Transcript Chapter 17
Norton Media Library Chapter 17 Primary Exports Dwight H. Perkins Steven Radelet David L. Lindauer Primary Exports • international trade is one of the most powerful forces affecting the process of and economic development • influences economic growth, income distribution, use of natural resources, economic and political relations with the world • provides access to new markets, new opportunities, wider choices, competitive prices • allows low-income countries to import machines and technology and facilitates flow of knowledge and information • Export-led growth • WTO • Bilateral trade agreements Export characteristics of developing countries • exports of developing countries: oil and petroleum products, minerals, food and agriculture,,,, • countries tend to export products based on their own particular endowments of the basic factors of production (L,L,K) • i.e labor intensive • import products that rely on factors of production relatively scarce in their countries • almost all developing countries import machines and capital equipments and technology products • many developing countries are highly dependent on one or few primary commodities in their export earnings • the importance of diversified economic base Comparative Advantage • A country has a comparative advantage in producing (X) if it can produce (X) at lower cost than anyone else. • Having a comparative advantage is not the same as being the best at something. In fact, someone can be completely unskilled at doing something, yet still have a comparative advantage at doing it! How can that happen? • comparative advantage refers to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. • Even if one country is more efficient in the production of all goods (absolute advantage in all goods) than the other, both countries will still gain by trading with each other, as long as they have different relative efficiencies • comparative advantage has important implications: 1. any country can increase its welfare by trading 2. the smaller the country the greater it gains from trade 3. export goods that are most intensively and import the scarce • before trade: produce and consume at (A) • with trade: produce at (B) and increase consumption of both to (C) • C is on higher IC • Different relative prices means an opportunity to improve welfare through trade • with trade: produce more at higher world prices • import more at lower world prices K-intensive well endowed with L and L Different relative prices L-intensive 13 14 Primary Exports as an Engine of Growth 1. Improved Factor Utilization • primary-export-led growth can drive an economy to: 1. use more of the available factors of production 2. use those factors more efficiently 2. Expanded Factor Endowments • lead to accumulation of additional factors of production (K, L) through FDI, S, skills, • i.e. international oil companies in developing countries 3. Linkage Effect • Stimulating other sectors of the economy Barriers to primary Export Led Growth 1. Sluggish demand growth 2. Declining terms of trade: the value of a country's exports to that of its imports. If a country's (TOT) is less than 100%, there is more capital going out (to buy imports) than there is coming in. If greater than 100%: the country is accumulating capital (more money is coming in from exports). 3. Fluctuating export earnings 4. Ineffective linkages 5. Rent seeking and corruption 6. Dutch Disease