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  1. 1. February 6, 2012
  2. 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. 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. 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. 5. Hobson’s Theory of Economic Imperialism Unequal Distribution of Income Capitalism Surplus production Overseas outlets imperialism war John Hobson
  6. 6. Lenin’s Theory of Imperialism Unequal Distribution of Income Capitalism Surplus capital Overseas outlets imperialism war Revolution - Vladimir I. Lenin
  7. 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. 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. 9. Sir Arthur Lewis
  10. 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. 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. 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. 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. 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. 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. 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. 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. 18. Per Capita Income in China and India, 1980-2006 Source: World Development Indicators 2008.
  19. 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. 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>