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Ipe08

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  • 1. February 6, 2012
  • 2. North-South Economic Relations: The Main Issues <ul><li>The origins of inequality </li></ul><ul><li>The role of international regimes in preserving or increasing that inequality </li></ul><ul><li>The role of commodity and raw materials trade in preserving or increasing inequality </li></ul><ul><li>Import substitution vs. export-led growth as strategies for industrial growth in the Third World </li></ul>
  • 3. Consequences of Poverty <ul><li>Lack of access to food, shelter, and education </li></ul><ul><li>Feelings of helplessness and insecurity </li></ul><ul><li>Low self-esteem </li></ul>Garbage dump harvesting in Phnom Penh, Cambodia
  • 4. Gross National Income per Capita, Purchasing Power Parity Method, 1980-2006, in Dollars, in High-, Middle-, and Low-Income Countries Source: World Bank, World Development Indicators 2008 , online data.
  • 5. Hobson’s Theory of Economic Imperialism Unequal Distribution of Income Capitalism Surplus production Overseas outlets imperialism war John Hobson
  • 6. Lenin’s Theory of Imperialism Unequal Distribution of Income Capitalism Surplus capital Overseas outlets imperialism war Revolution - Vladimir I. Lenin
  • 7. Declining Terms of Trade Theory <ul><li>Developing countries (LDCs) depend upon exports of raw materials and agricultural commodities </li></ul><ul><li>Prices of LDC exports decline over time relative to price of their imports (mostly manufactured goods) </li></ul><ul><li>Until LDCs diversify their economies, they will remain poor </li></ul>Raul Prebisch
  • 8. Prices of Exports Prices of Imports <ul><li>Why do they decline? </li></ul><ul><li>Competition among LDCs for export markets </li></ul><ul><li>High population growth rates in LDCs </li></ul><ul><li>Low bargaining power of LDC unions </li></ul><ul><li>Oligopolistic markets for IC goods </li></ul>
  • 9. Sir Arthur Lewis
  • 10. Policies Recommended by Raul Prebisch <ul><li>Industrialization through Import Substitution </li></ul><ul><li>Regional Integration </li></ul><ul><li>Increased South-South Trade and Investment Flows </li></ul><ul><li>Population Control </li></ul>
  • 11. Import Substitution <ul><li>High tariff barriers on imports of manufactured goods to encourage domestic manufacturing (“infant industries”) </li></ul><ul><li>Tariff barriers are supposed to be reduced when domestic manufacturers become internationally competitive </li></ul><ul><li>Regional integration (helps to deal with limits imposed by small internal markets) </li></ul>
  • 12. Examples <ul><li>Dairy Farming in Jamaica </li></ul><ul><li>Corporacion Venezolana de Guayana in Venezuela </li></ul><ul><li>Posco (steel manufacturing) in Korea </li></ul><ul><li>Bohemia (beer) in Mexico </li></ul><ul><li>Early automobile industry in Japan </li></ul>1936 Toyota Model AA Sedan
  • 13. Why Import Substitution Bogs Down <ul><li>Inward FDI displaces domestic manufacturers </li></ul><ul><li>Country develops trade deficit because exports are not competitive while both domestic and MNC firms import expensive inputs for assembly plants and light manufacturing </li></ul><ul><li>Government often turns to subsidies and state enterprises to encourage deepening of manufacturing </li></ul>This is called the “deepening of import substitution”
  • 14. Examples of Crises of Import Substitution <ul><li>Mexico </li></ul><ul><li>India </li></ul><ul><li>Brazil </li></ul><ul><li>Korea </li></ul><ul><li>Taiwan </li></ul>See chapters 4-7 of Episode 2 in The Commanding Heights documentary.
  • 15. Export-Led Growth <ul><li>Initial period of import substitution </li></ul><ul><li>Reduce tariffs on inputs for manufacturing </li></ul><ul><li>Adopt new incentives for exports: </li></ul><ul><ul><li>export processing zones </li></ul></ul><ul><ul><li>new trade-oriented infrastructure </li></ul></ul><ul><ul><li>subsidies for exporting firms </li></ul></ul><ul><ul><li>export performance requirements for MNCs </li></ul></ul>
  • 16. Examples <ul><li>Japan </li></ul><ul><li>Korea </li></ul><ul><li>Taiwan </li></ul><ul><li>Hong Kong </li></ul><ul><li>Singapore </li></ul><ul><li>Chile </li></ul><ul><li>China </li></ul><ul><li>India </li></ul>
  • 17. Per Capita Income in the Four Asian Tigers, 1975-2006 Sources: World Development Indicators 2008 ; and (for Taiwan only) Taiwan Economic Statistics 6 (May 2008). The data for Taiwan are GNP per capita; for the others GDP per capita at purchasing power parity.
  • 18. Per Capita Income in China and India, 1980-2006 Source: World Development Indicators 2008.
  • 19. The Millennium Development Goals <ul><li>Eradicate extreme poverty and hunger </li></ul><ul><li>Achieve universal primary education </li></ul><ul><li>Promote gender equality and empower women </li></ul><ul><li>Reduce child mortality </li></ul><ul><li>Improve maternal health </li></ul><ul><li>Combat HIV/AIDS, malaria, and other diseases </li></ul><ul><li>Ensure environmental sustainability </li></ul><ul><li>Develop a global partnership for development </li></ul>Source: http://www.un.org/millenniumgoals /
  • 20. Ending Extreme Poverty Videos <ul><li>Global Poverty Project video </li></ul><ul><li>Hans Rosling at the State Department video </li></ul><ul><li>Hans Rosling washing machine video </li></ul>

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