Application of Optimal Debt Financing and Managed International Trade Arrangements to Islamic Countries

Abstract

In the early chapters of this book, we have referred to the mechanism of negotiated tariff as a realistic alternative between free trade and trade protection. We have argued that this arrangement would be a feasible alternative to a free trade in the short run for the Islamic countries. The regime of negotiated tariffs would then evolve into a free trade regime in the long run. The conditions of a negotiated trade regime were shown to be linked with the outward-inward balance of development menu. In this chapter we formally develop and further explain these development options: the chapter is devoted to a development of the idea of negotiated tariff and its relationship with optimal debt financing in models of international trade and economic development. The negotiated tariff model implied in this idea is argued to be a better and more realistic alternative to classical models of free trade. The idea referred to here as the managed trade regime implies adoption of a balanced combination between outward-and inward-looking strategies for the developing countries. This model of managed international trade is, however, treated as one of the medium run, particularly applicable to developing countries during a period of adjustment and transition in structural change, industrial diversification, external borrowing, debt financing, regional co-operation and self-reliant development.