Terms of Trade

Terms of Trade 에 대한 디스커션 자료를 올려본다. 영어가 완전 슬픈 실력이라 문법이고 뭐고 그냥 적어보았다. 경제 공부하는데 도움이 되길 바라면서..

Discussion Topic:

1. To what extent do adverse movements in the terms of trade explain the trade performance of low-income countries? (How) will South-South trade help countries?

Before we start, anyone wants to talk about current circumstance of world trade?

 

Background : Recently many countries and major international development organizations have believed that free trade is good for poor countries, it is one of the ways to develop economy efficiently.

 

trade liberalization is one of the biggest battlefields in economics. Since Ricardo introduced the concept of comparative advantages between the trades of two countries, the concept of trade liberalization has become so widely accepted that many poor countries should follow this.

 

We learnt the thinking of Neoclassical economist from the lecture – all countries gain from trade. World output increases with trade. Countries will tend to specialize in products that use their abundant resources intensively. Trade will simulate economic growth. International wage rates and capital costs will gradually tend toward equalization. => in order to achieve this, country should remove trade barrier, such as tariff, quota, ect.

 

1. Do have any comments of neoclassical economist’s thinking?

 

Prebisch-Singer Hypothesis

 

Price (the value) of Agricultural and Raw Material goods are getting decreasing, while price of manufactured goods are increasing.

 

Prebisch report “Towards a New Trade Policy for Development” : high income country should reduce tariff against low income country’s export items (especially manufactured items) for 10 years.

 

When trade occur, Price (the value) of Agricultural and Raw Material goods ( normally low income countries produces) are getting decreasing, while price of manufactured goods are increasing as time goes on.

 

So At the end, low income country cannot get any benefit from trade, because rich country takes all.

 

Hajoon zhang argues that protection is needed for low-income country to develop their economy ( trade liberalization can damage to infant industry in poor country)

 

Tomas Friedman argues that if a poor country wears a “golden straitjacket” (referring to reducing or removing protectionism, fully receiving foreign trade, and removing quotas)

 

Douglas Irwin says low income country fully develop by Trade liberalization because it can bring about many opportunities to produce better items, and technology.

 

South-South trade

1. Nowadays because of recession -> economic development is slower than before,

Many economists insist that south-south trade is one of the best ways to escape this economic crisis.

(Of course WTO argues that this does not help for country to develop, and even make world economy worse)

according to statistics, South-South trade in 1990 was 7 % of total world trade, however it reached 17% in 2009 ( this means south south trade have increased 30% per year ).

BRICS government, and many south governments decided to (reduce north-south trade) increase the quantity of trade more than before.

2. Do you think south-south trade will help developing low-income country?

I think yes, the economic power of south government is similar, compare with north-south trade, low income country can have less disadvantages from trade with high income country that I mentioned before. So, low income country can compete with similar quality of items when south south trade occur.