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COLER Isabell-Georgiana, SPE III

Export instability and economic development:

= short-run fluctuations in the export prices of a nation

Measurements of export instability and its effect on development:

- MacBeans study: index of instability of export earnings = the average percentage

deviation of the dollar value of export proceeds from a five year moving average,

measured on a scale from 0 to 100

- He found out that the index of instability of export earnings was 23 for a group of 45

developing countries and 18 for a group of developed nations => the degree of

instability is not significantly different from developing to developed nations

- The degree of instability of export earnings of the developing countries depends on

what commodity they export and not on the fact that they export a limited number of

commodities. Example: unstable export earnings for nations exporting rubber, jute,

cocoa and more stable export earnings for ones exporting petroleum, bananas, sugar or

tobacco.

- Greater fluctuations in export earnings did not lead to significant fluctuations of the

developing nations incomes, savings or investments, nor did it interfere with their

development efforts.

- The international commodity agreements demanded by these countries are not

justified

International commodity agreements

- initially export prices stabilization (for individual producers) was achieved by

marketing boards: these would set the prices below world prices for good years and

above for bad years, however it was difficult to anticipate the world prices.

- International commodity agreements: 1. buffer stocks, 2. export controls, 3. purchase

contracts.

- Buffer stocks = purchasing a commodity when the prices falls below an agreed

minimum price and selling it when the price rises above the maximum agreed upon

price. Disadvantages: some commodities require high costs to be stored and the stock

might grow larger and larger if the price is above the equilibrium level.

- Export controls = regulate the quantity of a commodity exported by each nation. It

avoids the costs of maintaining stocks, but it can be inefficient because all the majorexporters of the commodity should participate.

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- Purchase contracts = long-term multilateral agreements that stipulate a minimum

price at which importing countries agree to purchase a specified quantity of the

commodity and a maximum price at which exporting nations agree to sell it.

Import substitution versus export orientation:

- Import-substitution industrialization: 1. the market for the industrial product exists, so

risks of setting up an industry to replace imports are reduced; 2. easy protection of the

domestic market against foreign competition; 3. foreign firms are induced to establish

tariff factories to overcome the tariff wall of developing countries.

- Export-oriented industrialization: 1. allows the developing nation to take advantage of

economies of scale; 2. production of manufactured goods for export requires and

stimulates efficiency throughout the economy; 3. the expansion of manufactured

exports is not limited by the growth of the domestic market.

- Most developing countries chose the ISI system.

- Since the 80s developing countries using ISI system began to liberalize trade and

adopt an outward orientation. Reforms to reduce and simplify the average tariff rates

and restrictions of the quantitative import.

- The World Bank offered assistance and loans to developing countries in order to help

implement these reforms.