ECONOMICS 3150B Lecture 20 December 2

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ECONOMICS 3150BLecture 20December 2
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Developing Countries

• Stimulating growth
• Import substitution
• X-inefficiency absence of competition
• Technological backwardness
• Stagnant productivity
• Political cronyism
• Limited markets
• Economies of scale internal and external
• Trade liberalization
• Increase in volume of trade and shift towards
  exports of manufactured products
• Mixed results growth for some countries
  accelerated while for others, growth slowed down

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Developing Countries

• East Asia experience
• Rapid growth starting in 1960s in Hong Kong,
  Taiwan, South Korea, Singapore
• Rapid growth starting in 1980s in Malaysia,
  Thailand, Indonesia, China
• Prevalence of trade protection in all countries,
  except Hong Kong which became part of China in
  1997
• Distinctions between indigenous entrepreneurs and
  inward investments by MNEs
• Taiwan, South Korea, Singapore indigenous
  entrepreneurs
• China mix of two
• Role of government political freedom, economic
  freedom, education policies

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Developing Countries

• Africa
• Scarcity of capital, skilled labour
• Political instability, insecure property rights,
  corruption
• Strong positive correlation between GDP per
  capita and inverse index of corruption
• Debt
• Bonos recommendation debt forgiveness by rich
  countries
• What was the debt used for? Will forgiveness
  contribute to correcting underlying structural
  problems?
• Resource wealth oil, minerals
• Squandered through theft and military spending
• Compare to Emirates long-term visions even with
  limited democracy

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Developing Countries

• Russia
• Collapse of Communist state followed by anarchy
  no rules, no enforcement
• Cannot graft Western market onto country with no
  history with such markets
• Markets defined by rules
• Putin
• Introduced rules and enforcement
• Benefited from high oil and gas prices
• Long-term plan to turn around the economy
• Importance of democracy?

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Developing Countries

• Dependence on external sources of capital
• Herd effects, contagion effects
• Instability of short-term capital flows
• Asian crisis in 1997 Russia crisis throughout
  most of 1990s Argentina in 1980s and 1990s
• China almost 2 trillion in reserves
• Sovereign funds and ability to avoid most of
  fallout from sub-prime mortgage fiasco in US
• Germany considering law to restrict takeovers by
  sovereign funds (particularly from China, Russia
  and Middle East) that may jeopardize Germanys
  public order and safety

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Developing Countries

• Doha Round
• Rich vs. poor countries
• Importance of eliminating trade barriers for
  agricultural products
• Rich countries spend US 260 B in support of
  agriculture and farmers
• Agriculture accounts for 2 or less of economies
  of rich countries 5.5 in Brazil, 11.3 in
  China, 17.6 in India and Nigeria, 32 in Sudan
• Tradeoff reduction of tariffs on manufactured
  products by poor countries
• Tariffs an important source of revenues for
  governments in many poor countries

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Developing Countries

• Doha Round
• No deal at this time because of conflicts between
  US and China and India, and internal
  disagreements within the EU
• No re-start of negotiations until late 2009/early
  2010 US politics
• Little interest by business
• Increased complexity
• 152 countries participating
• Consensus building difficult
• India, Brazil and China more important
  participants

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Developing Countries

• Global warming
• Canada and US want India and China to be subject
  to same emissions targets
• Unfair trade advantage if developing countries
  are excluded
• Inability to complete Doha Round after 7 years
  suggests that reaching global accord on global
  warming unlikely