Lecture 23 EOI

8/12/2019 Lecture 23 EOI

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International Political Economy #23

Export-Oriented Industrialization

William Kindred Winecoff

Indiana University Bloomington

December 3, 2013

W. K. Winecoff | IPE #23: EOI 1/17
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Papers

Must:

Include a word count with your title and name.

Include a Reference page.

Use in-text citations.Submit to TurnItIn via the OnCourse Assignments tab.

Turn in a hard copy, to me, in class, on time.

Pleaseproof-read, edit, and spellcheck. If you wont take pride in your

work then I wont either.

Please look at the writing guides Ive posted. Most of your questions are

answered there.

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Papers & Etc.

Things I dont care too much about:

What particular reference style you use (e.g. MLA, Chicago)

as long as it is clear and consistent.

What particular font/margins/spacing you use, as long as it isreadable.

Whether you are exactly at 5,000 words. Note: anything

shorter than 4,000 words is likely too short. Anything longer

than 6,000 words will make me grump.

ALSO NOTE: because I was sick we will skip the Uneven Developmentand the World Bank lecture, along with those readings.

ALSO: Course evals on Thurs. (I need a volunteer.)

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The Transition

ISI was appealing on intellectual, ideological, and political grounds.

Intellectuals insist state is necessary to promote development.

Appealed to nationalist leaders and citizens ofnewly-independent states.

State-led development allows politicians to distribute rents to

elites, thus keeping them in power.

Early gains from ISI seemed to validate these policies.

Early gains from ISI were not sustainable.

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The East Asian Experiment

Some countries begin to transition away from ISI.

Political dynamics in Asia in 1960s-70s provide incentives for

development.

But these governments generally arent democratic, and want to keep a

role for the state.

Shift from extractive ISI, but keep state involved.

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The Result

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The EOI Success

ISI worked fairly well from 1930-1960.

EOI out-performed ISI from 1960-1990.

More and more countries begin abandoning ISI.

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The East Asian Model - Export Oriented

Industrialization

State power as a complement to the market, not a substitute for it.

Use the state to more quickly push resources to industries

where comparative advantage already exists or can be quickly

developed.

Use the state to move up the development ladder.

1 Primary ISI, e.g. on textiles and apparel, but with the goal of

exporting.2 Secondary ISI, e.g. chemicals, steel, heavy industry.

State supports private investment via subsidies, exchange

rates, tax breaks, EPZs.

3 Shift to emphasis on technology-intensive industries, e.g.semiconductors, computers, biotechnology.

State supports private investment, but also creates

infrastructure via R&D, education.

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A New Model?

According to Fallows, not so much.Most countries have used a mix of state + market to develop. No

countries have developed via a pure market-based system.

Ideological foundations via List and Hamilton.

But Adam Smith, Ricardo, and others reject this sort of

mercantilism.

At some point ideology must give way to results:

East Asia becomes fastest growing region: exports grow 8.5%

per year from 1965-1980; per capita income growth is twice

that in S. Asia and S. America during same period.Others see these results and begin to mimic them:

Chinese reforms in 1979.

Indias reforms during post-1991.

Latin American reforms 1980s-present.

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Problems

How do you move to a new path?

Political interests become entrenched in an ISI system.

Political leaders need to use rent distribution to purchase

political support.

Moving from a closed/illiberal system based on self-sufficiency to an

open/liberal system based on interconnectedness is a pretty big shift.

The changes caused by:

Crises in the Gap, which led to:External intervention from the Core into the Gap.

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Transitioning

Weve already talked about some of these:Debt crises in L.A. in 1980s.

But not all:

Failure of Chinese Great Leap Forward and Cultural

Revolution leads to mass starvation and relatively mobilized

population. Leadership fears anti-Marxist revolution in theabsence of reform.

Continuing stagnation of Indias economy during the Cold

War becomes even more exposed after collapse of Soviet

Union. Command-and-control economic system has no

intellectual justification post-1991.

Countries begin mixing state with markets to generate income via

exports and interconnectedness rather than self-sufficiency.

Collapse of fixed-exchange rate system with collapse of Bretton Woods

(1973) makes this easier.

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Exporters Need Importers

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The Hegemons Role

In order for export-led development to work, countries need markets.

The US has served this role since the early-1980s.

This facilitates the GSG, the imbalance of payments.

Does it also lead to crisis?

Problem: if the US doesnt let it happen, then development becomes

difficult.

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Domestic Effects

But exposure to trade has distributional consequences:

US consumers benefit from cheaper prices.

US importers benefit by selling goods.

Foreign exporters benefit by selling goods.US workers in sectors that compete for exports those that

are comparatively disadvantaged suffer.

Moreover, foreigners need to earn $ for reserve, investment, and

exchange purposes.

Increased inequality and median wage stagnation begins in the US in1973... same years that Bretton Woods ends and EOI really takes off.

Coincidence?

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The Great Stagnation

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Domestic Politics of EOI

It seems clear that if the US combats domestic inequality by restricting

trade openness, developing countries will suffer.

We already seen this in the case of agriculture (e.g. Brazils cotton

trade).

This is a policy challenge, which US policymakers have combatted by

keeping consumption high.

How is this possible? Increasing debt.

Increases in debt make financial crises more likely... and thats what wesaw.

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Consumption Equality

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Lecture 23 EOI

Documents

Transcript of Lecture 23 EOI