Trade Policy in Developing Countries

By Edward F. Buffie | Go to book overview

CHAPTER 10
Suggestions for Future Research

The concluding sections of Chapters 3, 5, 6, 8, and 9 summarize what the book has to say about various aspects of the trade policy debate in developing countries. Rather than cover that ground again in slightly different language, I will bring matters to a close by emphasizing that a good deal of additional work is needed in the areas of optimal commercial policy, liberalization, and direct foreign investment to complete the research program started here.


Optimal Commercial Policy

The analysis of optimal commercial policy in Chapter 5 assumed that exports were primary products (or lightly processed manufactured goods) and that high-wage employment was confined to the importcompeting sector. It is desirable to relax these two assumptions. A significant minority of LDCs are now proficient exporters of manufactured goods, and in some parts of Latin America the high-wage sector includes large sections of the export sector and services in addition to import-competing manufacturing production.

No special adaptations of the model in Chapter 5 are required to analyze optimal commercial policy when the manufacturing export sector resides in the low-wage informal sector. This case can be handled simply by marking down the cost share of land and marking up the cost shares of labor and capital. I doubt if it would produce results appreciably different from those in Chapter 5.

The more challenging and more interesting case places manufactured exports in the high-wage formal sector. Since agriculture still produces 10–25% of GDP in most semi-industrial countries, a proper analysis of this case requires a four-sector model. The solutions for optimal policy would, inter alia, tell us whether nontraditional exports deserve more encouragement than traditional exports. I suspect the answer is yes, that optimal policy will be characterized by a fairly balanced combination of protection and export promotion in the manufacturing sector together with small export subsidies or relatively low protection for agriculture (if it is an import-competing sector).1

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1
Distributional concerns may justify more protection for agriculture.

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