Trade and Economic Development Overview

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Questions and Answers

What is a major concern for developing nations regarding global trade?

  • Excessive industrialization
  • Overproduction of manufactured goods
  • High competitiveness in global markets
  • Dependence on primary commodities (correct)

Free trade can help reduce income disparities between developed and developing nations.

False (B)

What is the purpose of International Commodity Agreements (ICAs)?

To stabilize prices through quotas or buffer stocks.

The acronym OPEC stands for __________.

<p>Organization of Petroleum Exporting Countries</p> Signup and view all the answers

What was a key element of the East Asian Growth Model during the 'Asian Miracle'?

<p>Export-oriented industrialization (A)</p> Signup and view all the answers

Which strategy focuses on reducing reliance on imports?

<p>Import Substitution Industrialization (ISI) (D)</p> Signup and view all the answers

Match the trade strategies with their descriptions:

<p>Import Substitution Industrialization = Focuses on promoting domestic industries through protectionist measures. Export Promotion = Encourages production for export by providing incentives. ICAs = Agreements to stabilize commodity prices. Cartels = Groups that coordinate production to manipulate market prices.</p> Signup and view all the answers

Rising labor costs have enhanced the competitiveness of East Asian economies.

<p>False (B)</p> Signup and view all the answers

What significant reforms did China implement starting in the late 1970s?

<p>Market reforms</p> Signup and view all the answers

Cartels like OPEC face challenges primarily due to member countries cheating on quotas.

<p>True (A)</p> Signup and view all the answers

The GSP is designed to help developing nations by providing preferential ______ treatment for their exports.

<p>tariff</p> Signup and view all the answers

Name two economic development strategies mentioned that have been successful in East Asian economies.

<p>Export Promotion and manufacturing exports.</p> Signup and view all the answers

What is a common concern regarding China's trade practices?

<p>Intellectual property theft (A)</p> Signup and view all the answers

Match the following factors with their corresponding descriptions:

<p>Export-oriented industrialization = Strategy to boost economic growth through exports FDI = Investment from foreign entities into domestic markets Controversies = Debates surrounding fairness in trade GSP = Facilitates trade for developing nations</p> Signup and view all the answers

The Generalized System of Preferences only benefits developed countries.

<p>False (B)</p> Signup and view all the answers

What are two challenges facing East Asian economies in sustaining their growth?

<p>Rising labor costs, dependence on global demand</p> Signup and view all the answers

Flashcards

Commodity Price Volatility

Fluctuation in commodity prices, impacting export revenues and economic planning for resource-dependent nations.

Import Substitution Industrialization (ISI)

A trade strategy aiming to reduce reliance on imports by promoting domestic industries through tariffs and subsidies.

Export Promotion

A trade strategy supporting industries targeting exports with incentives and encouragement.

Comparative Advantage

The principle that countries should specialize in producing and exporting goods they can produce at a lower opportunity cost.

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International Commodity Agreements (ICAs)

Agreements between producing and consuming nations to stabilize commodity prices.

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Cartels

Groups of producers coordinating to influence prices by controlling production levels.

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Skepticism towards Free Trade

Developing countries may be hesitant about free trade as it might perpetuate dependence on low-value exports, hindering their industrial growth.

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Challenges of Development

Developing nations often face challenges like limited industrialization, heavy reliance on primary products, and volatile commodity prices.

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East Asian Growth Model (Asian Miracle)

Rapid economic growth in East Asia (1970s-1990s), driven by export-oriented industrialization, high savings, and government support for key industries.

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China's Economic Rise

China's transformation into a major economy through market reforms, attracting FDI, and export-driven growth.

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Export-oriented industrialization

A strategy focused on producing and selling goods in global markets, driving economic growth.

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Government policies (in East Asia)

Government support of key industries (e.g., electronics) to boost economic growth.

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China's trade controversy

Concerns about unfair trade practices (e.g., subsidies, intellectual property theft) related to China's economy.

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GSP (Generalized System of Preferences)

A system allowing preferential tariffs for developing nations' exports to developed countries, boosting trade and industrialization.

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Market reforms (China)

Economic liberalization in China, transitioning towards a market economy.

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Challenges of Asian Growth

Rising labor costs & global demand dependence that affected sustained growth after a period of rapid growth.

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Study Notes

Introduction to Trade and Economic Development

  • Developing nations face challenges in global trade, including dependence on primary commodities, volatile commodity prices, and limited industrialization.

Skepticism Toward Comparative Advantage and Free Trade

  • Developing nations often distrust comparative advantage because it may lock them into exporting low-value goods while importing high-value manufactured ones, perpetuating dependency and unequal trade.
  • Free trade can exacerbate income disparities between developed and developing nations due to differences in industrial capacity.

Commodity Price Stabilization

  • Volatile commodity prices disrupt export revenues for resource-dependent economies and make economic planning difficult.
  • Methods for stabilization:
    • International Commodity Agreements (ICAs): Countries agree to stabilize prices through quotas or buffer stocks (e.g., coffee, sugar, tin).
    • Cartels: Groups (e.g., OPEC) coordinate production to influence prices.

Problems with Cartels and ICAs

  • Cartels (e.g., OPEC): Gaining prominence in the 1970s with oil price surges from coordinated production cuts, but face challenges like cheating and external factors.
  • ICAs: Many fail due to member disagreements, lack of enforcement, or market shifts (e.g., oversupply or declining demand).

Trade Strategies for Economic Development

  • Import Substitution Industrialization (ISI): Reduces reliance on imports by promoting domestic industries through tariffs, quotas, and subsidies. However, this can lead to inefficiencies and lack of international competitiveness.
  • Export Promotion: Encourages industries to export by offering incentives (e.g., tax breaks, subsidies). Successful in East Asian economies (e.g., South Korea, Taiwan).

The East Asian Growth Model ("Asian Miracle")

  • From the 1970s to 1990s, rapid growth in East Asia was driven by export-oriented industrialization, high savings, investments in education and infrastructure, and government support of key industries (e.g., electronics, automobiles).
  • The model faces challenges of rising labor costs reducing competitiveness and dependence on global demand.

China’s Economic Rise

  • China's economic success stems from economic liberalization, attracting foreign direct investment (FDI), and export-driven growth.
  • Controversies exist regarding China's trade practices including concerns about unfair practices such as subsidies and intellectual property theft. Its 2001 WTO accession further integrated it into global trade but raised fears of job losses in developed nations.

Generalized System of Preferences (GSP)

  • The GSP grants developing nations preferential tariff treatment for exports to developed countries, increasing trade opportunities and supporting industrialization.

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