International economists love to harp on the pattern of international trade and its effect on specialization. Today, globalization is offered as a solution to the world's poorer nations. At the same time, a number of economists charge that globalization has failed to substantially improve the standard of living in a large portion of the developing world. Some have even argued that by encouraging particular industries to form in the world's poorer nations, the developed world traps them into a low standard of living. Other have argued that specializing in, say bauxite or banana production, makes the developing countries dependent upon the developed world for capital and manufactured goods. Some background might help make this more clear.

        Midway through the 20^th century, economists split the world into two distinct spheres. The industrialized, developed countries, located primarily in the northern hemisphere, were labeled the core. The developing world, largely characterized by primary good production, was referred to as the periphery. Perhaps owing to greater factor accumulation, geography, colonization, or pure luck, technological progress among the core countries tended to outpace that of periphery nations. Economic trade doctrine of the time, rooted in classical notions of market supply and demand, implied that differential rates of technological growth should have a direct impact on the terms of trade between North and South. Namely, if technological progress in the industrialized countries outpaced that of the periphery, terms of trade should adjust in favor of the periphery. This adjustment would be crucial to economic development because it would serve to equalize the gains from technological progress and trade between the regions.

        In 1950, two economists working for the United Nations, Raul Prebisch and Hans Singer, discovered a disturbing trend. Terms of trade tended to move against the developing world, in favor of the developed. Subsequent research suggested that the fall in terms of trade represented a fall in the exchange value of primary commodities (which the developing world relied upon more heavily) relative to manufactured goods (produced mainly in the developed world). However, more recent evidence suggests that this explanation is not entirely sufficient. Terms of trade for both manufacturing and primary goods have tended to move against the developing world, a puzzle suggesting that more research needs to be done.

        To the credit of Singer and Prebisch, the pair never argued for protectionism from the view that trade was harmful. Instead, they argued that gains from trade and technological progress accrued to a greater extent to the industrialized nations. Nonetheless, from their ideas grew Import Substitution Industrialization, a development plan that included replacement of imported goods with domestic production -- and a massive failure. Another plan that developing nations have often called for is the creation of a New International Economic Order (NIEO), though the idea is much less prominent in the literature today than it was in the 1970s. Those nations which pushed most heavily for the NIEO were essentially trying to gain market power and the ability to practice oligopoly pricing. Today, such an oligopoly exists in the market for oil in OPEC, which raises the international price of oil (which coincidentally hit an 8-month high this week) when it colludes successfully. The added costs of these organizations, both economic and political, are likely to deter developed countries from accepting such a policy regardless of the developmental implications.