The following article from The Economist looks at the role of imports in stimulating economic development in developing countries. It questions the simple perception of many people, not least politicians, that exports are good, but imports are bad. Far from merely being a drain on the balance of payments and a threat to domestic industries, imports can provide both useful competitive pressures and access to intermediate goods.
Opening the floodgates The Economist (7/3/09)
(The paper referred to in The Economist article above)
Questions
- How can reducing trade barriers and thereby reducing the price of imports help a developing country?
- Consider whether the total removal of trade barriers would be desirable for developing countries.
- Explain what is meant by “But the Indian variant of creative destruction seemed unusually benign” and why this was so.
- Why has it proved so difficult to secure an international agreement to reduce trade barriers under the Doha trade round?
In an earlier news item we saw that the global recession has hit the demand for organic produce. The same is not true for Fairtrade products as a global survey published on 17/4/09 shows (see). Awareness of Fairtrade products continues to grow as do sales. The articles below look at the findings of this survey and at the explanations behind it.
UK: Fairtrade Flows Against Economic Tide Namnews (20/4/09)
The government must act on fair trade now Public Service Review: International Development Issue 13 (20/4/09)
Fairtrade a hit with shoppers as demand rises despite credit crunch Glasgow Daily Record (17/4/09)
Link to short videos from the Fairtrade Foundation; Link to facts and figures on Fairtrade Fairtrade Foundation
Questions
- Consider the reasons why Fairtrade sales have increased while sales of organic produce have declined.
- Does purchasing Fairtrade products mean that consumers are not seeking to maximise their consumer surplus?
- What economic challenges face Fairtrade producers? How should governments help the Fairtrade movement?
- Is the liberalisation of trade in the interests of Fairtrade producers?
The G20 countries meet each year. Normally their meetings are full of fine words resulting in little action. But at a summit in London on 2 April 2009, the fear of a deepening global recession focused minds and a package of measures worth over $1 trillion was agreed to stimulate trade and growth. This included $750 billion for the IMF to help economies in severe difficulties, $250 billion for financing world trade and $100 to multilateral development banks (such as the Asian Development Bank) to provide extra aid to the poorest countries.
The extra money for the IMF would include $500 billion of loans from member countries and £250 billion in new money – a form of international quantitative easing. This new money would be in the form of ‘special drawing rights’. These are denominated in dollars and are created by the IMF to be drawn on by countries in difficulties.
There was also agreement to tighten financial regulation and to resist protectionism. A ‘Financial Stability Board’ would be set up and work with the IMF to design a strengthened regulatory system for banks and other financial institutions and for financial markets and instruments.
The following articles look at the agreement and its likely effects.
‘This is the day the world came together to fight back’ Independent (2/4/09)
G20 communiqué: Point by point analysis Telegraph (2/4/09)
G20 summit – leaders’ statement. Full text of the communiqué Guardian (2/4/09)
G20: Economic summit snapshot BBC News Online (2/4/09)
G20 leaders seal $1tn global deal BBC News Online (2/4/09)
G-force The Economist (2/4/09)
World leaders declare war on risk Sydney Morning Herald (3/4/09)
Postscript (Sept 2009)
G20: What progress has been made? BBC News (23/9/09)
G20: Pledge by pledge BBC News (25/9/09)
Questions
- What will determine the success or failure of the G20 agreement to revive the world economy?
- Identify any multiplier effects from the agreed measures.
- Why did the French and German governments object to any further fiscal stimulus packages?
The European Commission is concerned that the economic downturn may have put the livelihoods of dairy farmers at risk. To try to prevent any problems for farmers, the Commission has re-introduced export subsidies for dairy products. The last time subsidies were paid to dairy farmers was June 2007 and the EU insists that the payment will meet World Trade Organisation (WTO) rules.
EU gives boost to dairy exports BBC News Online (23/1/09)
Questions
- Using diagrams as appropriate, illustrate the impact of the EU export subsidies on the market for milk.
- Additional support for dairy farmers comes in the form of EU intervention – European Commission purchases of surplus produce at a guaranteed price. Using diagrams as appropriate, illustrate and explain how this ‘guaranteed price’ scheme will work.
- Explain the role of the WTO in determining world trade rules.
- Discuss the likely reaction of other countries to the EU’s payment of export subsidies to dairy farmers.
The Mount Washington Hotel in Bretton Woods, New Hampshire was the location for a historically significant meeting in the summer of 1944. John Maynard Keynes was part of the British negotiating team at a meeting to plan the post World War II economic order. As a result of the meeting an adjustable peg system of semi-fixed exchange rates was developed and the International Bank for Reconstruction and Development (IBRD – now part of the World Bank Group) and the International Monetary Fund (IMF) were also born. As a result of this meeting the small rural location of Bretton Woods has moved into the economics lexicon. The institutions born out of this meeting have been subject to considerable criticism in recent years and in the first article linked to below, George Monbiot argues that it is unfair to attach this criticism to Lord Keynes. With a recent meeting of the G20 having been dubbed as Bretton Woods II, the original meeting and its outcomes have been thrown back into the limelight.
Keynes is innocent: the toxic spawn of Bretton Woods was no plan of his Guardian (18/11/08)
How Bretton Woods reshaped the world Guardian (14/11/08)
Shaping the world: Bretton Woods 1944 Guardian (14/11/08)
It takes two Guardian (5/12/08)
Questions
- Write a short paragraph summarising the outcomes of the Bretton Woods conference in 1944.
- Explain the role in the world financial system of (a) the World Bank and (b) the IMF.
- Assess the possible validity of the criticisms that have been levelled at the IMF. See particularly the George Monbiot article.
- Using diagrams as appropriate, explain how the system of semi-fixed exchange rates negotiated at Bretton Woods worked to maintain economic stability.
- Examine the principal reasons for the breakdown of the Bretton Woods system.