Chapter 11 Notes

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Economics for Management Studies
Garth Frazer

Chapter 11 Controversies in Trade Policy NotesSophisticated Arguments for Activist Trade PolicyTechnology and Externalitiesif firms in an industry generate knowledge that other firms can also use without paying for it the industry is in effect producing some extra outputthe marginal social benefit of the knowledgethat is not reflected in the incentives of firmswhere such externalities benefits that accrue to parties other than the firms that produce them can be shown to be important there is a good case for subsidizing the firmthis argument is the same for the infant industries of lessdeveloped countries as it is for established industries of advanced countriesin advanced countries however the argument has a special edge because in those countries there are important hightechnology industries in which generation of knowledge is in many ways the central aspect of the enterpriseGlobalization and LowWage LabourEnvironmental and Cultural Issuescomplaints against globalization go beyond labour issuesmany critics argue that globalization is bad for the environmentit is unmistakably true that environmental standards in developingcountry export industries are much lower than in advancedcountry industriesit is true that in a number of cases substantial environmental damage has been and is being done in order to provide goods to advancedcountry markets however on the other hand there are at least as many cases of environmental damage that has occurred in the name of inwardlooking policies by countries reluctant to integrate in the global economySummary1Some new arguments for government intervention in trade emerged in the 1980s and 1990s In the 1980s the new theory of strategic trade policy offered reasons why countries might gain from promoting particular industries In the 1990s a new critique of globalization emerged focused on the effects of globalization on workers in developing countries2Activist trade policy arg
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