Top Banner
Trade Policies for Development: I. Import Substitution. II. Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6 and 12.7, pp. 593-620 ECON 3508 June 13 and 15, 2011
46

Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Mar 26, 2015

Download

Documents

Nicole Wyatt
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Page 1: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Trade Policies for Development:

I. Import Substitution. II. Export PromotionIII. Regional Economic Integration

See text, Chapter 12, Sections 12.5, 12.6 and 12.7, pp. 593-620

ECON 3508 June 13 and 15, 2011

Page 2: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.
Page 3: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.
Page 4: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

I. Import Substituting Industrialization (ISI)

1. Basic Character of the Approach:• Definition• Objectives:

– Industrialization and structural Change;– Employment creation in the "modern

sector"– Balance of payments considerations:

reduce imports– "Economic Independence"

Page 5: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

2. Method, and "policy tools:“– Analyze import pattern;– Stimulate new industries replacing most

significant imports via“Protection” and Subsidization:

– Instruments: • Tariffs• Non-Tariff Barriers (NTBs)• Low interest lending to favoured enterprises ISI

sectors• Subsidies of various sorts to the "ISI" activities• Tax advantages of various sorts• Provision of infrastructure

Page 6: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

3. Origins of the approach:

•Development theorizing, 1943-1960;• Experience of the higher income countries earlier in their histories: (USA, Canada, Germany, etc.)• The Soviet economic model in some cases;• The Latin American development experience: 1930s and WW II eras;• Classical Economics: the Infant Industry argument changed to an "infant economy" argument.

Page 7: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

4. Strengths of the Approach

– initial potentiality of substituting for some major import products;

– ISI as a "natural process" – The larger the country, the greater the

potential of ISI due to the existence of a larger market.

[e.g. compare Brazil with Nicaragua]

Page 8: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

5. Results:

– Initially, from 1945 to around 1970. reasonably good especially for larger countries, esp. in Latin America;

• Rapid growth and significant industrialization plus structural change in many countries;

– Later, around the late 1960s into the 1980s, the approach was "running out of steam”

• Growth slowed down; inefficiencies with the approach became overpowering in many cases.

Page 9: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

6. Problems with the approach:

– Indiscriminate and extreme implementation in many cases;

– Thwarting of various types of economies of scale;

• “Effective market size” was small for many countries

– "Miniature replica effect"– Promotion of oligopoly and monopoly power

through protection against imports;

Page 10: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

– Discrimination against all non-protected sectors (usually agriculture and resource based activities)

– Blockage of intra-industry specialization;– Impacts on income distribution– Balance of Payments impacts often adverse

(due to high demand for imported capital goods, and inputs; • and to the impact on the exchange rate

– Tendency to exhaust itself, early in small countries, later in large countries

Page 11: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

II. Export-Oriented Development Strategies

1. Basic Character of the Approach– Definition– Relationship with other aspects of External-

Orientation;– Objectives:

• Achieve accelerated and economically sustainable growth and development;

• Accelerate high-productivity employment creation

• Improve income levels

• Relieve balance of payments constraints on development

Page 12: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

2. Policy Tools or Methods:

– lower tariffs and non tariff barriers (NTBs) – cut other types of subsidization for old ISI

firms;– provide transitional support for export

activities or the "clusters" of economic activities around major export activities'

– let the exchange rate float, i.e. let the exchange rate realities prevail by permitting a market determined rate;

Page 13: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

3. Range of Approaches:– Complete "Apertura" – Generalized multilateral trade liberalization;– Regional trade liberalization;– Restricted liberalization in some sectors

only;– Some bilateral liberalization– "Export Processing Zones" – various combinations of the above.

Page 14: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

4. Origins of the Approach:

– regional integration experiences, esp. European Common Market;

– the experience of some major successful cases by the 1970s e.g. Japan, the Asian Tigers

– economic theory and argumentation– problems with ISI;

Page 15: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

5. Strengths:• Actual Historical Experiences:

– Highly successful: Asian Tigers; China; India; Malasia, HK, Taiwan, S. Korea, Chile

– Positive but debatable: Mexico, much of Latin America;• Vis-a –vis Disaster ISI cases: e.g. N. Korea

• Reduction of Economic Waste (improved efficiencies; rising productivity)

– improved economies of scale;– intra-industry specialization becomes possible;

• reduced discrimination against non-protected sectors;

• intensified dynamic effects of "learning through competition;"

• reduced monopoly-oligopoly power for domestic firms;

• reduced rent-seeking activities.

Page 16: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

• Positive and more sustainable effect on balance of payments;

• Increased foreign exchange earnings permit increased importation of capital goods and thence increased technological transfer;

• Higher productivity employment permits rising real wages and incomes, and thence improved family well-being and human development;

• Improved growth permits increased taxation and social expenditures and thence improved human development;

Page 17: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

6. Problems with the Approach:

• Short-term transitional costs of restructuring may make the approach unsustainable at first;

• Vested interests may block implementation;• Major gains in employment and wages may be

slow in coming;• May accelerate "resource stripping" if

environmental policies are weak and inappropriate;

• Some countries may not be in a position to benefit quickly if human resources, institutions and other policies are weak.

Page 18: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

The Industrialization Strategy Approach to Export-Oriented Strategic Approach

– Focus on government interventions to encourage exports, especially those with higher skill and technology content (industrial policy)

– Problem: without proper attention to incentives, industrial policies may be counterproductive too

– WTO rules and industrial policies – gray areas remain

– Problem: level of competence and political authority of governments to carry out policies effectively

Page 19: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

III. REGIONAL ECONOMIC INTEGRATION Among Developing

Countries

ECON 3508 June 15, 2011

Page 20: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Agenda

1. How does REGIONAL ECONOMIC INTEGRATION Work? Advantages

2. Potential Disadvantages

3. Forces promoting economic integration

4. Types of Integration Scheme

5. Experience with Economic Integration

6. Some Specific Integration Schemes

Page 21: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

The Historical Record:

Some comments on:1. The US common market after 1776;

Germany after 1870 unification

2. The European Common Market: from 6 members to 23 or so.

3. LAFTA; NAFTA; CAFTA

4. Chavez “Bolivarian Alternativ”e (?)

5. Asian, African and other integration attempts

Page 22: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

1. How does REGIONAL ECONOMIC INTEGRATION Work?

It makes possible productivity improvements,– i.e. it permits more output to be squeezed out of

given quantities of human, natural and capital resources. [HOW? See below]

It thus can contribute to – increasing real incomes in a country, thereby

permitting – improved human development by individuals and

families for themselves, and – by governments through increased taxation and social

expenditures (health, education, social security, infrastructure etc.)

Page 23: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

It can also promote economic development through– strengthening the tax base of governments so that– more can be invested in public goods or other

purposes directed more specifically at economic development.

 The economic expansion facilitated by economic

integration may make possible public investment in safeguarding the environment.

Does Economic Integration promote stability and peace among countries?

Evidence and argumentation pro:Evidence contra:

Page 24: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

How does Regional Economic Integration promote productivity improvements?

1. Permits Implementation of Economies of Scale and Consequent Resource Saving (human, natural and capital resources):– Larger plant size

– Larger enterprise size

– Increased length of “production runs”

– Increased intra-industry specialization

– Increased vertical specialization

– Increased agglomerative economies.

These are some of the “dynamic benefits” of improved rationalization of economic structure.

Page 25: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

2. Static Benefits: gains from comparative advantage from trade creation

3. Impacts of Increased Competition within the Integration Area:

– Stimulates domestic product quality improvement;

– Stimulates improvements in product quality and reductions in production costs.

4. Expanded Market Size can Promote Increased (and more efficient) Investment.

These gains can be greatest for small country partners

Page 26: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

5. Strengthened Ability for the Region to develop successful “clusters” of economic activities and thus to integrate and compete in the international economy

6. Strengthened Ability for the Region to Face External Competition for its own domestic markets.

7. Reversing the historic fragmentation of Asia Africa and L. Am.:Especially Africa: 55 countries, with small effective

market sizes; major logistic difficulties and historic divisions

Page 27: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

2. POTENTIAL DISADVANTAGES OF REGIONAL INTEGRATION

1. Costs of Transition to Larger Markets:Some industries or types of economic activity may

not be able to compete with imports.

The result is then labour displacement, economic dislocation, and unemployment.

Are these “costs” of economic integration borne by the workers and enterprises themselves, or does society share in their burden?

– enterprise and industry restructuring costs;

Page 28: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

2. Possible Longer Term Negative Impacts:– Loss of effective “clusters” of economic

activities for some regions or countries– consequent loss of economic activity and

employment; (e.g. the Maritime provinces in Canada?)

3. Trade diversion may harm some partners

What is “Trade Diversion?

Page 29: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

3. Forces behind the attempts to form larger economic communities:

Economic theory and argumentation Problems with ISI;

Other regional integration experiences, esp. the European Common Market “Demonstration

Effects”

Political arguments: • peace and stability and

• regional bargaining power

Page 30: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

4. Stages of Integration1. Specific Functional Cooperation

Agreement to cooperate for specific purposes

(watershed management; transport, energy….)

2. Free Trade Area (FTA);Lowering and elimination of trade barriers between two or more

countries; separate tariff structures for the rest of the world

2. Customs Union (CU)CU = FTA + Common External Tariff

3. Common Market (CM):Common Market = CU + Commonpolicy re Factor Mobility

(capital & labour) and other areas

4. Economic and Monetary Union (EMU):EMU = CM + Single Currency (Monetary & Exchange rate policy)

5. Political Union (PU)Political Union = EMU + Common foreign and security policy;

Common Central Government

Page 31: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Obstacles to Successful Integration

Achieving effective economic integration is complex and politically difficult. Why?

1. Vested interests of enterprise may object due to fear of competition from neighbors

2. Political or philosophical differences among neighboring countries

e.g. East African Community with Idi Amin, Nyrere and Kenyatta

Page 32: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

3. Trade Diversion may damage some partners and induce them to leave

4. Distributional Issues: fear that some countries gain disproportionately while others lose

5. Weaknesses in the supranational institutions

6. Infrastructural weaknesses prevent meaningful economic interaction

Page 33: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Some Experiences with Economic Integration: Africa

1. Early ambitious “Pan-Africanists” and modest gradualists;

2. Moderates unwilling to sacrifice national independence so soon after achieving it. A gradualist approach for some time, but with high aspirations

3. Major difficulties have hindered progress Antagonisms among countries

4. Logistic Obstacles: Infrastructure Gaps (see map)

5. Physical Magnitude of Integration Task (see map)

Page 34: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.
Page 35: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

African Economic Integration Schemes

1. Southern African Development Community (SADC)

2. East African Community (EAC)

3. Economic Community of West African States (ECOWAS)

4. Economic Community of Central African States (ECCAS)

5. Common Market for Eastern and Southern Africa (COMESA)

6. Arab Maghreb Union (UMA)

7. Southern Africa's Common Monetary Area (CMA)

8. African Economic Community, (AEC)

Page 36: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

African Intra-Bloc Exports as a Per Cent of Total Exports

Integration Scheme

1970 1980 1990 2000 2007

COMESA 9.1 6.1 6.6 6.0 4.7

EAC 16.9 8.9 13.3 17.6 20.4

ECCAS 2.2 1.4 1.4 1.0 0.6

ECOWAS 2.9 10.1 7.8 10.8 9.4

SADC 1.4 0.3 2.8 12.2 15.2

Source: World Bank, World Development Indicators, 2009. p. 349

Page 37: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

6. Some African Integration Schemes

o Originally SADCC; Founded 1980; o Defensive economic organization vs. aparteid S.

Africao Re-founded in 1992 with S. African presenceo Objective: a full common marketo 200 million people; GDP +/- 200 milliono Dominated by S. Africao Successful expansion of intra-regional trade

A. Southern African Development Community (SADC)

Page 38: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Latin American Experience with Economic Integration

Early Beginnings;

Limited Early Achievements

Current Schemes

Prospects

Page 39: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Asociación Latinoamericana de

Integración

Page 40: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

ALBA

Page 41: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Central American Common Market

Page 42: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Grupo Andino

Page 43: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Caribbean Associations

Page 44: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Mercosur

Page 45: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

ASEAN

Page 46: Trade Policies for Development: I.Import Substitution. II.Export Promotion III.Regional Economic Integration See text, Chapter 12, Sections 12.5, 12.6.

Conclusion:Numerous attempted integration

schemes;Mixed resultsSome schemes excessively ambitious,

falter in implementationDifficulties in establishing effective

integration movements are immenseSuccess re integration is vital for Africa’s

and Latin America’s Future