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Trade and Development

This document discusses theories of international trade and their implications for less developed countries (LDCs). It summarizes that while free trade theory promises benefits like growth, globalization also risks exploitation and dependency for LDCs. The Prebisch-Singer thesis argues commodity prices will decline over time hurting LDC export earnings. Neoclassical models have limitations like assuming full employment that don't capture LDC realities. Overall, the document concludes that trade outcomes for LDCs depend on circumstances and they may need regional cooperation or concessions from developed nations to fully benefit.

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177 views13 pages

Trade and Development

This document discusses theories of international trade and their implications for less developed countries (LDCs). It summarizes that while free trade theory promises benefits like growth, globalization also risks exploitation and dependency for LDCs. The Prebisch-Singer thesis argues commodity prices will decline over time hurting LDC export earnings. Neoclassical models have limitations like assuming full employment that don't capture LDC realities. Overall, the document concludes that trade outcomes for LDCs depend on circumstances and they may need regional cooperation or concessions from developed nations to fully benefit.

Uploaded by

D Attitude Kid
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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Trade Theory and the

Development Experience
Overview
• Globalization
• Trade and Development
• Theories of International Trade
• Limitations of Free-trade Theory for
LDCs
Globalization
• Globalization refers to the increased
openness of economies international trade,
financial flows and direct foreign investment.
• Promise of globalization: expanded
opportunities, rapid growth of knowledge and
innovation, greater interdependence,
convergence of living standards
• Traps of globalization: Exploitations by
developed economies, strengthened patterns
of dependency
Trade and Development
• How does international trade affect economic
growth?
• How does trade alter the distribution of
income?
• How can trade promote development?
• Can LDCs determine how much they trade?
• Is an outward-looking or an inward-looking
trade policy best?
Key Issues for LDCs
• Many LDCs rely heavily on exports (usually
primary products)
• Many LDCs also rely heavily on imports
(typically of machinery, capital goods,
intermediate producer goods, and consumer
products)
• Importance of exports to different developing
nations
• Demand elasticities and export earnings
instability
Theories of International
Trade
Terms of Trade and Prebisch-Singer Thesis
– Total export earnings depend on:
• Total volume of exports sold AND
• Price paid for exports(Commodities terms of trade)
– Prebisch and Singer argue that export prices fall
over time, so LDCs lose revenue unless they can
continually increase export volumes .
– There will continue to be decline in prices of
primary commodities resulting in transfer of
income from LDCs to Developed Nations.
– Prebisch and Singer think LDCs need to avoid a
dependence on primary exports
Trade Theory (cont’d)

• The principle of comparative


advantage(Traditional theory)
• Relative factor endowments and
international specialization: the
Neoclassical model
• Trade theory and development:
Increases world’s output, Consumption
capacities, access to scarce resources,
world markets, Income equalities etc
Limitations of the Neoclassical Model
• Fixed resources, full employment, and
international factor immobility(North and
South Model of Unequal trade, Vent for
surplus theory of trade and Multinational
Corporations)
• Fixed, freely available technology and
consumer sovereignty(Synthetic
Substitutes)
• Internal factor mobility and perfect
competition (Monopolistic and oligopolistic
market controls)
• Governmental non-interference in trade
• Balanced trade and international price
adjustments
• Trade gains accruing to nationals
North South Model

• Initial high Resource Endowments generate


economies in Manufacturing output and
higher profits
• Leads to monopoly power further leading to
capital accumulation.
• Income elasticities of demand
• Capital flight will further add to the problem
Conclusions
• Trade can lead to rapid economic growth
under some circumstances
• Trade seems to reinforce existing income
inequalities
• Trade can benefit LDCs if they can extract
trade concessions from developed countries
• LDCs generally must trade
• Regional cooperation may help LDCs

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