Transcript Trade Forum

Trade as a Key to Economic Growth and
Development
A Keynote Address
Peter Drysdale
Australian National University
MFT and UNDP Trade Forum, Pyongyang, DPR Korea,
4-5 May 2005
Background
 trade a key engine of growth
 no country developed without international
integration
 high living standards require openness
 but no simple relationship between trade and
growth
Gains from Trade
 Smith, Ricardo and Mill and comparative
advantage
 three channels of trade gains for growth
 response to relative price differences
 leads to gains from more efficient resource use
Origins of Comparative
Advantage
 role of relative factor endowments
 H-O and other theories
 capital: labour ratio changes over time with
capital accumulation
 trade transition to high growth
Dynamic Gains from Trade
 trade transfers knowledge and technology
 trade delivers cheap and high quality capital
goods
 trade promotes industrial upgrading
Evidence




trade policy environment
trade leads income growth
growth of trade in manufactures
experience of China and Australia with trade
liberalisation
World Trade in Manufactures,
1950 -2003
800
700
World Manufacturing Exports
600
500
400
300
World GDP
200
100
0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000
Source: World Trade Organisation
China's GDP and Trade
Dependence, 1980-2003
1,600,000
70
1,400,000
60
1,200,000
50
1,000,000
800,000
40
600,000
30
400,000
20
200,000
0
10
2004
2003
2002
2001
2000
1999
Trade Dependence(Total Trade/GDP %)
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
GDP (constant 1995 US$ million)
Average Tariff Rate (%)
Australia’s GDP and Trade
Dependence, 1980-2003
40
Per cent
Per cent
35
50
45
Trade share of nominal GDP (RHS)
30
40
25
35
20
30
15
25
10
20
Effective rate of assistance (LHS)
5
0
1970-71
15
10
1974-75
1978-79
1982-83
1986-87
1990-91
1994-95
1998-99
2002-03
Empirical Studies
 econometric studies of openness and growth
 openness premium to growth
 methodological and other questions
East Asian Experience

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East Asia as exemplar of open growth
question of state intervention
pattern of catching-up industrially
labour-intensive export specialisation
GDP and Trade Dependence for
Eastern Asian Economies
3000
120
2500
110
2000
100
1500
90
1000
80
500
0
70
2002
Total Trade/GDP (%)
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
GDP (Current US$ billion)
Average Tariff Rates by Region
Asia’s Share in Labour
Intensive Exports 1970-2000
% of World Labour Intensive Export
25
NIEs
20
15
Japan
10
China
ASEAN
5
India
0
70
75
80
85
Year
90
95
00
Asia’s Share in Capital
Intensive Exports 1970-2000
% of World Capital Intensive Export
25
20
Japan
15
10
NIEs
5
China
India
0
70
75
80
85
Year
90
95
ASEAN
00
Asia’s Share in Technology
Intensive Exports 1970-2000
% of World Technology Intensive Export
16
Japan
14
12
10
8
NIEs
6
4
China
ASEAN
2
India
0
70
75
80
85
Year
90
95
00
Foreign Direct Investment
 source of technology as well as capital
 role in re-locating production and access to
industrial markets
 requirements policy environment
Other Policies and Institutions
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market economy institutions and the state
corruption and governance
macro management and financial market
education
Conclusion
 openness induces the institutional change
 openness central to achieving higher welfare
 practical issues but principles relevant to all
economies, including DPR Korea