Trade and Uneven Development I and II (KEMENY) Flashcards
What does liberalising mean?
remove or loosen restrictions on (something, typically an economic or political system).
What does free trade mean?
International trade left to its natural course without tariffs, quotas, or other restrictions.
Winners (Core): England, Europe, North America, Argentina, Australia, New Zealand
How did they win?
• Absorb ideas from Industrial Revolution
– in New World, + people and capital as well
• Manufacturing
• Good Institutions (government, private property etc)
Not everyone in New World is a winner:
Unimaginably awful for natives and slaves
How Liberal were 19th Century Winners?
How ‘liberal’ were they?
– compared to age of mercantilism yes,
– But not ‘free trade’
– Example:
• US average tariffs on manuf. imports in 1870s:
23.4%
• 2010: US tariff rate on all goods in 2010 is 6.2% (World Bank)
USA vs Argentina Similarities
Initial comparative advantage in US and Argentina is agriculture
US vs Argentina
US Case
– American South
• Cotton makes up more than 50% US exports after invention of cotton gin (invented in 1793)
• Cotton concentrated in Southern states
• Gin generates massive growth in demand for
American cotton, spurs growth in slavery
– Northeast: Increasing focus on manufacturing
– Southerners happy to focus on their key asset: cotton and other agriculture
– Northern US industrialists have a different perspective and focus
• Actively seek to diversify away from basis in agriculture • They demand subsidies and import tariffs
Civil War (1861-1865): a fight (mainly) over slavery
- Implicitly also about mechanization/industrialization
* North wins, and industrialization leads US to leapfrog over Britain
US vs Argentina
Argentina case
– One of world’s richest countries up to 1939
– In 19th century it draws many Europeans: space and freedom
– Handful of aristocrats given vast land rights in the Pampas
• As opposed to land more democratically given in exchange for expansion (a la US)
– Little investment in diversification or institutions
– A bit like US South!
USA vs Argentina Contrasts
– More to this than just tariffs/subsidies or not
– But winners not ‘free traders’ by current standards.
• Argentina ends up being more laissez-faire than US, to its great detriment
– Many success stories had far from laissez- faire approaches, in trade as in other policies
Losers (Periphery)
India, much of South America etc
– Resource-extractive colonies need armies of
workers, not industrialization
– Institutions: wealth extraction, not inclusion
– Colonial powers impose free trade
– Local industrial activity choked off
• CA theory says: great – both parties can gain
Specialization not value neutral?
– Focus on labor-intensive goods:
- Less incentive for education
* Fertility up, as more kids means more workers, and kids are cheap (also, higher child mortality)
Specialization not value neutral?
– Focus on skill-intensive goods:
- prompts investments in human capital
* pushes fertility down as parents invest in kids education, child labor less useful etc
The upshot: free trade results in different outcomes on the basis of specialization
– Related to population growth in poorer countries (specialized in primary commodities)
– Related to productivity growth in richer countries (specialized in higher-sophistication commodities)
– Japan, Korea, Singapore: highly interventionist state
– Hong Kong: very laissez faire
What does that mean?
Introventionism: a government policy of becoming involved in the economy, or of trying to influence economic and other social issues in another country.
Laissez faire: letting things take their natural course
