國際經濟學英文課件：Lecture 7 trade policy theory and practice（新）

1、Lecture 7: Trade policy: theory and practice(pre-review) Key readings K&O(2011),International Economics: Theory and Policy .Chap.9, Chap.10 and Chap.11 Chapter 9: the political economy of trade policy Chapter 10: trade policy in developing countries Chapter 11: controversies in trade policyOutli

2、nes The debate for or against free trade Political models of trade policy Trade policy in developing countries Import substituting industrialization Export oriented industrialization Strategic trade policy Trade liberalization Give your viewpoints for free trade(Group No.1) Give your viewpoints agai

3、nst free trade(Group No.2) free trade allocate resources most efficiently economies of scale competition and opportunities for innovation. political argument for free trade Any policy that deviates from free trade would be quickly manipulated by special interests, leading to decreased national welfa

4、re. Against free trade Optimum tariff is greater than zero(for large country) Some counter-argument domestic market failures The first-best world vs. the second-best world Some counter-argument a domestic policy aimed directly at the source of the problemThe Cases Against Free Trade (cont.) How is t

5、rade policy determined? Median voter theorem Collective action A model of trade policy Median voter theorem A policy that inflicts large losses on a few people (import-competing producers) but benefits a large number of people (consumers) should be enacted into law. But trade policy doesnt seem to f

6、ollow this prediction1 2 3 4 5 6 7 8 9 10 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Collective action While consumers as a group have an incentive to advocate free trade, each individual consumer has no incentive because his benefit is not large compared to the cost and time required to advocate free trade. Po

7、licies that impose large losses in for society as a whole but small losses on each individual may therefore not face strong opposition. A Model of Trade Policy While politicians may win elections partly because they advocate popular policies as implied by the median voter theorem, they also require

8、funds to run campaigns. These funds may especially come from groups who do not have a collective action problem and are willing to advocate a special interest policy. Models of policy making try to measure the trade off between reduction of overall welfare of constituents in return for additional ca

9、mpaign contributions. Trade policy in developing countries Import substituting industrialization policy Export oriented industrialization policy Import substituting industrialization policy Which countries adopt this policy in the history? Whats kind of theory for justification of this policy? Did i

10、mport substituting industrialization promote economic development?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 i

11、mports. It was often accompanied with the belief that poor countries would be exploited by rich countries through international financial markets and trade.Import Substituting Industrialization(cont.)Import Substituting Industrialization(cont.) The principal justification of this policy was/is the i

12、nfant 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 t

13、hey have grown strong enough to compete internationally. Problems With the Infant Industry Argument?Problems With the Infant Industry Argument.With protection, infant industries may never “grow up” or become competitiveImport substitution industrialization involved costs and promoted wasteful use of

14、 resources:They involved complex, time-consuming regulations.They set high tariff rates for consumers, including firms that needed to buy imported inputs for their products.They promoted inefficiently small industries.Import Substituting Industrialization(cont.) Did import substituting industrializa

15、tion promote economic development? There is some evidence that low and middle income countries which had relatively free trade had higher average economic growth than those that followed import substituting industrialization. But this claim is a matter of debate. Regardless, by the mid-1980s many go

16、vernments had lost faith in import substituting industrialization and began to liberalize trade.Trade Liberalization (cont.) Export oriented industrialization policy Which countries or areas adopt this policy in the history? Whats kind of theory for justification of this policy? Did export oriented

17、industrialization promote economic development? Whats kind of theory for justification of this policy? Comparative advantage theoryExport Oriented Industrialization Instead of import substituting industrialization, several countries in East Asia adopted trade policies that promoted exports in target

18、ed industries. Japan, Hong Kong, Taiwan, South Korea, Singapore, Malaysia, Thailand, Indonesia and China are countries that have experienced rapid growth in various export sectors and rapid economic growth in general. These economies or a subset of them are sometimes called “high performance Asian e

19、conomies”.Export Oriented Industrialization (cont.)Export Oriented Industrialization (cont.) It is also unclear if the high volume of exports and imports caused rapid economic growth or was merely correlated with rapid economic growth. Some economists argue that the cause of rapid economic growth wa

20、s high saving and investment rates, leading to both rapid economic growth in general and rapid economic growth in export sectors. In addition, almost of the high performance Asian economies have experienced rapid growth in education, leading to high literacy and numeracy rates important for a produc

21、tive labor force. Strategic trade policy In which market structure do you think strategic export subsidies works? Oligopoly market structure How to support strategic industry for a government? E.g. Export subsidyA Two-Firm Rivalry Game with No Government Subsidies: Airbus versus BoeingA Two-Firm Riv

22、alry Game with Government Subsidies: Airbus versus Boeing Please assess strategic trade policy? strategic trade policy is fragile, depending on too many conditions to be a reliable policy(why?) Regional trade integration The difference between Free-Trade Agreement (FTA) and Customs Union Whats trade

23、 creation effect and trade diversion effect?Regional trade integration(cont.) Free-Trade Area (FTA) In a free-trade area, the countries agree to eliminate tariffs and other nontariff barriers to trade among each other. E.g.: ASEAN ，NAFTARegional trade integration(cont.) Customs Union A customs union

24、 is an agreement between countries to maintain a free-trade and to construct and maintain a common external tariffRegional trade integration(cont.) Common Market A common market is a custom union with the addition of factor mobility between member countries E.g .The European Union set and met a goal

25、 to be a common market by 1992.Regional trade integration(cont.) Economic Union An economic union is an agreement between countries to maintain a free-trade area, a common external tariff, the free mobility of capital and labor, and some degree of unification in government fiscal and monetary police

26、sRegional trade integration(cont.)Regional trade integration(cont.)What kinds of economic effect might happen after regional trade integration occurs?Regional trade integration(cont.) Trade effect of Regional trade integration Trade creation : The net volume of new trade resulting from forming or jo

27、ining a trade bloc, and one source of gains in well-being from the trade integration (from low efficient firm to ,more efficient firm) Trade diversion : The volume of trade shifted from low-cost outside exporters to higher-cost bloc-partner exporters, resulting from forming or joining a trade bloc,

28、and the source of losses of well-being from the trade bloc. ( from more efficient firm to low efficient firm)Regional trade integration(cont.) Trade creationsurplyDemandP(B)=20P(G)=10QPabABCDRegional trade integration(cont.) Trade diversionsurplyDemandP(B)=20P(G)=10QPcdABCD P(F)=15eFEexer The optimu

29、m tariff is most likely to apply to (a)a small tariff imposed by a small country. (b)a small tariff imposed by a large country. (c)a large tariff imposed by a small country. (d)a large tariff imposed by a large country. (e)None of the above.exer The domestic market failure argument is a particular case of the theory of (a)the optimum, or first-best. (b)the second best. (c)the third best. (d)the sufficing principle. (e)None of the above.exer The simple model of competition among political parties long used by political scientists tends to lead to the practical solution of selecting the (a)opti