Developing nations and trade. Dependent on developed countries Export markets Source of imports Primary product exports Agricultural goods, raw materials Labor-intensive manufactures Ladder metaphor “Flying geese” pattern/export-led growth JAPAN
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Developing nations and trade
Major export % of total exports
Countryproduct 2002 2005
Mauritania Iron ore5636
Tariff protection in agriculture is higher than in manufactures.
Average MFN Tariffs in 1997–1999 (Unweighted in Percent)
Developed countries often subsidize agricultural exports
Tariffs are relatively high on labor-intensive manufactures.
Are gains from trade fairly distributed ?
Unstable export markets
inelastic supply and inelastic demand
violent price fluctuations
Worsening terms of trade as incomes grow(?)
Income elasiticities of demand
Primary Goods Trap
Average Annual Growth in Real Income per Capita (%)
Source: David Dollar and Aart Kraay, Trade, Growth, and Poverty, World Bank Development Research Group, 2001.
Growth strategies: case studies
Sharp devaluation in 1994
Wage and price controls
Competitive Advantage Dramatic Growth
FDI inflow Growth reinforced
Heavy state role in economy (legacy of central planning) issues of fairness
Mantra of the 1990s:
Washington consensus – Market Fundamentalism:
1. Fiscal policy discipline;
2. Redirect public spending away from subsidies/toward pro-growth, pro-poor services (education, health, infrastructure);
3. Tax reform: broaden tax base/ moderate marginal tax rates;
4. Market determinedinterest rates: positive (but moderate) real rates;
5. Competitive exchange rates: neither fixed nor free-floating;
7. Facilitate foreign direct investment;
8. Privatizestate enterprises;
9. Deregulate… except oversight of financial institutions; and,
10. Assure legal security for property rights.
The Santiago Consensus, 2007
4 Efficient Taxes
Macro Economic Management
The Role of the State and the Private Sector
Infrastructure and Energy
5 Infrastructure Investment
The Labour Market
3 R&D Investment