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Unit 1 : Trade as an Engine of Growth

recommend the opening to IT. They started the process with resolution 1707 of 1961 and continued, Notes
for example, in 1964 with the UN conference on trade and development (UNCTAD I). Both the General
Agreement on Tariffs and Trade (GATT/WTO), through successive rounds of negotiations and the
recommendation of the Organisation for Economic Cooperation and Development (OECD) worked
also in favour of the liberalization of trade [see, for example, Arndt (1987, pp. 72-77)].
Little et al. (1970) considered the strategy of substitution of imports to be responsible for the existence
of firms with high costs, charging consequently high prices for their products, which can only be
purchased by high income consumers. Thereupon this situation would lead to the dependence of the
enterprises on governmental decisions. Therefore they defended the promotion of exports.
Balassa (1978) compared the strategies of promotion of exports with those of substitution of imports.
His work is based on Michalopoullos and Jay (1973). He considers a sample of 10 LDCs with different
grades of use of those strategies (in 1960-1966 and 1966-1973). Taking neoclassical production function,
he uses different versions functional forms, resulting from different exporting performances. From
the results, he stressed, on the one hand, the significance of the export growth and, on the other hand,
that the countries with rates of export growth higher than the average also registered the best
performances. More recently, Balassa (1986 and 1987) analyzed the EG, between 1963-1984, of a
group of LDCs that he divided in those turned toward the exterior and turned toward the interior,
concluding that the former exceeded the performance of the latter, especially from the middle of the
70’s on.
In 1985, Krueger observed that especially from the early 60’s on, some LDCs reduced commercial
barriers and other controls of economic activity and obtained a significant (and lasting) increase in
the rate of EG. Namely, technological factors, of economic behaviour and political and economic
consideration that involved dynamic effects (besides the static effects), helped explain the differences
of performance among economies. Rajapatirana (1987), co-responsible for the World Development Report
1987, claimed again Krueger’ arguments, considering that the IT allowed for dynamic gains when
subjecting the internal production to international competition and also made it possible for countries
to specialize in different branches of industry and production stages. Moreover, by allowing access
to the DCs’ technology, along with the expansion of exports, it stimulated internal technological
development.
Finally, an obligatory reference concerning the divulgation at an academic, institutional and political
level is the World Development Report 1987 of the WB. With data concerning 41 LDCs, considering two
periods of time (1963-1973) and (1973-1985), it grouped the countries in four groups according to the
commercial strategy adopted (strongly extroverted, moderately extroverted, moderately introverted
and strongly introverted). As a result, it came to the conclusion that the extroverted strategy was
superior and decided that the fastest, most sustainable and even most balanced (in terms of personal
distribution of income) EG was obtained with this commercial orientation.
1.4 Models of Endogenous Growth and International Trade

In the field of the IT theory, the ‘paradox of Leontief’ originated debates and controversies leading to
the appearance of new developments, which tried to explain the advantages not from the standpoint
of a static natural situation but circumscribed to an evolutional process, associated with the EG,
where the structural characteristic from which they proceed is continuously under change. The EG
theory also suffered significant developments with the models of endogenous EG. These models
identify the moving force of growth, its respective dynamics and the forces that influence its
accumulation (case of the IT). Thus, these placed the accumulation of human capital and the production
and the diffusion of technological innovations in the forefront. The parallelism of these elements
with the evolution of the theory of IT isn’t accidental. In fact, the models of endogenous EG evolved
towards an integrated analysis of the EG and of the IT, recovering in this sense the classical tradition
that had been interrupted with the neoclassical separation.
The models of endogenous EG did not come about by accident. Being concerned with the exact
microeconomic foundations, they are consequence of the general development of economic theory.
We should mention the developments and dissatisfaction with Solow’s work, the earlier studies of

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