Chapter 14 Trade Policies for Developing Countries

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Chapter 14 Trade Policies for DevelopingCountries

Link to syllabus
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W. Arthur Lewis, 1915-1990
Born St. Lucia (Caribbean) Educated at LSE Taught
at U. of Manchester, under Hayek, and at
Princeton Adviser to the UN, govt of
Ghana, Nobel Prize, 1979 Economic Development
with Unlimited Supplies of Labor 1954
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Fig. 14.1 page 318. Growth Ratesof GDP
GDP/capita
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Trade Policy Alternatives for Developing
Countries (p. 319)

• 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
• Encourage new industries that produce products
  that are exported

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Raul Prebisch, 1901 - 1985
Born in a province of Argentina. Parents were
German immigrants. Studied at University
of Buenos Aires, where he later taught. During
the 1930s he moved from classical orthodoxy to a
form of Keynesianism. In 1948 he was director of
ECLA, and in 1950 promulgated what became known
as the Prebisch-Singer hypothesis,which argued
against free trade because of an alleged trend
toward falling terms of trade for raw materials.
Although he is thought to have favored ISI, he
was often critical of its excesses. From
1964-1969 he led UNCTAD, a UN body which worked
for Third World countries.
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Figure 14.2 page 325Relative price of primary
products
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Import Substituting Industries (p. 333)

• Potential strengths
• Infant industries can grow up
• Developing government can get much-needed revenue
• The countrys international terms of trade can
  improve
• Information on demand is acquired cheaply
• Actual experience
• Deadweight losses from resource misallocation
• Developing countries practicing or adopting
  freer-trade policies grow more quickly

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Figure 14.3 page 329. Cartel as profit maximizing
monopoly
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Oil Price Cycles in the U.S. and Global Economies
P. 369 Bade/Parkin
EYE ON THE PAST
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Erosion of Cartel Power (p. 308)

• Declining demand as buyers respond by switching
  to substitutes
• Increasing responsiveness of competing supply
  from noncartel producers
• Declining share of the cartels production in the
  world market
• Cheating by the cartel members

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Crude Oil Prices
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U.S. Petroleum Production, Consumption, Imports
Source U.S. DoE
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Figure 14.4 page 337Changing mix of exports from
LDCs
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Figure 13.5 page 331Trade reform inTransition
economies
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