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
