The Primary Export Economy

1
The Primary Export Economy

• Econ 403
• Economic Development
• Carlos A. Benito

2
Why Primary-Export?

• Primary sector
• Primary
• Food and Textiles
• Mining, including oil and logging
• Secondary
• Manufactures
• Tertiary
• Trade, Services and Finances
• Export orientation
• Specialization in Production of one or few
  commodities for Export
• Importation of manufactures, tools, and
  equipments

3
Basis for Trade Pattern

• Does the production specialization and the trade
  patterns is consistent with Comparative Advantage
  Theories?

4
Basis for International TradeWithout Economic
Growth

• Relative Abundance of Resources
• Natural Resources/Capital
• Larger in LD Country than Industrial Country
• Relative abundance of Natural Resources in LDC
• Relative abundance of Capital in Industrialized
  Country
• Factor Intensity - For Existing Technologies
• Manufacturing
• More Capital Intensive
• Agriculture
• More Natural Resource Intensive

5
Basis for International Trade (b)

• Product Specialization that is more Efficient
• Industrialized Country
• Specializes in Manufacture Production (many
  manufactures)
• Imports Food, Raw Materials, Fuels
• Exports Manufactures
• Less Developed Country
• Specializes in Food Production or Mining (few
  commodities)
• Imports Manufactures
• Exports Foods

6
Basis for International Trade (c)

• Consumers Benefits
• Increase in LD Country
• Increase in Industrialized Country
• Rewards to Production Factors
• Rent for Farmers or Mining Companies increases in
  LDC
• Profits for Artisans decreases in LDC
• Rent for Farmers decreases in Industrial
  Countries
• Profits for Manufacture Capitalists increases in
  Industrialized Country

7
Historical Process in Developing Countries

• Trade and Dependence
• Colonialism
• India, Asia, and Africa under UK, France,
  Netherlands and Belgium
• Expansionism
• Caribbean, Central America and Philippines under
  the US influence
• South America under the commercial interests of
  UK, Germany and Belgium
• The induced pattern of trade was consistent with
  the static theory of trade.
• Trade as country choice
• After World War II GATT and WTO frameworks

8
Basis for International TradeWith Economic Growth

• Relative Abundance of Resources in LD Country
• Investment in capital equipment expands capital
  stock,
• Investment in human capital expands and labor
  force becomes more skilled
• Natural resources remain constant
• Capital in LDC becomes relatively more abundant
• Factor Intensity - For Existing Technologies, as
  Before
• Manufacturing
• More Capital Intensive
• Agriculture
• More Natural Resource Intensive

9
Basis for International Trade (b)With Economic
Growth

• Product Pattern that is now more efficient in LDC
• Now can produce some manufacture
• For Domestic Consumption (Industrial Import
  Substitution e.g. Latin America)
• For Exports (Export Promotion Asian Tigers)
• Now Imports
• More Capital Equipment (To expand domestic
  production of manufactures)
• Consumption Goods, except those now domestically
  produced
• Continuous to Exports Food

10
The Primary-Export EconomyA flow-chart model
International Terms of Trade
Imp
C
Expo
S
GDP
I
Capital
Natural Resources
Labor
11
Production without International Trade
Consumption Benefits
Consumption Benefits
Food
Manufactures
Manufactures
Food
Natural Resources
Natural Resources
Capital
Capital
Less Developed Country
Industrialized Country
12
Production with International Trade
Consumption Benefits
Manufacture Exports
Consumption Benefits
Food Exports
Manuf. Consumption
Food Consumption
Manufacture Production
Food Production
Natural Resources
Natural Resources
Capital
Capital
Less Developed Country
Industrialized Country