PSCI 4356- Final Exam Guide - Comprehensive Notes for the exam ( 34 pages long!)

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4 Dec 2017
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UT-Dallas
PSCI 4356
FINAL EXAM
STUDY GUIDE
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Trade and Growth
If trade is optimal and economists are right, it should be a good tool for countries trying to grow
economies
Developing countries look to trade policy to control their growth
There are a few different ways to approach trade policy
Import Substitution Industrialization
Remember how most colonies looked like
Focused on export of raw materials and import of manufactured materials
Transportation routes weren't geared around population centers, focused where raw materials
were
From the mines or plantations to the ports
Not a good setting for industrialization
1930s
Smoot-Hawley act wasn't different from the response around the world
Lots of tariffs to try to move to autarky for economic development
1940s
Many Latin American countries continued these models as a conscious choice
If they could industrialize their own economy, they could remove tariffs and compete
Nationalist manufacturers, small businesses, and some intellectuals all pushed to reduce
competition
Key to economic development was creation of a strong manufacturing sector
Key to industrialization was domestic investment
Economic Dualism
Modern dynamic sectors and traditional stagnant sectors
Workers in modern sectors make high wages
Capital earns lower returns in industrial sector
Persistent urban unemployment
Terms of Trade Argument - The way the world works
Why are these countries having a hard time competing in the global market?
Over time the stuff they were importing were rising in price but raw materials were getting
cheaper
Primary commodity exporters saw prices fall slightly while manufactured goods rose
Infant industry argument clearly underpins the ideas of ISI
Components of ISI
High barriers to trade
Government gives subsidies and incentives to industry
State ownership of much of the economy
ISI Successes
Worked in certain countries, but not everywhere
Brazil achieved 9% GDP growth between 1965-1980
Imports went from 60% to 10% between 1949 to 1964
In large economies it can be effective, need a large domestic market
ISI Limitations
Deepening of ISI meant intermediate goods, need to make all the other parts
Highly capital intensive
Lots of foreign borrowing to keep up this influx of foreign capital
These infant industries had a hard time finally competing on the global market
The End of ISI
Debt crisis reduces willingness to loan to ISI countries
Brazil in the 1980s
Imports were only 5% of GDP, inflation was 260%
Starting in the 90s we see the growth of trade liberalization
Brazil Tariffs fell from 78% to 14%
Foreign portfolio investment increases dramatically
Export-Led Industrialization
Instead of trying to protect from the global economy, ELI emphasizes world markets
Attempt to find narrow and profitable sectors and encouraging growth
Asian Tigers
South Korea
• Taiwan
• Singapore
Hong Kong
For four decades all countries averaged GDP growth 6-8% a year
Poverty in these countries fell during this time period
Trade Strategies
Wednesday, February 15, 2017 8:35 AM
Thissectionisreadonly.
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Brazil ratio of top 10% to bottom 20% was 25:1
Taiwan was 4.2:1
South Korea was 5:1
Factors common to Asian Tigers
US Aid
Land reforms
Take land, make it private and give titles to property
Property rights encourage risks with assets
Weak organized labor
Strong, centralized authoritarian states
Skilled technocrats in the bureaucracies
High domestic savings and investment
Keeps capital local
Education as a public good
Managed trade
Not free trade, many forms of high tariffs, import quotas, and others
Some differences between the countries
Varying levels of state involvement
Firm size and networks
Korea has large conglomerates (chaebol), Taiwan had many small companies
Foreign investment source
Most of these countries have moved away from low-cost producers and moved to high-tech
manufacturing
"Moving up the value chain"
ELI might not always be able to be successful
Asian tigers faced lower competition in these lower cost markets
Many OECD countries started liberalizing trade during these periods, opening massive new
markets
Difficult to have a bureaucracy determine which industries to promote
Collaborative Strategies for LDCs
Some developing countries have tried to work together to better their terms of trade
Most developing countries were still exporting raw goods under GATT, which targeted
manufacturing
1970s saw a full-scale revolt with the Non-Aligned Movement
Avoided taking sides in the Cold War to play the countries off each other
G77 formed to try and get better treatment in global market
Commodity price stabilization
Direct financial transfers
Access to rich country markets
NIEO, an attempt by G77, tried to remake the rules governing IFIs and commodity markets
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