Protectionism
Stemming the Flood?

The share of manufactured goods in the merchandise trade of middle-income LDCs rose from 11 per cent to 37 per cent from 1960 to 1981. The industrialized countries in the 1970s thus experienced the deflationary impact of two oil shocks, just as the LDCs were becoming more important exporters of labour- intensive manufactures. These exports were increasingly perceived as a threat to employment in the depressed labour markets of the late 1970s. As unemployment rose, so the calls for protection grew louder.

What effect did these more restrictive trade policies of the industrialized countries have on the manufactured exports of LDCs? In a recent Discussion Paper,David Newbery and Gordon Hughes analyse data on trade and GNP for a sample of 37 LDCs whose manufactured goods exports were important. They divided the sample into four groups: (1) Newly Industrialised Countries (NICs); (2) medium-size, middle-income countries; (3) large, poor LDCs with substantial manufacturing sectors, and (4) small, middle-income countries.

The data show that the manufactured exports of the NICs grew faster than those of medium- size, middle-income countries in the late 1960s. The pattern was reversed in the 1970s, however. Why should this have happened? There are three possible explanations: (i) that demand for NIC exports fell, (ii) that protection directed against the NICs was effective, or (iii) that supply constraints limited NIC exports. The poor export performance of groups 2 and 4 can best be explained by supply constraints. Newbery and Hughes then looked more carefully at the various NICs over shorter time periods and at the destinations of their exports. They found that the top four NICs increased their exports to non-industrialized countries very rapidly. They did rather better than the NICs as a whole, and better than all LDCs, especially in 1977-1980. The five ASEAN countries followed a similar pattern, but did better still. Newbery and Hughes conclude that protectionism may be part of the reason for this switch in the destination of exports. The flexibility demonstrated by the leading NICs meant that protectionism had a relatively small adverse impact on their export performance. It may even have helped the second group of countries by reducing competition from the NICs.

Newbery and Hughes also analysed exports in more detail at the commodity level. They found that exports by industrial countries to LDCs are still larger than imports from them for most goods. Imports from LDCs represented only a small share of both consumption and of the growth in consumption from 1973 to 1981 (except for clothing). The authors forecast the shares of LDC manufactured exports in OECD consumption in 1990, assuming past trends continue, and conclude that except for clothing, shares remain below 10 per cent. If import penetration is kept below 10 per cent for each category they find that LDCs could still sustain an 11 per cent p.a. rate of growth of manufactured exports. This would have beneficial effects on their ability to import from the OECD and service their debt. Newbery and Hughes argue that the alternative scenario, in which OECD countries press for further protection against LDCs, appears to have very high costs both for the industrialized countries and for LDCs.

The Effect of Protection on Manufactured Exports from Developing Countries
G A Hughes and D M G Newbery

Discussion Paper no.14, May 1984 (IT)