Rationales for Governmental Intervention

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1 Rationales for Governmental Intervention
Economic Rationales Noneconomic Rationales - Prevent unemployment - Protect infant industries - Promote industrialization Improve position compared to other countries - Maintain essential industries - Deal with unfriendly countries - Maintain spheres of influence - Preserve national identity

2 INFANT- INDUSTRY ARGUMENT
Government supports emerging (infant) industries: When there is a potential comparative advantage that cannot be realized in the short run due to foreign competition.

3 INFANT- INDUSTRY ARGUMENT
In 1792, Alexander Hamilton presented first. From World War II until the 1970s many developing countries attempted to accelerate their development by limiting imports of manufactured goods to foster a manufacturing sector serving the domestic market. İmalat sektörünü korumaya yönelik politikaların en önemlisi infant-industry argümanıdır.

4 INFANT- INDUSTRY ARGUMENT
Objective Objective is to become more competitive over time with reduction in unit cost by realizing: The economies of scale Learning by doing ( Greater worker efficiency )

5 INFANT- INDUSTRY ARGUMENT
How does government support emerging industries : First Option Using tariffs, import quotas to foreign companies Briefly, making entry barriers high. Results Disincentive for managers to adopt innovation Consumers pay high prices Examples The U.S. and Germany had high tariff rates on manufacturing in the 19th century, Japan had extensive import controls until the 1970s.

6 INFANT- INDUSTRY ARGUMENT
How does government support emerging industries : Second Option Subsidizing the infant industry Result Consumers prices are not increased, but taxpayers pay for the subsidy

7 INFANT- INDUSTRY ARGUMENT
Analysis Problem with identifying right industries: Protecting manufacturing does no good unless the protection itself helps make industry competitive. Pakistan and India Examples Pakistan and India have protected their heavy manufacturing sectors for decades and have recently begun to develop significant exports of light manufactures like textiles. Kore, emek yoğun, sermaye kıt bir ülke iken dört otomobil fabrikası kurmuştu. Bugün Kore elinde iflas etmiş otomobil fabrikaları ve borç batağındaki holdingleri ile oturuyor!

8 INFANT- INDUSTRY ARGUMENT
Analysis Problem of Time Consistency: When should the protection start and finish? South Korea Example: In the 1980s South Korea became an exporter of automobiles, whereas in the 1960s its capital and skilled labor were still very scarce. Kore, emek yoğun, sermaye kıt bir ülke iken dört otomobil fabrikası kurmuştu. Bugün Kore elinde iflas etmiş otomobil fabrikaları ve borç batağındaki holdingleri ile oturuyor!

9 INFANT- INDUSTRY ARGUMENT
Market Failure Justifications for Infant Industry Protection Imperfect Capital (Financial) Market If a developing country does not have a set of financial institutions that would allow savings from traditional sectors (such as agriculture) to be used to finance investment in new sectors (such as manufacturing), then growth of new industries will be restricted. 2. Appropriability Argument Firms in a new industry generate social benefits for which they are not compensated (e.g. start-up costs of adapting technology).

10 INDUSTRIALIZATION ARGUMENT
Country GDP ($) Per Capita United States 42,000 Developed Economies United Kingdom 38,624 Germany 33,854 Russia 5,349 Emerging Economies Turkey 5,062 Brazil 4,320 Source: International Monetary Fund, World Economic Outlook Database, September 2006

11 INDUSTRIALIZATION ARGUMENT
Emerging economies use protection to increase their level of industrialization because of industrial countries’ economic success and experience Brings faster growth than agriculture Brings in investment funds Diversifies the economy Brings more price increases than primary products do

12 INDUSTRIALIZATION ARGUMENT
Shifting from Agriculture to Industry Use of Surplus Workers Demand of workers and social issues Agricultural sector may be overlooked Government must decide which industry to protect when subsidizing Self-sufficiency problem in terms of agricultural production

13 INDUSTRIALIZATION ARGUMENT
Shifting from Agriculture to Industry Promoting Investment Inflows If a country seems as a very attractive, profitable market, import restrictions may even increase foreign direct investment and employment.

14 INDUSTRIALIZATION ARGUMENT
Shifting from Agriculture to Industry Diversification Shift the dependence from a few agricultural products to a few industrial products

15 INDUSTRIALIZATION ARGUMENT
Shifting from Agriculture to Industry Greater Growth for Manufactured Products Prices of raw material and agricultural commodities do not rise as fast as prices of finished goods Terms of Trade

16 INDUSTRIALIZATION ARGUMENT
Shifting from Agriculture to Industry Terms of Trade Objective increase the ratio Px/Pm ( = to make imports cheaper) Restrictive trade policy can improve country’s terms-of trade and thus increase its welfare if country is developed. Terms of trade for emerging economies may deteriorate because: - demand for primary products grows more slowly - cost savings passed on to consumers

17 Import Substitution Export Promotion vs
The strategy of encouraging domestic industry by limiting imports of manufactured goods. Many less-developed countries have pursued this strategy. Latin American countries in 1950s and 1960s Many countries that have pursued import substitution have not shown any signs of catching up with the developed countries. India between 1950s and 1970s. Import-substituting industrialization generated: - High rates of effective protection - Inefficient scale of production - Higher income inequality and unemployment Rapid economic growth by promoting export industries, an approach known as export-led development. “Gang of Four” S. Korea, Hong Kong, Singapore and Taiwan have achieved remarkable success by promoting export industries for which export markets should logically exist.

18 Export Promotion “Gang of Four”
S. Korea, Hong Kong, Singapore and Taiwan have achieved remarkable success by promoting export industries for which export markets should logically exist. Export Promotion List of Countries by Export Rank Country Exports (Million $) Germany ,016,000 U.S.A ,500 China ,200 Hong Kong ,300 South Korea ,600 Singapore ,400 Taiwan ,100 Source: The World Factbook accessed in February 2006.

19 Economic relationships with other countries

20 Balance of Payments Adjustments
Ticaret hesapları ülkelerin Ödemeler Dengesi açısından oldukça önemli olduğundan, hükümetler serbest piyasalardaki ihracat ve ithalat hareketlerini kontrol edebilmek için birçok girişimde bulunurlar.

21 Comparable Access or “Fairness”
Karşılaştırılabilir Erişim’in bakış açısından; yüksek üretimin maliyetleri büyük ölçüde düşürdüğü (economies of scale ya da learning effect) endüstrilerde, rakip pazarlara eşit erişim hakkına sahip olmayan üreticiler, maliyet rekabeti açısından bir dezavantajla karşı karşıyalar.

22 Price – Control Objectives
İhracat Kısıtlamaları İthalat Kısıtlamaları

23 İhracat Kısıtlamaları
Dünya fiyatlarını yüksek tutabilir Kaçakçılığı önlemek için daha fazla kontrol gerekebilir Kısıtlanan malların yerini tutabilecek mallara yönelme olabilir Yerli mal arzını yükselterek bu malların fiyatlarını düşürebilir

24 İhracat Kısıtlamaları... (devam)
Üreticileri, ürettikleri malları arttırmaları için daha az teşvik edebilir Yabancı firmaların üretimini ve satışını ülkeden kaçırabilir

25 İthalat Kısıtlamaları
Yerli üreticiyi fiyat düşürme (dumping) yoluyla sektör dışına bırakmayı önleyebilir Diğer ülkelerin kısıtlamalarını kaldırmak için güçlü bir anlaşma yolu sağlayabilir Yabancı üreticileri fiyatlarını düşürmeye zorlayabilir

26 Dumping Firmalar bazen Dumping adı altında maliyetin veya kendi ülkelerinin fiyatlarının altında ihraç yaparlar. Dumping yapılmasının nedeni, diğer türlü yurtdışında bir pazar yaratamamasıdır.

27 Optimum – Tariff theory
Bir yabancı üretici, mallarını alan (ithal eden) ülkenin koyduğu vergiler yüzünden fiyatlarını düşürebilir. Böyle bir durumda kazançlar üreticiden malları alan ülkeye kayar.

28 NONEconomic rationales for government intervention

29 Non – Economic Rationales
Temel endüstrilerin korunması Dost olmayan ülkelere kargo/nakliyelerin önlenmesi Etki çevrelerinin idare edilmesi Ulusal kimliğin bozulmasını önleyecek aktivitelerin desteklenmesi

30 Temel endüstrileri korumak
Essential – Industry argument Bir ülke barış zamanında yerli, varolması zorunlu, esas endüstrilerini korumalıdır ki savaş sırasında yabancı kaynaklara bağımlı olmasın.

31 Temel – Endüstri’leri korumak
Hangilerinin temel, zorunlu endüstri olduğunu belirlenmeli Altenatifler ve maliyetler incelenmeli Politik sonuçları göz önüne alınmalı