Thursday 7 October 2010
Trade, Exchange rates and Democracy
So I've been thinking:
Should trade policy be related with democracy? Are countries who are bigger, poorer and undemocratic more likely to be protectionist?
If so should we create added trade barriers to these countries, is it irrelevant or does this hypothesis not imply the need for trade barriers?
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Hum, not that I am totally informed about it, but has any connection between democracy and trade policy been found?
ReplyDeleteI would find it unsurprising that GDP per capita and trade policy were related (in the sense that poorer countries would need to resort to such policies in order to develop their own industries until they were able to compete internationally). I could see size related to it as well, in the sense that larger countries are generally more powerful (the BRIC group as the most obvious example) and therefore more able to resist foreign pressure to open up and give up protectionist policies.
I wouldn't see a need to impose trade barriers, though. Some economists (Dani Rodrik, for example) have been contending for the importance of industrial policy for developing countries. Others (e.g., Ha-Joon Chang) have stated that current developed countries used heavily protectionist policies as they were going through their own process of transition into a "developed country" status. Therefore, nowadays' developed countries shouldn't "kick away the ladder" (using Ha Joon Chang's expression) from the developing countries, considering they have also previously used it.
Thank you for the comment Sérgio!
ReplyDeleteI completely agree with you about the causes of trade protectitionism. Although I have to say I'm never very impressed with these economic arguments that because we did it, it's only fair that they be allowed to do it. I think that logic looks over the fact that we were wrong when we did it. By that same token, China could argue, through that same logic, that imperialist ambitions would be legitimate, given that we've done it in the past. A more exaggerated example may be would be for Europe and the USA to not tolerate islam because Saudi Arabia doesn't tolerate much Christianity. So I'm not particularly impressed with Ha Joon Chang's argument.
My point, however, is stlightly more convoluted even, in that if it is a relevant issue, democracy only matters way down the line, in terms of its ability to absorb the social damage of a shock that was undesireable. I'll elaborate on it in the next post... May be it'll become a bit clearer.