1 - Introduction

Summary

The effect of foreign trade on economic growth and welfare is one of the oldest and most controversial topics in economics. The discussion has been particularly intense in regard to the developing countries. They usually have little to export but primary products, and this specialization has not been unanimously welcome, to say the least. The radical writers of the so-called dependency school regard it as a form of exploitation of the ‘periphery’ by the greedy capitalists of the ‘core’ countries. And consequently, they suggest that backward countries should reduce exports as much as possible and adopt an inward-looking policy to speed up industrialization. These drastic views are not accepted by the overwhelming majority of economists, who stress the benefits of free trade and of specialization according to comparative advantages for any country, regardless of the goods it exports. Therefore, they recommend a free-trade policy, and possibly measures to foster exports. Yet even among mainstream economists there is a sort of uneasiness about the exports of primary products, and many would not condone permanent specialization in their production.

The historical evidence has been extensively used in this discussion at least since the 1950s, when Prebisch and Singer pinpointed the alleged century-old deterioration of the terms of trade of primary producers exporting to the United Kingdom as an evidence of the disadvantages of specialization. The attention has focused inevitably on the years from the middle of the nineteenth century until World War I. The period was characterized by an unprecedented growth in total world trade and by the creation of a world market for many commodities. The literature on these processes is very large.