Economic Growth and Development

larger world market); and influencing productivity (through competition from
the world market,exposure to new ideas and ability to import technology from
the rest of the world). These links are illustrated in Figure 13.1.
This chapter shows how technological change is frequently an important
driver of openness and has often been neglected in models of foreign trade (such
as comparative advantage). Being able to export manufactured goods (and
import agricultural goods) can be a driver of the structural change commonly
associated with economic growth and development (see Chapter 8).

The basic trade model

The basic trade model forms the centrepiece of textbook treatments of interna-
tional trade. The key result for the purposes of this chapter is the impact of an
import tariff on a small developing country. The tariff will raise the price of
imports and so prices of the good for domestic consumers. Higher prices will
encourage more domestic production (import substitution) and reduced domes-
tic consumption. The tariff will raise revenue for the government. The first
impact is redistribution from consumers (what is known in economic theory as
reduced consumer surplus) to producer profits and to government tax revenue.
The second impact is a decline in efficiency. Higher domestic prices/profits of
the good cause resources (land, labour, capital) to be re-allocated from other
sectors of the economy to expand production in the now-protected sector. This

International Trade, Openness and Integration 269

Figure 13.1 Openness as a deeper determinant of economic growth

GDP growth

Labour supply/

population

See Chapter 3

See Chapter 4

See Chapter 5

Figure 13.1

Openness

Productivity

Investment (TFP)