(Chilean) Trade policy - lecture content

Question 1

what is the Heckscher-Ohlin model?

Answer 1

countries specialize in producing and exporting goods that make use of the resources they have a lot of

Question 2

What is Chile mainly exporting, what mainly importing?

Answer 2

exporting commodities (mining particularly)
importing fuel and manufactured goods such as machinery and equipment

Chile is abundant in natural resources but scarce in human and physical

capital

Question 3

how is the trade policy designed?

Answer 3

Trade policy refers to government intervention in international trade

Question 4

how do the interventions look like?

Answer 4

1) import barriers like tariffs, quotas, health and safety requirements
2) export instruments such subsidies, taxes, drawbacks (Rückerstattung)
3) inirect measures like production and R&D subsidies, exchange rate policies and regulations on FDI and migration

Question 5

Name 3 different perspectives on trade policy

Answer 5

1) Free Trade
2) Mercantilism (promoting export, restricting import)
3) Exploitation concerns (of developing countries exporting cheap primary goods and import expensive manufactured goods)

Question 6

how is the evidence regardnig trade policy and development?

Answer 6

recent evidence indicating that open economies tend to grow faster than closed ones

but effects vary by country and timing of liberalization

Question 7

Analysis of Trade Policy focsuing on the impact of import tariffs on welfare - what are the differences in small and large countries?

Answer 7

small countries: import tariff leads to consumer losses, producer gains and government revenue -> negative effect on welfare
large countries: import tariffs can reduce world demand and prices and improving the country’s terms of trade (Handelverhältnis)
-> however, still consumer losses und potential welfare costs

Question 8

Transformation of Chile’s trade policy - name the phases and briefly explain

Answer 8

1930-1973: ISI, period characterized by protectionist policies such as high tariffs to develop comparative advantage in manufactoring and reduce reliance on commodity exports
1973-1990: path of unilateral trade liberalization, so reduing tariffs. Belief in benefits of free trade, but still faced challenges as manufactoring sectors contracted and unemploment rose -> leading to income inequality
1990-2000: FTA with various countries, furthing opening economy to interntional trade (to expand export markets, attract FDI and promote economic growth)
recent challenges: impacts of globalization, environmental concerns

Question 9

specific outcomes of ISI

Answer 9

1) high irrational import tariffs hindering the development of competetive industries
2) overvalued exchange rate and state intervention SOE
3) social and economic disparities (protected manufactoring industries with high wages while xporters suffered from low exchange rate and high input costs)

Question 10

2 main challenges Chile is still facing?

Answer 10

1) export concentration -> vulnerability to external shocks
2) limited diversification -> few new exports products and limited investment in innovation and HC