Abstract
M.Comm.
The objective of chapter one is firstly to trace the development of theories of international trade
from Adam Smith to today, and thereafter to consider their relevance for developing countries.
The relevance of trade theory to developing countries is an issue on which economists have not
reached consensus, and it is the aim of this essay to state the different views, but not to make a
judgement on the merits of anyone of the stated views.
The plan of chapter one is as follows. In the first section, the causes of international trade will
be investigated. It will be a purely positive analysis, with the emphasis on explanations for the
actual patterns of trade. Older, more traditional theories, such as those of absolute and
comparative advantage and the simple Heckscher-Ohlin theory, will receive but a brief treatment.
The focus will rather be on modern extensions of trade theories. Of particular relevance to
developing countries is the impact of technological change on trade patterns, and the effects of
increasing returns on international competitiveness, product variety and intra-industry trade. The
purpose of the first section is to establish the main tenets of modern theory. Analyses of the
implications for developing countries, especially in the context of protection, will follow in
subsequent sections.
The second section deals with the normative issue of the gains from international trade. It starts
by presenting the standard arguments that point to welfare gains associated with international
trade. Thereafter, the theories introduced in the first section are evaluated from a normative point
of view. In particular, their relevance to developing countries is investigated. The object of this
section is to show that, although there is not necessarily consensus on the issue, developing
countries stand to gain from international trade.
Chapter two deals with the very popular topic of discussion in Development Economics, namely
the relationship between economic growth and foreign trade. Interest in this particular line of
study was sparked by the successful development record of Far Eastern economies. Much has
been written on the reasons for this success, and invariably strong export records are regarded as
contributing significantly to economic growth. It is the purpose of this paper to briefly trace the most important features of the South African economy in terms of export orientation, and to
attempt to compare the South African development performance to other developing countries.
South Africa's position in the arena of international trade is very liquid at present. At the time
of writing, the procedural agreements of the latest GATT talks were available, but not specific
agreements on the level of tariffs allowed. In the first section, the recent p t of South African
trade policy will be briefly summarised. The level and structure of protection will receive special
attention. In particular, the position relative to other countries will be examined. In the second
section, the relative growth performances of South Africa and a number of other countries will
be presented. The possible options for future trade policy (aimed at increased economic growth)
will be outlined in the final section of chapter two.
At this stage it is important to point out that the methodology follow ,A, in this paper suffers from
one serious drawback, namely the fact that much of the data used for purposes of co II parison are
not strictly comparable. Particularly, the data for other developing countries comes mainly from
World Bank sources, while the South African data comes from a number of divergent sources.
Different techniques were used by the various researchers, making comparison difficult.
Nonetheless, some clear patterns seem to emerge.
Recently, the Uruguay Round of GATT was signed'. In keeping with the main objective of the
GATT, tariffs barriers were lowered, and South Africa, back in the international fold, will have
to comply to the new tariff levels. Nominal rates of protection are to be reduced across the
world. As nominal rates of protection are reduced, effective rates of protection are also likely to
fall. It is the objective of the final chapter to calculate the effective rates of protection in a number of industries in South Africa, given the current rates of protection, both nominal and
effective, and the nominal rates as agreed to in the GATT treaty.
One of the main influences of changing levels of protection is a reallocation of resources. If a
given industry had been protected for a number of years, and that protection is suddenly done
away with, it is not impossible that resources that had previously been directed at the protected
industry, will now flow in another direction. This will especially be the case if only protective
barriers served to maintain profitability in the industry.