International trade and industrialization

^ united nations

african institute for economic development and planning

d a k a r.

idep/et/lxvii/2035-vi _5o 9ç,

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international trade and industrialization

Mr. y. yener.

MAY 1968

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{ * IDBP/ET/LXVII/2035-VI

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INTEBNATIQNAL TRADE AND INDUSTRIALIZATION

Some of the economists defend that international division of labour

and international trade, which enable ^every country to specialize and to export those things that it can produce cheaper in exchange for what others

can provide at a lower cost, have been and still are one of the basic

factors promoting economic wellbeing and increasing national income of

every participating country. Moreover what is good for the national income

and the standard of living is also good for economic development. As the level of income increases, it is ^{easier to escape} the "vicious circle of poverty" and to "trade off into self-sustained growth". Hence, if trade

raises the level of income, it also promotes economic development.

Prom the industrialization aspect, the benefits of trade ^may be explained in four groupss

First, trade provides material ^means. The underdeveloped countries

draw tremendous benefits from technological progress in the developed

countries through the importation of machinery, transport equipment, vehicles,

power generation equipment, road building machinary, medicines, chemicals

and so on.

Secondly, probably more important than the importation of material goods is the importation of technical knuw-how, skills, managerial talents, enterpreneurship. This is, of course, especially important for the under¬

developed countries. But the less advanced industrial countries can profit

also from the superior technical and managerial know-how, etc, of the more advanced ones through trade.

The late-comers and successors in the process of industrialization

ha*re always had the great advantage that they could learn from the experi¬

ences, from the successes as well ^as from the failures, and mistakes of the pioneers and forerunners.

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Trade is the most important which for the transmission of technolo¬

gical know-how» In fact this function of trade is probably somewhat less important now than it was a hundred years ago, "because ideas, skills, know-how, travel easier and quicker and cheaper today than in

the 15th

century. The market where engineering and management experts can "be

hired is much "better organized than formerly.

Thirdly, trade helps to transmit the

capital.

capital

that an underdeveloped country can obtain from abroad depends in the first place on the ability and willingness of the developed countries to lend,

which is influenced by the internal policies in the borrowing countries.

But, other things being equal, the longer the volume of trade, the

greater

will be the volume of foreign capital that can be expected to become avail¬

able under realistic assumptions.

Forthly, trade provides a healthy competition and

enlarges

size

of the markets. This last point is especially important for the under¬

developed countries. On the other hand, competition brings the efficiency, Briefly, by the international division of labour, the benefits

of

technical _progress tend to be distributed alike the whole community, either by the lowering of prices or the corresponding raising of incomes. The

countries producing raw materials obtain their share of these benefits

through international exchange, and therefore have no need to

industrialize.

The point of view which is against, to some extend the international

division of labour _may be summarized.

Contrary to what the equilibrium theory of international trade would

seem to suggest, the play of the market forces does not work towards equality in the remmuneration to factors of production and, consequently,

in incomes.

It is easy to observe how in underdeveloped countries the trading

contacts with the outside world have actually impoverished them culturally.

Skills in many crafts inherited from centuries back have been lost.

IDEP/ET/LXVII/2035-

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International trade suggests the underdeveloped countries to produce primary products, and such production employ mostly unskilled labour. First

they often meet inelastic demands in the export market, often also a demand

trend which is not raising rapidly, and excessive price fluctuations.

Second, because of stagnation in the export market, any technological improvement in their export production tends to confer the advantages from

the cheapening of production to the importing countries.

International trade do not help to a great extend, to import capital

also. For hundreds of years, the capital which has come to underdeveloped

areas is devoted to export production of primary products which were profit

able to their owners. On the other hand, investments in railways and public utilities was for the security of colonial governments.

If there were no exchange controls and if national development policie

secure high profits for capital, capitalists in underdeveloped countries

would be exporting their capital.

Under these circumstances the forces in the markets will tend to

cause ever greater international inequalities between countries as to their

level of economic development and average national income per capita.