesistheinfantindustryargument.Import-SubstitutingIndustrializationFromWorldWarIIuntilthe1940Import-SubstitutingIndustrializationTheInfantIndustryArgumentItstatesthatdevelopingcountrieshaveapotentialcomparativeadvantageinmanufacturingandtheycanrealizethatpotentialthroughaninitialperiodofprotection.Itimpliesthatitisagoodideatousetariffsorimportquotasastemporarymeasurestogetindustrializationstarted.Example:TheU.S.andGermanyhadhightariffratesonmanufacturinginthe19thcentury,whileJapanhadextensiveimportcontrolsuntilthe1970s.Import-SubstitutingIndustrial41Import-SubstitutingIndustrializationProblemswiththeInfantIndustryArgumentItisnotalwaysgoodtotrytomovetodayintotheindustriesthatwillhaveacomparativeadvantageinthefuture.Example:Inthe1980sSouthKoreabecameanexporterofautomobiles,whereasinthe1960sitscapitalandskilledlaborwerestillveryscarce.Protectingmanufacturingdoesnogoodunlesstheprotectionitselfhelpsmakeindustrycompetitive.Example:PakistanandIndiahaveprotectedtheirheavymanufacturingsectorsfordecadesandhaverecentlybeguntodevelopsignificantexportsoflightmanufacturesliketextiles.Import-SubstitutingIndustrial42MarketFailureJustificationsforInfantIndustryProtectionTwomarketfailuresareidentifiedasreasonswhyinfantindustryprotectionmaybeagoodidea:ImperfectcapitalmarketsjustificationIfadevelopingcountrydoesnothaveasetoffinancialinstitutionsthatwouldallowsavingsfromtraditionalsectors(suchasagriculture)tobeusedtofinanceinvestmentinnewsectors(suchasmanufacturing),thengrowthofnew

industrieswillberestricted.AppropriabilityargumentFirmsinanewindustrygeneratesocialbenefitsforwhichtheyarenotcompensated(e.g.start-upcostsofadaptingtechnology).Import-SubstitutingIndustrializationMarketFailureJustifications43PromotingManufacturingThroughProtectionImport-substitutingindustrializationThestrategyofencouragingdomesticindustrybylimitingimportsofmanufacturedgoodsManyless-developedcountrieshavepursuedthisstrategy.Hasimport-substitutingindustrializationpromotedeconomicdevelopment?Manyeconomistsarenowharshlycriticaloftheresultsofimportsubstitution,arguingthatithasfosteredhigh-cost,inefficientproduction.Import-SubstitutingIndustrializationPromotingManufacturingThroug44Whynotencouragebothimportsubstitutionandexports?Atariffthatreducesimportsalsonecessarilyreducesexports.Untilthe1970smanydevelopingcountrieswereskepticalaboutthepossibilityofexportingmanufacturedgoods.Inmanycases,import-substitutingindustrializationpoliciesdovetailednaturallywithexistingpoliticalbiases.Import-SubstitutingIndustrializationWhynotencouragebothimport45Table2:ExportsasaPercentageofNationalIncome,1999Import-SubstitutingIndustrializationTable2:ExportsasaPercenta46ResultsofFavoringManufacturing:ProblemsofImport-SubstitutingIndustrializationManycountriesthathavepursuedimportsubstitutionhavenotshownanysignsofcatchingupwiththeadvancedcountries.Example:InIndia,after20yearsofeconomicplansbetweentheearly1950sandtheearly1970s,itspercapitaincomewasonlyafewpercenthigherthanbefore.Import-SubstitutingIndustrializationResultsofFavoringManufactur47Whydidn’timport-substitutingindustrializationworkthewayitwassupposedto?Theinfantindustryargumentwasnotasuniversallyvalidasmanypeopleassumed.Import-substitutingindustrializationgenerated:HighratesofeffectiveprotectionInefficientscaleofproductionHigherincomeinequalityandunemploymentImport-SubstitutingIndustrializationWhydidn’timport-substituting48Import-SubstitutingIndustrializationTable3:EffectiveProtectionofManufacturinginSomeDeveloping Countries(percent)Import-SubstitutingIndustrial49EEGrowth“出口擴張型增長”則指的是出口行業(yè)生產能力的增長超過其它行業(yè)，使得生產和出口都得到了進一步擴張。SteelRiceEEGrowth“出口擴張型增長”則指的是出口50Export-OrientedIndustrialization:theEastAsianMiracleFromthemid-1960sonward,exportsofmanufacturedgoods,primarilytoadvancednations,wasanotherpossiblepathtoindustrializationforthedevelopingcountries.HighperformanceAsianeconomies(HPAEs)Agroupofcountriesthatachievedspectaculareconomicgrowth.Insomecases,theyachievedeconomicgrowthofmorethan10%peryear.Export-OrientedIndustrializat51TheFactsofAsianGrowthTheWorldBank’sdefinitionofHPAEscontainsthreegroupsofcountries,whose“miracle”beganatdifferenttimes:Japan(afterWorldWarII)Thefour“tigers”:HongKong,Taiwan,SouthKorea,andSingapore(inthe1960s)Malaysia,Thailand,Indonesia,andChina(inthelate1970sandthe1980s)TheHPAEsareveryopentointernationaltradeExample:In1999,exportsasashareofgrossdomesticproductinthecaseofbothHongKongandSingaporeexceeded100%ofGDP(132and202respectively).Export-OrientedIndustrialization:theEastAsianMiracleTheFactsofAsianGrowthExpor52TradePolicyintheHPAEsSomeeconomistsarguethatthe“EastAsianmiracle”isthepayofftotherelativelyopentraderegime.ThedatainTable10-4suggeststhattheHPAEshavebeenlessprotectionistthanotherlessdevelopingcountries,buttheyhavebynomeansfollowedapolicyofcompletefreetrade.LowratesofprotectionintheHPAEshelpedthemtogrow,buttheyareonlyapartialexplanationofthe“miracle.”Export-OrientedIndustrialization:theEastAsianMiracleTradePolicyintheHPAEsExpor53Table4:AverageRatesofProtection,1985(percent)Export-OrientedIndustrialization:theEastAsianMiracleTable4:AverageRatesofProt54IndustrialPolicyintheHPAEsSeveralofthehighlysuccessfuleconomieshavepursuedindustrialpolicies(fromtariffstogovernmentsupportforresearchanddevelopment)thatfavorparticularindustriesoverothers.Mosteconomistshavebeenskepticalabouttheimportanceofsuchpoliciesbecause:HPAEshavefollowedawidevarietyofpolicies,butachievedsimilarlyhighgrowthrates.Theactualimpactonindustrialstructuremaynothavebeenlarge.Therehavebeensomenotablefailuresofindustrialpolicy.Export-OrientedIndustrialization:theEastAsianMiracleIndustrialPolicyintheHPAEs55OtherFactorsinGrowthTwofactorscanexplaintherapidgrowthinEastAsia:HighsavingratesRapidimprovementinpubliceducationTheEastAsianexperiencerefutesthat:Industrializationanddevelopmentmustbebasedonaninward-lookingstrategyofimportsubstitution.Theworldmarketisriggedagainstnewentrants,preventingpoorcountriesfrombecomingrich.Export-OrientedIndustrialization:theEastAsianMiracleOtherFactorsinGrowthExport-56SmallandLargeCountryGeographicalEconomicSmallCountry:it’sshareinworldtradeistoosmalltoaffecttheinternationalpricesoftheexportedorimportedgoodsLargeCountry:it’sshareinworldtradeisbigenoughtoaffecttheinternationalpriceofexportsorimportsSmallandLargeCountryGeograp57IRGrowthinaSmallCountry1.RelativePrice:

nochange2.Production:

ricereduce;steelincrease3.Trade:

Bothreduce4.Welfare:

BetteroffSteelIRGrowthRiceP1P2C1C2IRGrowthinaSmallCountry1.58EEGrowthinaSmallCountry1.