TRADE IDENTIFIKASI O L E H :

POLCY INTRANSAKSI
YANG DILARANG MUHIMAH AFIFATUN NABILA

DEVELOPING (1118086000A0092)
MUHAMMAD FADHEL RAHMAN
(11180860000092)

COUNTRIES
THERE IS GREAT DIVERSITY AMONG THE DEVELOPING COUNTRIES IN
TERMS OF THEIR INCOME PER CAPITA.
 THE KEY TO ECONOMIC DEVELOPMENT WAS CREATION OF A
STRONG MANUFACTORING SECTOR
 THE MOST IMPORTANT ECONOMIC – INFACT INDUSTRI
ARGUMENT
THE INFACT INDUSTRY
ARGUMENT
 DEVELOPING COUNTRIES HAVE A POTENTIAL COMPARATIVE
ADVANTAGE IN MANUFACTURING
 TO USE TARIFFS OR IMPORT QUOTAS AS TEMPORARY
MEASURES TO GET INDUSTRIALIZATION STARTED

EXAMPLE : THE US AND GERMANY HAD HIGH TARIFF RATES ON

MANUFACTURING IN THE 19th CENTURY. WHILE JAPAN HAD
EXTENSIVE IMPORT CONTROLS UNTIL THE 1970s
 PROBLEMS WITH THE INFACT
INDUSTRY ARGUMENT

 IT IS NOT ALWAYS GOOD TO TRY TO MOVE TODAY INTO THE

INDUSTRIES THAT WILL HAVE A COMPARATIVE ADVANTAGE IN
THE FUTURE.

EXAMPLE : IN THE 1980s SOUTH KOREA BECAME AN EXPORTER OF

AUTOMOBILES, WHERE AS IN THE 1960s ITS CAPITAL AND SKILLED
LABOR WERE STILL VERY SCARCE

• PROTECTING MANUFACTURING DOES NO GOOD UNLESS THE

PROTECTION IT SELF HELPS MAKE INDUSTRY COMPETITIVE.

EXAMPLE : PAKISTAN AND INDIA HAVE PROTECTED THEIR HEAVY

MANUFACTURING SECTORS FOR DECADES AND HAVE RECENTLY
BEGUN TO DEVELOP SIGNIFICANT EXPORTS OF LIGHT
MANUFACTURES LIKE TEXTILES
MARKET FAILURE JUSTIFICATIONS
FOR INFANT INDUSTRY
PROTECTION

TWO MARKET FAILURES ARE IDENTIFIED AS REASONS WHY

INFANT INDUSTRY PROTECTION MAY BE A GOOD IDEA :

1. IMPERFECT CAPITAL MARKETS JUSTIFICATIONS

2. APPROPRIABILITY ARGUMENT
1. IMPERFECT CAPITAL MARKETS
JUSTIFICATIONS
 BECAUSE OF POORLY WORKING FINANCIAL LAWS AND MARKETS
(AND MORE GENERALLY, A LACK OF PROPERTY RIGHTS), FIRMS
CANNOT OR DO NOT SAVE AND BORROW TO INVEST
SUFFICIENTLY IN THEIR PRODUCTION PROCESSES.

 IF CREATING BETTER FUNCTIONING MARKETS AND ENFORCING

LAWS IS NOT FEASIBLE, THE HIGH TARIFFS WOULD BE A SECOND
BEST POLICY TO INCREASE PROFITS IN NEW INDUSTRIES, LEADING
TO MORE RAPUD GROWTH.
2. APPROPRIABILITY ARGUMENT

 FIRMS MAY NOT BE ABLE TO PRIVATELY APPROPRIATE THE

BENEFITS OF THEIR INVESTMENT IN NEW INDUSTRIES BECAUSE
THOSE BENEFITS ARE PUBLIC GOODS.

 THE KNOWLEDGE CREATED WHEN STARTING AN INDUSTRY MAY

NOT BE APPROPRIABLE (MAY BE A PUBLIC GOOD) BECAUSE OF A
LACK PROPERTY RIGHTS.

 IF ESTABLISHING A SYSTEM OF PROPERTY RIGHTS IS NOT FEASIBLE.

THEN HIGH TARIFFS WOULD BE A SECOND BEST POLICY TO
ENCOURAGE GROWTH IN NEW INDUSTRIES
 PROMOTING MANUFACTURING
THROUGH PROTECTION

 IMPORT SUBSTITUTING INDUSTRIALIZATION

THE STRATEGY OF ENCOURAGING DOMESTIC INDUSTRY BY

LIMITING IMPORTS OF MANUFACTURED GOODS
(MANY LESS DEVELOPED COUNTRIES HAVE PURSUED THIS
STRATEGY)

• HAS IMPORT SUBSTITUTING INDUSTRIALIZATION PROMOTED

ECONOMIC DEVELOPMENT

MANY ECONOMISTS ARE NOW HARSHLY CRITICAL OF THE

RESULTS OF IMPORT SUBSTITUTION, ARGUTING THAT IT HAS
FOSTERED HIGH COST, INEFFICIENT PRODUCTION
 WHY NOT ENCOURAGE BOTH IMPORT SUBSTITUTION AND
EXPORTS?

- A TARIFF THAT RECUDES IMPORTS ALSO NECESSARILY

REDUCES EXPORTS
- UNTIL THE 1970a MANY DEVELOPING COUNTRIES WERE
SKEPTICAL ABOUT THE POSSIBILITY OF EXPORTING
MANUFACTURED GOODS
- IN MANY CASES, IMPORT SUBSTITUTING INDUSTRIALIZATION
POLICIES DOVETAILED NATURALLY WITH EXISTING POLITICAL
BIASES.
 RESULT OF FAVORING MANUFACTURING :
IMPORT SUBSTITUTING INDUSTRIALIZATION

 MANY COUNTRIES THAT HAVE PURSUED IMPORT SUBSTITUTION HAVE NOT SHOWN
ANY SIGNS OF CATCHING UP WITH THE ADVANCED COUNTRIES
EXAMPLE: IN INDIA, AFTER 20 YEARS OF ECONOMIC PLANS BETWEEN THE EARLY 1950s
AND THE EARLY 1970s, ITS PER CAPITA INCOME WAS ONLY A FEW PERCENT HIGHER THAN
BEFORE

 WHY DIDN’T IMPORT SUBSTITUTING INDUSTRIALIZATION WORK THE WAY IT WAS

SUPPOSED TO?
THE INFANT INDUSTRY ARGUMENT WAS NOT AS UNIVERSALLY VALID AS MANY PEOPLE
ASSUMED

• IMPORT SUBSTITUTING INDUSTRIALIZATION GENERATED

- HIGH RATES OF EFFECTIVE PROTECTION
- INEFFICIENT SCALE OF PRODUCTION
- HIGHER INCOME INEQUALITY AND UNEMPLOYMENT
RESULT OF FAVORING MANUFACTURING :
IMPORT SUBSTITUTING INDUSTRIALIZATION
 TRADE LIBERALIZATION

 SOME LOW AND MIDDLE INCOME COUNTRIES THAT

HAD RELATIVELY FREE TRADE HAD HIGHER AVERAGE
ECONOMIC GROWTH THAN THOSE THAT FOLLOWED
IMPORT.

 BY THE MID 1980s , MANY GOVERMENTS HAD LOST

FAITH IN IMPORT SUBSTITUTION AND BEGAN TO
LIBERALIZE TRADE.

(DRAMATIC FALL IN TARIFF RATES IN INDIA AND BBRAZIL,

AND LESS DRASTIC REDUCTIONS IN MANY OTHER
DEVELOPING COUNTRIES)
 TRADE LIBERALIZATION
(CONT.)

 TRADE LIBERALIZATION IN DEVELOPING COUNTRIES

OCCURRED A LONG WITH A DRAMATIC INCREASE IN THE
VOLUME OF TRADE
1. THE SHARE OF TRADE IN GDP HAS TRIPLED OVER 1970-1988
WITH MOST OF THE GROWTH HAPPENING AFTER 1985
2. THE SHARE OF MANUFACTURED GOODS IN DEVELOPING
COUNTRY EXPORTS SURGED, COMING TO DOMINATE THE
EXPORTS OF TTHE BIGGEST DEVELOPING ECONOMIES.

 A NUMBER OF DEVELOPING COUNTRIES HAVE ACHIEVED

EXTRAORDINARY GROWTH WHILE BECOMING MORE, NOT
LESS, OPEN TO TRADE.
 TRADE LIBERALIZATION (CONT.)

HAS TRADE LIBERALIZATION PROMMOTED DEVELOPMENT?

THE EVIDENCE IS MIXED.

 GROWTH RATES IN BRAZIL AND OTHER LATIN AMERICAN COUNTRIES HAVE BEEN SLOWER SINCE
TRADE LIBERALIZATION THAN THEY WERE HAVE BEEN SLOWER SINCE TRADE LIBERALIZATION
THAN THEY WERE DURING IMPORT SUBSTITUTING INDUSTRIALIZATION
BUT UNSTABLE MACROECONOMIC POLICIES AND FINANCIAL CRISES CONTRIBUTED TO SLOWER
GROWTH SINCE THE 1980s

• OTHER COUNTRIES LIKE INDIA HAVE GROWN RAPIDLY SINCE LIBERALIZING TRADE IN THE 1980s,
BUT IT IS UNCLEAR TO WHAT DEGREE LIBERALIZED TRADE CONTRIBUTED TO GROWTH

• SOME ECONOMISTS ALSO ARGUE THAT TRADE LIBERALIZATION HAS CONTRIBUTED TO INCOME
INEQUALITY, AS THE HECKSCHER OHLIN MODEL PREDICTS
 TRADE AND GROWTH :
TAKEOFF IN ASIA

 INSTEAD OF IMPORT SUBSTITUTION, SEVERAL

COUNTRIES IN EAST ASIA ADOPTED TRADE
POLICIES THAT PROMOTED EXPORTS IN TARGETED
INDUSTRIES.

.
JAPAN, HONKONG TAIWAN, SOUTH KOREA,
SINGAPORE, MALAYSIA, THAILAND, INDONESIA, AND
CHINA HAVE EXPERIENCED RAPID GROWTH IN
VARIOUS EXPORT SECTORS AND RAPID ECONOMIC
GROWTH IN GENERAL
 TRADE AND GROWTH :
TAKEOFF IN ASIA (CONT.)

 THESE HIGH PERFOMANCE ASIAN ECONOMIES

GENERATED A HIGH VLUME OF EXPORTS AND IMPORTS
RELATIVE TO TOTAL PRODUCTION

 THEIR POLICY REFORMS WERE FOLLOWED BY A LARGE

INCREASE IN OPENNESS, AS MEASURED BY THEIR SHARE
OF EXPORTS IN GDP.

 SO IT IS POSSIBLE TO DEVELOP THROUGH EXPORT

ORIENTED GROWTH

 HOWEVER, LATIN AMERICAN RESULTS SUGGEST THAT

OTHER FACTORS MUST HAVE PLAYED A CRUCIAL ROLE IN
THE ASIAN MIRACLE
 TRADE AND GROWTH :
TAKEOFF IN ASIA (CONT.)

IT’S UNCLEAR IF THE HIGH VOLUME OF EXPORTS AND

IMPORTS CAUSED RAPID ECONOMIC GROWTH OR WAS
MERELY CORRELATED WITH RAPID ECONOMIC GROWTH.

 HIGH SAVING AND INVESTMENT RATES COULD HAVE

LED TO BOTH RAPID ECONOMIC GROWTH IN GENERAL
AND RAPID ECONOMIC GROWTH IN EXPORT SECTORS

 RAPID GROWTH IN EDUCATION LED TO HIGH LITERACY

AND NUMERACY RATES IMPORTANT FOR A PRODUCTIVE
LABOR FORCE

 THESE NATIONS ALSO UNDERTOOK OTHER ECONOMIC

REFORMS
 IDENTIFIKASI
TERIMATRANSAKSI
YANG DILARANG
KASIH. ADA PERTANYAAN?