Deck 12: International Trade Theory and Development Strategy  

Question 1

a.Under what circumstances is the effective rate of protection of a tariff greater than the nominal rate?
b.Why is this a concern for developing countries?

Answer 1

a.When tariffs on final goods exceed those on intermediate and capital good inputs. b.The magnitude of protection may be greater than intended, which comes with opportunity costs.

Question 2

Discuss some of the factors that lead infant manufactured goods industries to become more efficient over time, and some of the factors that might lead them to fail to do so.

Answer 2

Industries with significant learning by doing; firms threatened by a specific deadline for tariff reductions.

Question 3

Briefly, what are the major causes of export earnings instability for developing countries?

Answer 3

Low price and income elasticities of demand leading to erratic movements in export prices.

Question 4

You are a lobbyist hired by a less developed country to try to prevent a developed country from increasing trade barriers against labor-intensive manufactured imports such as textiles. Make your case, arguing from both developed- and developing-country perspectives, in terms of who gains and who loses.

Question 5

Many developing countries have a static comparative advantage in the production of one or two primary products. In what ways might specialization in these products contribute to growth and development? In what ways might this fail to contribute?

Question 6

When and under what circumstances is intervention in international trade justified on market correction grounds? What preconditions would have to be met from the government side for there to be a reasonable likelihood of success?

Question 7

Explain the dynamic rationale for economic integration among developing countries.

Question 8

What are the drawbacks of overvaluing the exchange rate as an import substitution policy?

Question 9

Briefly explain the major argument of the factor endowment trade theory.

Question 10

Taiwan and Jamaica are both islands that have pursued export-oriented development strategies, but Jamaica has experienced increases in unemployment and poverty, while Taiwan has experienced decreases. How might you explain this?

Question 11

Provide a concise statement about the relationship between a developing country's emphasis on the export of traditional commodities and
a.export earnings stability.
b.comparative advantage.
c.terms of trade.

Question 12

Evaluate critically the following statement: In light of the experience of the last two decades, free trade is the best trade policy for most developing countries.

Question 13

What are the terms of trade? What factors lead them to change over time?

Question 14

Explain why a country's gains from trade may not accrue to nationals. Indicate the differential effects on GNP and GDP.

Question 15

A country simultaneously raises tariffs on manufactured goods and overvalues the exchange rate. Why might these seemingly contradictory policies be pursued together?

Question 16

After a policy of import substitution has begun, a developing country finds that employment has not risen significantly and that urban unemployment seems to be rising. Explain how these developments might be connected.

Question 17

State three country characteristics that encourage and three that discourage economic integration among developing countries.

Question 18

What are the key ingredients of Taiwan's successful entry into world markets? What lessons can other developing countries draw from Taiwan's experience with global markets?

Question 19

Explain briefly the vent-for-surplus theory of international trade. What is the relevance of this theory to the current development experience of low income economies?

Question 20

In the North-South model, how are basic factors distinguished from advanced factors, and what are the implications for growth and development possibilities?

Question 21

Developing countries might be unable to respond smoothly to changing international price signals because of

A)a lack of government regulation.
B)an abundance of skilled labor.
C)inelastic supply curves.
D) limited foreign exchange.

Question 22

Which of the following is an argument in favor of the liberalization?

A)Increased technical efficiency
B)Accelerated technical progress
C)Decreased shortages of foreign exchange
D) All of the above
E) Both (a) and (b) are correct

Question 23

The ratio of a country's average export price to its average import price is

A)its absolute advantage.
B)its comparative advantage.
C)its terms of trade.
D) its exchange rate.

Question 24

Suppose that a good that was formerly an import becomes an export, perhaps after an import substitution and export promotion strategy. How is this change reflected in the production possibility frontier?

Question 25

Explain how international trade and trade policy helped Taiwan transform itself from an underdeveloped country to a high income country in a relatively short span of time. You might ?begin by discussing Taiwan's trade strategy. Why do you think international trade is of such vital importance to Taiwan?

Question 26

Which of the following statements is true?

A)Larger countries (in terms of size) tend to be more open (in terms of larger share of exports in GDP) than smaller countries and developing countries tend to be less open than developed economies.
B)Larger countries (in terms of size) tend to be less open (in terms of lower share of exports in GDP) than smaller countries and developing countries tend to be less open than developed economies.
C)Larger countries (in terms of size) tend to be more open (in terms of larger share of exports in GDP) than smaller countries and developing countries tend to be more open than developed economies.
D) Larger countries (in terms of size) tend to be less open (in terms of lower share of exports in GDP) than smaller countries and developing countries tend to be more open than developed economies.

Question 27

The real price trendline for non-fuel primary commodities from 1960-2005 has been

A)unchanged.
B)steadily increasing.
C)steadily decreasing.
D) first decreased and then increased.

Question 28

The purpose of commodity buffer stocks is

A)to moderate price fluctuations.
B)to raise commodity prices.
C)to encourage commodity substitution.
D) to guarantee national security.

Question 29

What is an overvalued exchange rate? What factors may cause a country's currency to become overvalued?

Question 30

Which of the following is an argument in favor of interventionist trade policies?

A)Cheaper capital goods
B)Declining terms of trade
C)Decreased losses from rent-seeking activities
D) All of the above
E) None of the above

Question 31

Explain the difference between nominal and effective tariffs.

Question 32

Economists frequently urge governments of developing countries to replace import quotas with import tariffs as a first step in a strategy that aims to reduce import protection. What is the reasoning offered by economists to support this recommendation to developing countries?

Question 33

State and explain three (or some other number chosen by the instructor) reasons why the scope for further expansion of developing country commodity exports is likely to be limited.

Question 34

The opening of export markets for primary products can provide employment for previously underutilized land and labor. The term for this is

A)vent for surplus.
B)comparative advantage.
C)Prebisch-Singer thesis.
D) barter trade.

Question 35

Guiding the market through strategic coordination of business investments to increase export market shares is known as

A)development planning.
B)industrial policy.
C)shifting terms of trade.
D) all of the above.
E) none of the above.

Question 36

According to the Prebisch-Singer thesis

A)demand for primary products has steadily fallen.
B)profits of primary producers have steadily fallen.
C)primary producers' terms of trade have steadily fallen.
D) prices of primary products have risen over time.

Question 37

Autarchy as used in the text refers to

A)an economy that does not trade.
B)an economy that trades primary products in exchange for manufactures.
C)developing-country dictatorships.
D) the caste system and related social structures.

Question 38

The dependence on the export of one or two primary products for a majority of the revenue from exports is most severe in countries in

A)South Asia.
B)East Asia.
C)Sub-Saharan Africa.
D) Latin America.

Question 39

Which of the following is an argument in favor of trade liberalization?

A)Increased investment
B)Infant industry
C)Fluctuating export earnings
D) Increased government revenue

Question 40

What is the difference between a devaluation and a depreciation?

Question 41

The long-run social benefits of infant industry protection are more likely to be realized if

A)investors believe that tariff barriers are permanent.
B)investors believe that tariff barriers are transitory.
C)tariff barriers increase over time.
D) tariff barriers are replaced with quotas over time.

Question 42

Which of the following is not a reason why the prospects for the further expansion of developing country commodity exports is likely to be limited?

A)Low income elasticities for these products
B)Low likelihood of development of further synthetic substitutes
C)Continued agricultural protection despite trade agreements
D) Declining terms of trade

Question 43

Which of the following is a major argument of trade optimists?

A)Industrial policy can increase productivity of developing country manufacturing efficiency.
B)New synthetic substitutes are constantly being discovered and improved.
C)Developing country efficiency would improve with trade liberalization.
D) All of the above.

Question 44

Which of the following factors makes the success of economic integration more likely?

A)Nationalism
B)Desire for prestige projects
C)Diverse economic systems
D) All of the above
E) None of the above

Question 45

In most LDCs the initial target of import substitution is to promote domestic production of

A)consumer goods.
B)food and other agricultural goods.
C)capital goods.
D) manufactured intermediate goods.

Question 46

Why is it impossible that all industries in a developing country qualify as infant industries?

A)You cannot have a comparative advantage in everything.
B)You cannot have an absolute advantage in everything.
C)This would violate international law.
D) This would reduce the terms of trade.

Question 47

Which of the following countries provides the best example of a successful import substitution development strategy?

A)Chile
B)Taiwan
C)Argentina
D) Botswana

Question 48

The nominal rate of protection shows the extent to which the domestic price of imported goods exceeds

A)what the price would be without tariffs.
B)the cost of intermediate inputs.
C)the social opportunity costs of the good.
D) the no-trade equilibrium price.

Question 49

Which of the following is a major argument of trade pessimists?

A)Increased productivity of developed country agriculture
B)Increased efficiency in industrial use of raw materials
C)Protectionism against labor-intensive manufactures
D) All of the above

Question 50

The average level of effective protection has exceeded 300 percent for which of the following countries?

A)Pakistan and Uruguay
B)Argentina and Brazil
C)Philippines and Mexico
D) India and China

Question 51

Nontariff barriers

A)decrease foreign exchange earnings.
B)reduce the quantity of goods exported.
C)lower the effective price received for exports.
D) all of the above.

Question 52

The most important role of the World Trade Organization is

A)to promote market oriented economic policies.
B)to settle trade disputes.
C)to provide development assistance.
D) to help countries choose the appropriate level of a tariff or quota.

Question 53

The effective rate of protection is

A)value added with protection divided by value added without protection.
B)value added with protection.
C)value added without protection.
D) (value added with protection minus value added without protection) divided by value added without protection.

Question 54

Which of the following is a nontariff barrier policy tool?

A)Sanitary regulations
B)Average duties
C)Phased liberalization
D) Ad valorem tax

Question 55

Which of the following is not an argument in favor of export promotion over import substitution?

A)International competition compels domestic producers to become more efficient.
B)Exposure to world markets provides greater opportunities to learn new technologies.
C)Producing for export permits greater specialization and economies of scale.
D) Outward-looking development promotes larger firms.

Question 56

If the equilibrium exchange rate is 15 pesos per dollar and the central bank fixes the exchange rate at 17 pesos per dollar, then we can conclude that the peso is

A)appreciated.
B)depreciated.
C)overvalued.
D) undervalued.

Question 57

An economic community

A)attempts to raise prices by restricting quantity.
B)seeks to stabilize commodity prices.
C)seeks concessional loans.
D) imposes a common external tariff.
E) None of the above.