Bienvenido “Nonoy” Oplas Jr. Minimal Government Thinkers, Inc. Presentation at the Development Studies Class De La Salle University (DLSU), Manila 04 December 2014 lecture series on Trade and Development in the Philippines
Bienvenido “Nonoy” Oplas Jr. Minimal Government Thinkers, Inc.
Presentation at the Development Studies Class De La Salle University (DLSU), Manila
04 December 2014
lecture series on Trade and Development
in the Philippines
I. Trade Theory: David Ricardo, FPE, CPE,
Consumer Surplus
II. Trade Data
III. Unilateral Liberalization
IV. Conclusions
A country that trades for products it can get at lower cost from
another country is better off than if it had made the products at
home.
Even if a country has absolute advantage (cheaper cost, etc.) in
producing two or more goods, it is better off if it concentrates on
producing that good/s where its efficiency is highest, and
buy/import from another country that good/s where efficiency is
not so high. Micro example: A consultant or academic who is fast in research and writing, fast in laundry, fast in driving. Still, he woulld get the service of a laundry shop or manual laundry, get a driver, and concentrate on being a writer.
Substitute prices of goods with prices of labor, capital, technology, other factors of production, in the above graphs
Free mobility of people and services across countries and continents will result in FPE over the long term, all other things being equal.
Countries with expensive labor due to labor deficit and low population will experience decline in labor cost once additional and competing labor of similar skills from abroad come in.
And countries with cheap labor due to high supply of workers, high population, will experience increase in labor cost once the excess labor goes out and work abroad.
Commodities that are
otherwise cheap
become (a) expensive
due to protectionism
and government tariff
and taxes, (b) supply
and choices decline
In 1989, only 9 out of the world’s top 20 biggest ports were in Asia… 20 years after, 15 of the top 20 were in Asia, including that in Dubai. Economies with larger consumers and producers, with freer trade policy, benefit.
From a “US-centric” to Asian-focused exports Source: NSO
Price/kilo
P1
P2
P3 Full protectionist price
Smuggling price
Free trade price
P3 > P2 > P1
Why make cheap imported rice become expensive? Rice export powerhouses Vietnam and Thailand have natural advantages that are not present in the Philippines: (a) huge, generally flat rice land, about 10 M hectares each, vs. the PH’s 4.5 M hectares; (b) contiguous land irrigated almost whole year by Mekong River and other river systems, ours is scattered in an archipelago; and (c) they have only 1 or 2 typhoons a year, we have about 20 on average. Crop damage there is lower.
Source: Richard Baldwin, 'Unilateral Trade Liberalization", Center for Trade and Economic Integration, CTEI 2011-04, http://graduateinstitute.ch/.../working.../CTEI-2011-04.pdf
Agri products, economies in general are more protectionist. Stark
cases are Korea, Turkey, Egypt and Thailand.
IV. Concluding Notes
• Free trade means free enterprises, free individuals. Restrictions
to trade is restricting potential economic development.
• Governments should reduce restrictions on people and goods
mobility. (a) reduceg tariffs and non-tariff barriers (NTBs) like
customs bureaucracies; (b) simplify visa requirements and
issuance, reduce the cost of migration; (c) focus on rule of law
function, go after real criminals and not ordinary migrants who
only wish to improve their condition through hard work.
• Smuggling can be beneficial to consumers in the form of
lower prices compared to protectionist prices. But this expands
corruption in government. No to protectionism, no need for
smuggling, just abolish trade restrictions.
• Unilateral liberalization – no need for or minimum of negotiations, just open the borders at zero tariff – is pro-development. No regulations except bringing in or out of guns, bombs, poisonous substances, other products that are threat to public health.
• Protectionist PH constitution should be amended to allow more foreign investments and competition.