Free download. Book file PDF easily for everyone and every device. You can download and read online Finance & Development, March 2004 file PDF Book only if you are registered here. And also you can download or read online all Book PDF file that related with Finance & Development, March 2004 book. Happy reading Finance & Development, March 2004 Bookeveryone. Download file Free Book PDF Finance & Development, March 2004 at Complete PDF Library. This Book have some digital formats such us :paperbook, ebook, kindle, epub, fb2 and another formats. Here is The CompletePDF Book Library. It's free to register here to get Book file PDF Finance & Development, March 2004 Pocket Guide.
Search form

In fact, research indicates that a deeper financial sector is positively associated with greater trade openness Rajan and Zingales, ; Svaleryd and Vlachos, Free trade also promotes financial deepening by reducing corruption. High tariffs breed corruption because importers have incentives to pay customs officials to look the other way when the importers avoid tariffs by smuggling in goods.

Customer Reviews

Not surprisingly, countries that restrict international trade are found to be more corrupt Ades and Di Tella, Even when developing countries are unwilling to tear down all barriers to imports of foreign goods, they can still generate incentives for institutional reform by removing obstacles that prevent domestic producers from engaging in international trade. Facilitating production for overseas markets creates a greater need for a well-functioning financial system because, to compete effectively in the international arena, firms need better access to capital.

Accordingly, international trade creates a demand for reforms that will make the financial system more efficient. We are seeing how the globalization of trade is driving financial reform in China. As Chinese enterprises increasingly enter international markets, they need a better financial system that can ensure that the allocation of their high domestic savings is done efficiently and is responsive to market developments. Although it has taken time, globalization is helping to generate the demand for an improved financial system, which is driving the reform process.

The Communist leadership recognizes that the old development model must change. China, of course, is an example of a country that has actively encouraged exports as a means of propelling its economic growth and development. To some extent, China may have gone too far in its use of policy to promote export growth.

Increased reliance on market-determined prices will help ensure that the allocation of resources into the export sector does not exceed their efficient use. The goal should be to raise productivity toward world-class standards in all sectors of the economy. This problem remains especially serious in some African economies and may help explain why their growth performance has been so disappointing. The primary way that governments discourage exports is by imposing large taxes on them. Because high export taxes are one method of obtaining revenue, governments may be attracted to them to solve their budget problems.

They may also use these taxes to punish their political opponents, who are often involved in a particular export industry. The government can then distribute the resulting revenue to their supporters. The government then makes it illegal to sell dollars for the larger amount of domestic currency that could be obtained in the black market. The difference between the official exchange rate and the free, black-market rate often called the "black-market premium" imposes a tax on exporters because they are forced to sell the dollars they earn to the government or to the central bank at the official rate, and thus they receive a much lower price for their goods in terms of the domestic currency.

Although in recent decades a great many countries have abandoned currency controls and dismantled their black markets, such controls still exist in some of the poorest economies, especially in Africa. In some countries, the tax from the black-market premium is confiscatory. An example from history illustrates this point. In Ghana had a black-market premium of more than 1, percent, and so exporters of cocoa primarily from a tribe different from that of the ruling government party were getting only 6 percent of the world price.

International Monetary Fund

During the twenty years when the black-market premium was so high, the average income of Ghanaians fell 30 percent. Like many such unwarranted controls on economic life, high black-market premiums also breed corruption, with all its negative effects, because they create strong incentives to bribe officials or to smuggle goods to avoid paying the black-market-premium tax.

Indeed, one of the reasons that governments in poorer countries often use this method of taxation rather than an explicit tax is that it allows government officials to get rich from the bribes they receive. This higher productivity then leads to higher economic welfare. Trade liberalization, more importantly, promotes competition in domestic markets, which in turn forces domestic firms to increase productivity and make better products, both of which drive economic growth.

If a foreigner produces a better product that can be imported, domestic firms must make a better product at a lower price to keep selling their product at home.

One graphic example of how trade promotes competition occurred in India, which up until had protected its tool industry with a percent tariff tax on imports. After the Indian government cut the tariff sharply, Taiwanese firms initially grabbed one-third of the Indian market. Over the next decade, however, Indian firms boosted their productivity almost to the levels of Taiwanese firms, thereby winning back the domestic market. Eventually Indian tool firms became so efficient that they were able to start selling their goods abroad and became substantial exporters. Decreasing barriers to imports also helps promote exports.

Increased competition from imports lowers the profits firms can earn by focusing solely on the domestic market, and so they naturally concentrate more of their energy on exporting. Moreover, trade liberalization helps developing countries gain access to foreign markets in advanced countries, as illustrated by the fact that the United States, through free-trade agreements, has been more willing to lower tariffs for countries such as Mexico and Chile if they do the same for the United States.

The resulting economic growth is a rising tide that raises all boats and is an important tool for poverty alleviation. One crucial way that governments in developing countries can encourage exports is by providing the transportation infrastructure--ports, roads, and airports--that make it easier for businesses to send their goods abroad.

Research | Raghuram Rajan

Domestic firms have to focus even more on being highly productive, and boosting productivity will lead to rapid economic growth. Its economic infrastructure had been destroyed by the war. To convince Americans and others to buy Japanese products, Japanese firms had to produce goods that were cheaper and better than their American-made counterparts.

  1. Julia Extra Band 0309: Nur eine Nacht in deinen Armen? / Gezähmt von deinen Küssen / Liebeszauber in Athen / Vertraue niemals einem Playboy! / (German Edition).
  2. Board of Governors of the Federal Reserve System.
  3. Federal Reserve Board - Globalization and Financial Development.

As a result, the export industries in Japan became enormously productive and supercompetitive. Productivity grew, and three decades after World War II, Japan became one of the richest countries in the world.

What's new?

South Korea, one of the great Asian success stories even with its crisis in the late s, had very high barriers to trade until the s, and its early development strategy did not include opening its domestic market to foreign goods. However, through its export sector, South Korea has participated fully in global markets, and this participation has been a key to its success. Indeed, all examples of successful growth stories in developing economies China, Japan, South Korea, Singapore, Taiwan, Chile have involved export sectors that met the test of international competition, and some of these economies have also pursued trade liberalization.

In almost all the industrializing East Asian economies, future growth will likely have to follow a more balanced path that relies less on exports and more on production for the domestic market. Only by embracing global markets can developing countries raise living standards. And along with financial globalization, it can also encourage emerging-market economies to develop the institutions that foster financial development. Globalization should be one of the highest priorities for developing countries. The Role of Advanced Countries Can we in the advanced countries help?

Yes, we can do so by supporting the opening of our markets to goods and services from emerging-market countries. By encouraging these countries to increase their participation in global markets, we create exactly the right incentives for them to implement the hard measures that will enable them to grow rich. As we have seen, exporters have strong incentives to be productive so that they can take advantage of access to our markets, and thus they will make the investments needed for growth.

They also will push for the institutional reforms to make financial markets more efficient and promote financial deepening. By getting financial markets to work well, exporters will have access to the capital they need to increase their business.

Contact information of IUP Publications

Opening our markets to emerging-market countries is an important way that those in advanced countries can help emerging-market economies become successful. While providing aid to poor countries can, in the right circumstances, help eradicate poverty, it often will not work because it usually does not create the right incentives to promote economic growth. A handout is almost never as effective as a hand up.

Some are concerned about the consequences for us if we in the United States allow free competition in our markets for goods and services from countries where wages are low. Keeping many countries poor and their workers unproductive may seem to be to our benefit. But as shown in the examples of post-World War II recovery in Europe and Japan, and in the rapid growth in the s and s in the newly industrialized economies of Asia, higher standards of living throughout the global economy actually work to our benefit.

Prosperity in our trading partners creates growing markets for U. It is true that the changes brought about in our economy by globalization impose significant costs on some domestic workers. We need to develop policies to help those workers without undermining the global trading system. The costs to us of damaging that system would far outweigh the benefits that some might gain from protectionist measures. Promoting trade liberalization helps us not only do good but also do well. Robinson Durlauf, eds. Amsterdam: North Holland, pp. Ades, Alberto, and Rafael Di Tella Alfaro, Laura, and others Armendariz de Aghion, Beatriz, and Jonathan Morduch The Economics of Microfinance. Cambridge, Mass.