Abstract
One of the recurring themes in thought and opinion about the process of economic development is the appropriate foreign trade strategy for less developed countries (LDCs) to apply in pursuit of rapid and sustained industrialisation. Most academic economists and economic policy makers share the view that foreign trade policies, while certainly not sufficient to achieve specific industrialisation objectives, do matter. It is still controversial, however, whether these policies should be protectionist or liberal, that is, whether the industrial development efforts should include a little or much trade in order to be successful.
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Notes and References
The various investigations have focussed on five African countries (Egypt, the Ivory Coast, Ghana, Kenya and Tunisia) ; ten Asian countries (Hong Kong, India, Indonesia, Israel, Korea, Malaysia, Pakistan, the Philippines, Singapore and Taiwan); six Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico and Uruguay); and three south European countries (Spain, Turkey and Yugoslavia). See Ian Little, Tibor Scitovsky and Maurice FG. Scott, Industry and Trade in Some Developing Countries : a Comparative Study (London, New York and Toronto : Oxford University Press, for the OECD Development Centre, 1970);
Bela Balassa and Associates, The Structure of Protection in Developing Countries (Baltimore and London: Johns Hopkins Press, for the International Bank for Reconstruction and Development and the Inter-American Development Bank, 1971);
Balassa and Associates, Development Strategies in Semi-Industrial Countries (Baltimore and London: Johns Hopkins Press, for the World Bank, 1982) ;
Jagdish Bhagwati, Foreign Trade Regimes and Economic Development: Anatomy and Consequences (New York and Cambridge, Mass.: Ballinger, for the NBER, 1978);
Anne O. Krueger, Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences (New York and Cambridge, Mass.: Ballinger, for the NBER, 1978);
Krueger et al. (eds), Trade and Employment in Developing Countries: Individual Studies (Chicago: University Press, for the NBER, 1981);
Juergen B. Donges and Lotte Müller-Ohlsen, Aussen wirtschaftsstrategien und Industrialisierung in Entwicklungsländern, Kieler Studien, 157 (Tübingen: J. C. B. Mohr, for the Institut für Weltwirtschaft an der Universität Kiel, 1978). In addition to these comparative analyses, many country studies have been published separately. This essay has drawn mainly on the Kiel research, to which Professor Herbert Giersch has given considerable encouragement. The comments by Sanjeev Gupta, Klaus-Werner Schatz and Dean Spinanger on an earlier version are gratefully acknowledged.
This objective was articulated in the so-called Lima Declaration and Plan of Action on Industrial Development and Co-operation, which was adopted by the Second General Conference of the United Nations Industrial Development Organisation (UNIDO) in March 1975. The Lima Plan postulates the achievement of at least 25 per cent of the growing world industrial output by LDCs by the year 2000; in 1981, the LDCs’ share was almost 11 per cent.
Similar experiences were met by the south European countries, which also fostered their industrialisation around highly protectionist import-substitution policies. Spain (until 1959), Yugoslavia (until 1965) and Turkey are cases in point. See Donges, La Industrialization en Espana— Politicas, Logros, Perspectivas (Barcelona: Oikos-Tau, 1976);
Charles R. Chittle, Industrialization and Manufactured Export Expansion in a Worker-Managed Economy : the Yugoslav Experience, Kieler Studien, 145 (Tübingen: J. G. B. Mohr, for the Institut für Weltwirtschaft an der Universität Kiel, 1977);
And Krueger, Foreign Trade Regimes and Economic Development: Turkey (New York and London: Colombia University Press, for the NBER, 1974).
For more detailed analysis of LDCs’ manufactured export performance, see, apart from the references in note 1, Donges and James Riedel, ‘The Expansion of Manufactured Exports in Developing Countries: An Empirical Assessment of Supply and Demand Issues’, Weltwirtschaftliches Archiv, Kiel, Vol. 113, No. 1, 1977, pp. 58–85;
Balassa, ‘Export Incentives and Export Performance in Developing Countries: A Comparative Analysis’, Weltwirtschaftliches Archiv, Vol. 114, No. 1, 1978, pp. 24–60;
Hollis B. Chenery and Donald B. Keesing, The Changing Composition of Developing Country Exports, World Bank Staff Working Papers No. 314 (Washington: World Bank, 1979). Note here too that the considerable rates of manufactured export expansion extend also to those south European countries which have recently become more outward-looking—Spain in particular. This country exported industrial goods worth US$13,331 million in 1979 as compared with US$380 million in 1965 (sources as in Table 14.1).
Long-term rates of only 5–6 per cent for manufactured exports were considered feasible at that time, partly due to the fact that the shift from anti- to pro-trade policies made by various LDCs in the more recent past was not foreseen. See Balassa, Trade Prospects for Developing Countries (Homewood, Ill.: Richard D. Irwin, for The Economic Growth Center at Yale University, 1964).
For a more detailed discussion, see Donges, ‘A Comparative Survey of Industrialization Policies in Fifteen Semi-Industrial Countries’, Weltwirtschaftliches Archiv, Vol. 112, No. 4, 1976, pp. 626–57, and Krueger, ‘Trade Policy as an Input to Development’, The American Economic Review, Menasha, Wisconsin, May 1980, pp. 288–92.
See Benjamin I. Cohen, Multinational Firms and Asian Exports (New Haven, Conn, and London: Yale University Press, for The Economic Growth Center at Yale University, 1975); Deepak Nayyar, ‘Transnational Corporations and Manufactured Exports from Poor Countries’, The Economic Journal, Cambridge, March 1978, pp. 59–84; Donges and Müller-Ohlsen, op. cit., pp. 149–57.
See James Riedel, ‘The Nature and Determinants of Export-Oriented Direct Foreign Investment in a Developing Country: A Case Study of Taiwan’, Weltwirtschaftliches Archiv, Vol. 111, No. 3, 1975, pp. 505–26. Riedel has also shown that export-oriented DFI in the manufacturing sector need not lead to the creation of an enclave apart from the local economy, as critics often contend, and that it can make the country better off even if the investment entails additional requirements of imported intermediate inputs.
See Riedel Factor Proportions, Linkages and the Open Developing Economy, Kiel Working Papers, No. 20 (Kiel: Institut für Weltwirtschaft, 1974), subsequently published in abbreviated form in The Review of Economics and Statistics, Cambridge, Mass., November 1975, pp. 487–94. It remains true, however, that when competition among LDCs for DFI is very strong, much of the direct and indirect benefits of foreign investments may be given away in the form of ‘too’ generous concessions.
Valuable information is provided in Balassa, André Barsony and Anne Richards, The Balance of Payments Effects of External Shocks and of Policy Responses to these Shocks in Non-OPEC Developing Countries (Paris: OECD Development Centre, 1981).
UNIDO’s Lima-Plan for accelerated industrialisation calls for an annual rate of growth of manufactured exports from LDCs of 13 per cent in real terms until the year 2000. See Industry2000— New Perspectives (New York: United Nations, 1979), pp. 218–21.
More cautiously, the World Bank expects these exports to increase annually at 20.5 per cent in real terms until 1990, which is still faster than the forecast for the LDCs’ total exports and the manufactured exports from the industrialised countries. See World Development Report 1980 (Washington: World Bank, 1980), pp. 6–8.
For a detailed evaluation of the Tokyo Round results, with particular reference to LDCs, see Bernd Stecher, Zum Stand der internationalen Handelspolitik nach der Tokio-Runde, Kiel Discussion Papers, No. 69 (Kiel: Institut für Weltwirtschaft, 1980); and Balassa, ‘The Tokyo Round and the Developing Countries’, Journal of World Trade Law, Twickenham, March–April 1980, pp. 93–118. Balassa takes a rather optimistic view, whereas Stecher is more ridden by fears. Both interpretations are sensible and precisely this fact may generate additional uncertainty among LDCs’ manufacturers making investment decisions with a significant export-capacity content.
This is not to say that the spread of protectionism has not hurt manufactured exports from LDCs, as is sometimes contended. As we do not know how these exports would have developed under less new import barriers, we ought to state that, in the aggregate, the export opportunities of LDCs were not brought to insignificance—and this is so because the supply side looms a great deal. In this respect, it was perhaps unwise that the Report of the Independent Commission on International Development Issues (Brandt Commission), in dealing with North-South trade, has put emphasis only on the actually or potentially damaging import restrictions imposed by the industrial countries; LDC governments should have been told that their own protectionism is in general more severe and therefore more inimical to their own industrialisation interests. See The Report of the Independent Commission on International Development Issues under the Chairmanship of Willy Brandt, North-South : a Programme for Survival (Cambridge, Mass.: MIT Press, 1980; and London and Sydney: Pan Books, 1980), ch. 11.
Interesting examples of such grading-up-adjustments are provided by Taiwan, which is setting up a technology-intensive industrial estate, and by Singapore, which is promoting the development of software technology. This runs counter to the popular ‘fallacy of composition’ argument. For cross-section analyses supporting the notion that changes in comparative advantage tend to follow a fairly constant pattern, see Ranadev Banerji and Donges, Economic Development and the Patterns of Manufactured Exports, Kiel Discussion Papers, No. 16 (Kiel: Institut für Weltwirtschaft, 1972),
And Balassa, ‘A “Stages Approach” to Comparative Advantage’, in Irma Adelman (ed.), Economic Growth and Resources—National and International Policies (London : Macmillan, for the International Economics Association, 1979), pp. 121–56.
This criticism dates back to the early and extremely influential writings of Raul Prebisch and Hans W. Singer and it has been stressed time and again in UNCTAD and UNIDO documents related to the role of LDCs in the world economy. The point has recently been re-emphasised by a group of distinguished development economists and practitioners from various countries. See Gerald K. Helleiner, Economic Theory and North-South Negotiations on a New International Economic Order, a Report on the Refsnes Conference (Oslo: Norwegian Institute of International Affairs, 1980). In the Federal Republic of Germany, the relevance of the comparative-costs principle for development purposes has most strongly been challenged by leftist economists and neo-Marxist political scientists concerned with the problems of LDCs, mainly from the Free University of Berlin, the University of Bremen and the Max-Planck-Institut zur Erforschung der Lebensbedingungen der wissenschaftlich-technischen Welt, Starnberg.
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Donges, J.B. (1983). Re-appraisal of Foreign Trade Strategies for Industrial Development. In: Machlup, F., Fels, G., Müller-Groeling, H. (eds) Reflections on a Troubled World Economy. Trade Policy Research Centre. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-06892-0_14
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