trade policy in developing country.pptVIP

Trade Policy in Developing Countries Preview Trade policy in developing countries Import substituting industrialization Trade liberalization since 1985 Export oriented industrialization Trade policy in China Foreign trade reform in China China’s Accession to the WTO: Experience and Lessons Introduction Which countries are “developing countries”? The term “developing countries” does not have a precise definition, but it is a name given to many low and middle income countries. There is a great diversity among the developing countries in terms of their income per capita. Table 1: Gross Domestic Product Per Capita, 2005 (dollars) Import-Substituting Industrialization Why are some countries so much poorer than others? For about 30 years after World War II trade policies in many developing countries were strongly influenced by the belief that the key to economic development was creation of a strong manufacturing sector. That is industrialization. The best way to create a strong manufacturing sector was by protecting domestic manufacturers from international competition. Import Substituting Industrialization Import substituting industrialization was a trade policy adopted by many low and middle income countries before the 1980s. The policy aimed to encourage domestic industries by limiting competing imports. It was often accompanied with the belief that poor countries would be exploited by rich countries through international financial markets and trade. Table 2: Effective Protection of Manufacturing in Some Developing Countries (percent) Import Substituting Industrialization (cont.) The principal justification of this policy was/is the infant industry argument: Countries may have a potential comparative advantage in some industries, but these industries can not initially compete with well-established industries in other countries. To allow these industries to establish themselves, governments should temporarily support them until they have grown strong enough to com