International trade and the developing countries

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International trade and the developing countries

• Chapter 18

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Developing countries
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Extend of World Poverty
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I'm an economist. I've been taught to think in
terms of per capita income. But to many people,
that's not concrete enough. When you say
development, what is it all about? Therefore, by
telling the world that development is about
mothers not dying when they give birth, about
children surviving their first few years, about
getting every child into primary school, making
sure that people have access to clean water where
they live, you have concrete ways of framing the
objectives for development. When the Secretary
General nominated me and I got this job, I got
emails from students all over the world saying
It's great that you are going to work for the
Millennium Development Goals. I don't think I
would have gotten emails Please make sure per
capita income grows by four percent. You need a
vision to make it happen. UNDP Administrator
Kemal DervisThe 5th Annual Global Philanthropy
Forum Conference, Washington DC, 4 April 2006
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What are reasonable goals toward alleviating
poverty?

• Millennium Development Goals
• http//www.undp.org/mdg/basics.shtml
• Target number 1 http//www.undp.org/mdg/tracking_
  targetlist.shtml

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UN Millennium Development Goalshttp//www.npr.org
/templates/story/story.php?storyId1893676

• Goal 1 Eradicate extreme poverty and hunger
• Goal 2 Achieve universal primary education
• Goal 3 Promote gender equality and empower women
  
• Goal 4 Reduce child mortality
• Goal 5 Improve maternal health
• Goal 6 Combat HIV/AIDS, malaria and other
  diseases
• Goal 7 Ensure environmental sustainability
• Goal 8 Develop a Global Partnership for
  Development

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What is the relation between trade and
development?

• Not and end but a means to an end
• Four facts about international trade in the
  least-developed countries that DO NOT necessarily
  reflect current realities

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Trade/GDP ratios are low

• 43 for 97-98 data same as high-income countries
• Growth of share increased by 25 but it is slower
  than in other regions
• Imports had a 26 share
• Exports had a 17 share

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All LDC export primary commodities

• Out of 49 countries, about 18 exported
  manufactures or services and 4 were oil exporters
• Table 2

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Table 2
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Marginalization from global trade flows

• Marginalization was limited to non-fuel, primary
  product exporters
• Exporters of oil, manufactures, and services did
  not experience the same loss of market share
• Positive trends overshadow by the extremely small
  portion of world trade accounted for by the least
  developed countries.

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LDC have closed regimes

• Many countries have made substantial progress
  toward opening their economies WITHOUT
  experiencing significant poverty reduction
• Declines in poverty occurred in the countries
  that took a more moderate approach to
  liberalization

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Potential trade issues facing developing countries

• Export instability
• Focus on export prices and its fluctuations
• High degree of openness brings more fluctuations
  in income
• Inelastic supply curve
• Inelastic demand curve
• Commodity concentration

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Country export dependence
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Potential trade issues facing developing countries

• Long-term deterioration of the terms of trade
• Prebisch-Singer hypothesis

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The terms of trade and the Prebisch-Singer thesis

• Total export earnings depend on
• total volume of exports sold AND
• price paid for exports
• Prebisch and Singer argue that export prices fall
  over time, so LDCs lose revenue unless they can
  continually increase export volumes
• Prebisch and Singer think LDCs need to avoid a
  dependence on primary exports

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Policies for export instability

• Policies to stabilize fluctuating prices
• International buffer stock agreements
• International export quota agreements
• Compensatory financing

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Policies for declining terms of trade

• Export diversification
• Export cartels
• Import and export restrictions
• Regional integration
• Import-substitution industrialization (Changs
  argument)