Background

Imagine that you work for the World Bank and you have been called to Ghana to aid the new president to come up with a new international trade strategy.

You are told that the new government is interested in moving away from agriculture and into manufacturing. To do so, the government wants to pursuit a policy of import substitution industrialisation (ISI).

You are given a brief about Ghana highlighting the following points:

• About half of Ghana's population depends on agriculture, but Ghana still imports some of its food.
• The majority of Ghana's people live in rural areas and exist on a subsistence way of life.
• Ghana has one of the highest rates of income inequality in the world.
• Nearly half of the population is employed in agriculture.

QUESTION B.1

Why would Ghana trade with a country that is very similar to it? Will trade between Ghana and an almost identical neighbour be governed by comparative advantage?

QUESTION B.2

Explain import substitution industrialisation and how it can affect Ghana. What role does learning by doing play and when does it make sense for the government to interfere?

QUESTION B.3

The parliament of Ghana is debating whether import substitution should take the form of quotas or tariffs. You are asked to brief them on the difference between the two. A representative from Ghana's National Labour Party is particularly worried about consumers? Which policy (tariffs or quotas) is better for consumers?

QUESTION B.4

The president of Ghana is proposing increasing tariffs on rice and providing local rice producers with a subsidy. Explain to parliament the welfare implications of this from the perspective of consumers, producers and the government. Use diagrams to help your explanation.

QUESTION B.5

After a meeting with Ghana's president you learn that the government is also interested in repatriating migrants that went to European countries to study engineering a decade ago. Explain how this is likely to change Ghana's comparative advantage.