Instructor’s Manual
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CHAPTER 7
TRADE POLICIES FOR THE DEVELOPING NATIONS
CHAPTER OVERVIEW
This chapter discusses the economic characteristics of the developing countries and the trade policies that have
been implemented to improve the well being of their people. The chapter begins by identifying the major trade
problems of developing countries: (1) lack of economic diversification, (2) unstable export markets, and (3)
worsening terms of trade.
Attention then turns to policies to stabilize the prices of primary products: (1) production and export controls, (2)
buffer stocks, and (3) multinational contracts. In general, these policies have had only modest success in
stabilizing commodity markets. To further help developing countries improve their economic well-being, industrial
countries have extended nonreciprocal tariff preferences to exports of developing countries.
BRIEF ANSWERS TO STUDY QUESTIONS
Instructor’s Manual
1. Developing nations often contend that the existing pattern of trade and specialization has made them
2. To promote stability in commodity markets, international commodity agreements have relied on production
and export controls, buffer stocks, and multilateral contracts.
3. International commodity agreements have been applied to commodities such as tin, cocoa, coffee, sugar,
4. Many developing countries find that their economies are greatly tied to the export of one commodity, such
5. During the 1960s oil was relatively abundant at the world level, which limited OPEC’s ability to raise oil
prices. By the 1970s oil was perceived as being in short supply. Following the Yom Kippur War in
6. The purpose is a cartel is to restrict market output, thus driving up price and profits; output restriction
8. Developing countries use import substitution policies to restrict the import of manufacturers so that
9. East Asia’s growth strategy has emphasized high rates of investment combined with high and increasing
Instructor’s Manual
10. Since the 1970s, China has abolished much of its centrally-planned economy and allowed free enterprise
to replace it. This move toward capitalism has dramatically improved the productivity and export
11. Prior to the 1990s, India adopted a system of import substitution to protect its young producers from
foreign competition. As India became isolated from the global economy, its economic growth suffered and