Trade and Development

Trade and Development (IPE I) Summer term 2017 (6 credit points) Wednesday, 10:15 11:45, Carl-Zeiß-Str. 3, HS 207 Master Program Prof. Dr. Andreas Freytag LS Wirtschaftspolitik FSU Jena 1

Aim of the lecture Based on the theoretical fundament built in the lectures Public Choice and International Trade, both in the past winter term, the lecture International Political Economy I: Trade and Development aims at improving students understanding of global trade policy and the development process in less developed, emerging and transition countries. The integration into the global division of labor has proven crucial for the development process in the West and in the Rest. Therefore, the lecture combines trade policy aspects with development policy and global governance. Political economy is important to understand the slowness of development and the obstacles to combat poverty as well as to solve global problems such as climate change and transnational terrorism. Economic analysis provides powerful tools towards such a better understanding of the development process against the background of a global trading order and its backlashes. 2

Tutorial: Christoph Dörffel, M.Sc. Room: SR 314 Friday, 8.15 a.m., beginning April 28, 2017 Students have to solve small problems in exercises and discuss the solutions. In addition, some seminal academic and policy oriented papers will be distributed, which should be read and discussed in the tutorial. Written Exam: tba 3

Outline 1. Introduction 2. Aspects of Global Governance 3. Aspects of Development 4. Trade and Development 5. Development 2017: What Role for Trade and Trade Policy? 4

Literature Acemoglu, D., S. Johnson and J.A. Robinson (2001), The colonial origins of comparative development: An empirical investigation, The American Economic Review, Vol. 91(5), 1369-1401. Bhagwati, J. and R.E. Hudec (1997): Fair Trade and Harmonization, Volume 1, Economic Analysis (Cambridge, London: MIT Press). Bhagwati, J. and R.E. Hudec (1997): Fair Trade and Harmonization, Volume 2, Legal Analysis (Cambridge, London: MIT Press) Binns, Tony, Alan Dixon and Etienne Nel (2012), Africa Diversity and Development, London and New York. Corden, W.M.(1971), The Theory of Protection, Oxford. Corden, W.M. (1974), Trade Policy and Economic Welfare, Oxford. Dettmer, Bianka, Fredrik Erixon, Andreas Freytag and Pierre-Olivier Legault-Tremblay (2011, The Dynamics of Structural Change The European Union s Trade with China, The Chinese Economy, Vol. 44, No. 4, 42-74. Doucouliagos, H. and M. Paldam (2009), The aid effectiveness literature: the sad results of 40 years of research, Journal of Economic Surveys, Vol. 23(3),433-461. Doucouliagos, H. and M. Paldam (2010), Conditional aid effectiveness: A meta-study, Journal of International Development, Vol. 22(4), 391-410. 5

Draper, P. and Freytag A. (2008): South Africa s Current Account Deficit, SAIIA Trade Policy Report No 25, Johannesburg, 2008. Draper, P. A. Freytag and S. Al Doyaili (2013), Why Should Sub-Saharan Africa Care about the Doha Development Round? Economics: The Open-Access, Open-Assessment E-Journal, Vol. 7, 2013-19. http://dx.doi.org/10.5018/economics-ejournal.ja.2013-19. Easterly, W. (2005), The White Man s Burden, Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good, London. Feenstra, R.C. und A.M. Taylor (2008), International Economics, New York. Freytag, Andreas (2008), That Chinese Juggernaut - Should Europe Really Worry About its Trade Deficit With China?, Brussels: ECIPE Policy Brief 3/2008. Freytag, A. and G. Pehnelt (2009), Debt Relief and Changing Governance Structures in LDCs, World Development, pp. 62-80 Glaeser, E., R. La Porta, F. Lopez-de-Silanes and A. Shleifer (2004), Do institutions cause growth?, Journal of Economic Growth, Vol. 9, 271-303. G20 (2010), The Seoul Summit Document, http://www.seoulsummit.kr/outcomes/, http://www.g20.org/documents2010/11/seoulsummit_declaration.pdf Haberler, Gottfried v. (1933), Der internationale Handel, Nachdruck 1970, Berlin et al. Harrison, A. and Rodríguez-Clare, A. (2010), Chapter 63 - Trade, Foreign Investment, and Industrial Policy for Developing Countries, In: Rodrik, D. and Rosenzweig M., Editors, Handbook of Development Economics, Elsevier, 2010, Volume 5, Pages 4039-4214. 6

Krugman, P.R., M. Obstfeld and M. Melitz (2015), International Economics, 10th edition, Boston et al. Markusen, J.R., Melvin, J.R., Kaempfer, W.H., Maskus, K.E. (1995): International Trade, Theory and Evidence (USA: McGraw-Hill). Reinhart, C.M. and K.S. Rogoff (2010), Growth in a Time of Debt, The American Economic Review, Vol. 100(2), 573-578. Rodriguez, F. and D. Rodrik (2000), Trade policy and economic growth : a skeptic's guide to the cross-national evidence, NBER macroeconomics annual, Vol. 15, 261-325. Röpke, W. (1979): Internationale Ordnung Heute, 3. Aufl,, Bern, Stuttgart. Sala-i-Martin, X., G. Doppelhofer and R.I. Miller (2004), Determinants of long-term growth: A Bayesian Averaging of classical estimates (BACE) approach, The American Economic Review, Vol. 94(4),813-835. Sally, R. (1998): Classical Liberalism and International Economic Order, London. Sally, R. (2008): Trade Policy, New Century. The WTO, FTAs and Asia Rising, London, Institute for Economic Affairs. Sally, R. (2011), The Crisis and the Global Economy: A Shifting World Order, ECIPE Occasional Paper No. 3/2011, Brussels, ECIPE. Schneider, Friedrich und Dominik H. Enste (2000), Shadow Economies: Size, Causes and Consequences, Journal of Economic Literature, Vol. 38, pp. 77-114 Sen, A. (1988), Chapter 1: The Concept of Development, Handbook of Development Economics, Volume 1, Elsevier, 1988, Pages 9-26. 7

Todaro, Michael P. and Stephen C. Smith (2015), Economic Development, 12th edition, Harlow (England) et al. Williams, David (2012), International Development and Global Politics, London und New York. 8

Internet-Addresses (Selection) OECD: http://www.oecd.org Weltbank: http://worldbank.org Welthandelsorganisation (WTO): http://www.wto.org Internationaler Währungsfonds.: http://www.imf.org Europäische Kommission: http://europa.eu.int/comm/trade/ Office of the United States Trade Representative: http://www.ustr.go United Nations Conference on Trade and Development (UNCTAD): http://www.unctad.org Global Trade Alert: http://www.globaltradealert.org/ VoxEU: http://www.voxeu.org Centre for Economic Policy Research (CEPR): http://www.cepr.org European Centre for International Political Economy (ECIPE): http://www.ecipe.org South African Institute of International Affairs (SAIIA): http://www.saiia.org.za Peter G. Peterson Institute for International Economics: http://www.iie.com Cato Institute: http://www.cato.org Global Trade Analysis Projekt: http://www.gtap.org Attac (NGO): http://www.attac.org Oxfam(NGO): http://www.oxfam.org World maps:: http: //www.worldmapper.org Alan Deardorff s Website: http://www-personal.umich.edu/~alandear/glossary/ 9

1. Introduction Since the end of the Cold War, global integration has much increased: strong increase in trade; division of labor includes emerging and transition countries; fragmentation of production processes (global value chains) the latter also participate increasingly in capital transfers; global imbalances have emerged: problem?; LDCs still do not develop as needed to combat poverty and hunger; the awareness of global environmental and climate problems has been rising; the level of individual freedom and political rights is still too low on a global scale. The following slides document parts of these developments. 10

Figure 1.1: World GDP and trade (exports) volumes growth, 1960-2015 1100 1000 900 800 700 600 500 400 300 200 100 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 GDP (current US$) Exports of goods and services (current US$) Source: IMF World Development Indicators, 1980=100 11

Figure 1.2: Taken from: https://www.wto.org/english/news_e/pres16_e/pr779_e. 12

Figure 1.3: World trade as share of GDP, 1990-2014 Source: IMF WEO, Oktober 2015, S. 121 13

1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Figure 1.4: Exports of goods and services (% of GDP), 1967-2015 35 30 25 20 15 10 5 0 High income Low income Middle income Source: World Development Indicators, March 2017 14

Figure 1.5: Intercontinental trade flows Source: DHL, Annual Report 2014 15

Figure 1.6: Trade growth driven by Asia & Europe, definitely not by Africa Source: WTO, World Trade Statistical Review 2016, p. 20 16

Figure. 1.7: World trade according to product groups Source: WTO Press Release 17

Figure 1.8: Managing the noodle bowl (hard disc produced in Thailand) Source: Baldwin, Richard (2006), Managing the Noodle Bowl: The fragility of East Asian Regionalism, Graduate Institute of International Studies, Geneva. 18

Figure 1.9: Elements of the Global Value Chain Source: Stan du Plessis, University of Stellenbosch, based on The Planet Money T-Shirt podcast 19

Figure 1.10: Global value chain participation 1995-2013 Source: WEO Fall 2016, p. 82 20

Table 1.1: Inward and outward FDI stock, 2000/2010/2015 Source: UNCTAD World Investment Report, 2016 21

Figure 1.11: Inward and outward fdi stock, annual, 1980-2011 Source: unctadstat 2013 22

2,5 Figure 1.12: FDI Inflows, annual, 1980-2015, in trillion current US$ 2 1,5 1 0,5 0 1980 1985 1990 1995 2000 2005 2010 2015 World Developing economies Transition economies Developed economies Source: UNCTADSTAT 2016 23

Figure 1.13: Tariff rates, applied, simple mean, manufactured products (%) 20 18 16 14 12 10 8 6 4 2 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 World OECD members Low income High income Middle income Source: World Development Indicators, March 2017 24

Table 1.2: MFN tariff peaks Source: UNCTAD (Data of 1999) Domestic peak: International peak: tariffs above threefold of domestic average tariffs above 15 per cent 25

Table 1.3: MFN tariff peaks of developed countries Source: UNCTAD (Data of 1999) 26

Figure 1.14: Average tariffs in EME 2008 (bound and applied) % 70 60 50 Bound Tarif line, WTO Applied tarif 40 30 20 10 0 Brazil China India Russia South Africa Agriculture, Foodstuff Raw Materials, Chemicals Textiles, Apparel Machinery, Transports Source: Freytag, Andreas and Sebastian Voll (2009), Liberalise now! The only chance for emerging economies to become a major player, www.voxeu.org of March 25, 2009. 27

Table 1.4: Human Development Index 1990-2015 Source: UNDP, Human Development Report 2016, S.205 28

Figure 1.15: Human Development Index for selected countries, 1990-2015 1,000 0,900 0,800 0,700 0,600 0,500 0,400 Switzerland Germany United States France Brazil India Kenya Pakistan Swaziland Nigeria Chad 0,300 0,200 0,100 0,000 1990 1995 2000 2005 2010 2015 Quelle: UNDP, 2016 29

Despite these mostly positive developments, there have been recent backlashes: rise in protectionism after the global financial and economic crisis populist movements all over the planet* new European nationalism (e.g. Hungary, Poland) conflicts in many developing regions Trumponomics Brexit anti-ttip movement as an example for hysteric antiglobalization impulses technological developments (Industry 4.0) that may lead to deglobalization *Freytag, Andreas (2017), Populism on the rise: Is there a rational policy response?, Tutwa Blog, March 30, 2017, http://www.tutwaconsulting.com/populism-on-the-rise-isthere-a-rational-policy-response/ 30

Figure 1.16: Global trend populism #1? Source: German Council of Economic Experts, Annual Report 2016/17, p. 158 31

Figure 1.17: Global trend populism #2? Source: German Council of Economic Experts, Annual Report 2016/17, p. 173 32