Trade and Uneven Development I and II (KEMENY) Flashcards Preview

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Flashcards in Trade and Uneven Development I and II (KEMENY) Deck (22):

What does liberalising mean?

remove or loosen restrictions on (something, typically an economic or political system).


What does free trade mean?

International trade left to its natural course without tariffs, quotas, or other restrictions.


Winners (Core): England, Europe, North America, Argentina, Australia, New Zealand
How did they win?

• Absorb ideas from Industrial Revolution
– in New World, + people and capital as well
• Manufacturing
• Good Institutions (government, private property etc)


Not everyone in New World is a winner:

Unimaginably awful for natives and slaves


How Liberal were 19th Century Winners?

How ‘liberal’ were they?
– compared to age of mercantilism yes,
– But not ‘free trade’
– Example:
• US average tariffs on manuf. imports in 1870s:
• 2010: US tariff rate on all goods in 2010 is 6.2% (World Bank)


USA vs Argentina Similarities

Initial comparative advantage in US and Argentina is agriculture


US vs Argentina
US Case

– American South
• Cotton makes up more than 50% US exports after invention of cotton gin (invented in 1793)
• Cotton concentrated in Southern states
• Gin generates massive growth in demand for
American cotton, spurs growth in slavery

– Northeast: Increasing focus on manufacturing

– Southerners happy to focus on their key asset: cotton and other agriculture
– Northern US industrialists have a different perspective and focus
• Actively seek to diversify away from basis in agriculture • They demand subsidies and import tariffs


Civil War (1861-1865): a fight (mainly) over slavery

• Implicitly also about mechanization/industrialization
• North wins, and industrialization leads US to leapfrog over Britain


US vs Argentina
Argentina case

– One of world’s richest countries up to 1939
– In 19th century it draws many Europeans: space and freedom
– Handful of aristocrats given vast land rights in the Pampas
• As opposed to land more democratically given in exchange for expansion (a la US)
– Little investment in diversification or institutions
– A bit like US South!


USA vs Argentina Contrasts

– More to this than just tariffs/subsidies or not
– But winners not ‘free traders’ by current standards.
• Argentina ends up being more laissez-faire than US, to its great detriment
– Many success stories had far from laissez- faire approaches, in trade as in other policies


Losers (Periphery)

India, much of South America etc
– Resource-extractive colonies need armies of
workers, not industrialization
– Institutions: wealth extraction, not inclusion
– Colonial powers impose free trade
– Local industrial activity choked off
• CA theory says: great – both parties can gain


Specialization not value neutral?
– Focus on labor-intensive goods:

• Less incentive for education
• Fertility up, as more kids means more workers, and kids are cheap (also, higher child mortality)


Specialization not value neutral?
– Focus on skill-intensive goods:

• prompts investments in human capital
• pushes fertility down as parents invest in kids education, child labor less useful etc


The upshot: free trade results in different outcomes on the basis of specialization

– Related to population growth in poorer countries (specialized in primary commodities)
– Related to productivity growth in richer countries (specialized in higher-sophistication commodities)


– Japan, Korea, Singapore: highly interventionist state
– Hong Kong: very laissez faire

What does that mean?

Introventionism: a government policy of becoming involved in the economy, or of trying to influence economic and other social issues in another country.

Laissez faire: letting things take their natural course


Similarities of Japan, Korea, Singapore & Hong Kong

– very export-oriented
– Not always so free with imports, though
– Also quite egalitarian (all people are equal and deserve equal rights)


East Asian Miracle

Interpretation 1: Fundamentalists

– These economies had built up a lot of productive factors, and efficiently allocated them, hence growth
– As regards trade: With greater global integration, they were able to realize their CA
– Export orientation gave them access to large markets
– Not arguing trade have everything to do with it, but basically a laissez faire view


East Asian Miracle

Interpretation 2: Mystics

– Heavy exporting activity was a consequence of success, not a cause
– Cause was dramatic industrial policy,
• Governments picked winner industries, and did so very successfully
– Focused on technological learning and mastery
• Pushed for a succession of specializations – Selective import restrictions
– Subsidies
– State monopolies


Latin America, and many other countries (including some pre-Tigers) followed a different road...

– Import substitution industrialization
• Industrialization will not happen if left to market forces – so we replace international with domestic production
• Inward focus, directed by developmental state – Publicly-owned industry
– High taxes
– High trade barriers


Subsidies meaning

A sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low.


Trade barriers meaning

Trade barriers are measures that governments or public authorities introduce to make imported goods or services less competitive than locally produced goods and services.


Latin America- ‘infant industry’ argument for trade restraints

– Industries are like children – they need protection when they are immature
– If country X can produce a sufficient quantity, then they will learn how to be more efficient, and approach world prices
– tariff protects during learning phase