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An overview of economic theories and trade policies in asia, focusing on the infant industry argument, classical and neoclassical trade theories, and the industrialization policies of japan and korea. It covers topics such as tariffs, export promotion, land reform, and self-help programs.
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Be able to explain Infant Industry argument for protecting an industry – An infant industry is a potentially competitive industry, temp trade protections are placed on imports in that industry, industry becomes more efficient and competitive, tariffs are removed even if industry doesn’t become competitive Explain and contrast classical trade theory and neoclassical trade theory, explain impact of freer trade on wage rates and profit rates – Neoclassical – Capital Abundant(lot of capital per worker), Labor Abundant(many workers per unit of capital), Capital intense goods(goods that require much capital), labor intensive goods(goods require lots of labor), labor intensive nations trade for goods from capital abundant and vice versa, freer trade raises abundant factor and helps economy. – Classical – Freer trade, larger market, more specialization, greater productivity, as labor is more productive wage rates and profit rates rise, better economy. In general – free trade increases total productivity and creates peace. Explain and discuss Japans trade policy and compare it to the infant industry argument – (see infant industry argument) – Japans policy – place tariffs to protect industry, tax subsidies, hidden protections, and continued help depends on success, Japan continues to protect successful industries but removes protections for unsuccessful industries Taiwan is noted for many pragmatic shifts in its industrialization policy, be able to explain and discuss these shifts – small scale import substitution 1950’s, export promotion 1960 to early 70’s, large scale import substitution 1970’s, market oriented approach 1980’s to 1990’s – Small scale import substitutes – shoes bikes toys, easy to import, mostly for entrepreneurs, gov plays small role, tariffs more general, quotas in some industries, clothing and textiles prosper, industry died out – Export Promotion – thought goods were too primitive, gave incentives to export, rebates on tariffs, subsidized loans, exported old import substitute goods, textiles garmets toys, formed cartels 1960 to 1970, exports grew 27% - Large Scale Import Substitutes
- attempt to diversify substitution, stressed capital intensive industries (steel, shipbuilding, refining), many failed but some like steel prospered, automobile industry started joint ventures, failed ventures closed in 1981, shifted to free market approach from there Be able to explain and discuss land reform in Korea and its self help program – Japanese held land was distributed to more prosperous Koreans, redistributed to small farmers in 1949-50, diversified agriculture in 1960’s, Infrastructure investment in 1950’s, rice yields increased – Self Help Program – 1971, government provided materials, community produced labor, focused on rural development Explain why korea had low savings and high inflation, explain why these two were related and what korea did that dramatically reversed this condition – shallow finance, depth of finance is measured by assets/GDP, increases as GDP increases, high inflation rate is caused by large gov. deficits and growth in money supply, government had restrictions on financial markets, gov sets interest rates, very low or negative real interest rate (real int rate= int rate – inflation rate), reduces savings, people look for inflation hedges which are (gold, foreign bank accounts, real estate), led to low savings and high foreign debt, this eliminated gov. deficit, raised taxes, reduced spending Explain Koreas industrialization policy, the structure of its industries and compare this to Japans – Active government planning, guided capitalism in Japan, more power to government bureaucracies, gov. controlled banks, gov. provided infrastructure, established heavy industry, but many operations failed. Moved to targeting vs direct control, overcome weak
entrepreneurship, used tax incentives, loans from state controlled banks, chaebol emerged (compare to Japans) Discuss land reform, and agricultural policy in Taiwan – agricultural policy, extracted savings from agriculture, land taxes, marketing boards (makes wholesalers buy from board), created higher input costs, gradually phased out previous steps, land reform – very unequal distribution of land, farmers were renters and sharecroppers, 1949 reform – reduction of rent(rent controls), sale of formerly Japanese land, 1953 reform – a redistribution of land, industrial bonds in compensation (like Japan), greater incentives to produce because it was their land, farm consumption and investment rose Discuss Japans WWII reforms that were made in Japan in agriculture, industry, and bureaucracy – Land reform – divided large land holdings, sudden and massive, redistributed wealth, improved productivity, compensated large land owners with industrial bonds – Industrial – eliminated Zaibatsu, new firms, new leaders of firms, eventually keiretsu were formed and reformers back off a little on antitrust, independent labor unions – Political/ Bureaucracy – representative democracy, purged old bureaucracy, brought in new people with new ideas, effective and efficient, growth oriented, financial aid, ended reparations Chaebol – larger zaibatsu, industrial and financial business conglomerates or partners Real interest rate – Interest rate – inflation rate Inflation hedge – An investment with value (gold, real estate, foreign bank account) Self Help Program – gov provides materials, community provides labor, focused on rural development Import substitution – policy that places specific tariffs on particular industry to encourage production Infant Industry Argument – See essay? on infant industry Tariff – tax on imports The two missions of US policy in Asia were to? A.Modernize China and colonize the Philippines. Richard Nixon shook Mao’s hand? A.True Which Japanese company signed a contract with the UAW and is located in Detroit? C.Mazda Which country was once the biggest lender to Asia is now the biggest borrower? B.The US Confucianism encourages? C.Both A & B-loyalty to the firm and individualism In Singapore the government encourages births to? B.Women with high education Entrepreneurs displace- Civil Servants