Intra-firm trade and the developing countries

Casson, M. and Pearce, R. (1988) Intra-firm trade and the developing countries. In: Greenaway, D. (ed.) Economic Development and International Trade. Macmillan, Basingstoke, pp. 132-156. ISBN 9780333424933 doi: 10.1007/978-1-349-19174-1_8

Abstract/Summary

During the 1960s and 1970s many developing countries pursued inward-looking protectionist policies designed to insulate their industrialisation programmes from disturbances transmitted through the world trade and payments system. Protectionism had two main consequences. First, it encouraged import-substituting investments which were oriented purely towards supplying the domestic market, and were therefore of less than efficient scale. Secondly, it distorted the allocation of domestic resources away from those sectors in which the developing country was naturally comparatively advantaged. The failure of many of these industrialisation programmes has been a factor in the current world debt crisis. The climate of opinion has now switched in favour of outward-looking trade-oriented policies. Many developing countries have recently established large-scale export-oriented projects which are intended to be profitable without protection. In the developing world, international prices are now widely used as signals of relative scarcity. The pendulum of political opinion has swung back in favour of free trade.