International Trade and Economic Development
Trade strategies for economic growth and economic development: Trade Liberalization
Is the removal or at least trade reduction of trade barriers that block the free trade of goods and services between countries. Trade liberalization will increase world trade, and will enable developing countries to concentrate on producing goods and services where they have a comparative advantage in. Opposite of import substitution
Trade strategies for economic growth and economic development: Import substitution
It may also refer to as an inward-oriented strategy. It is a strategy that says a developing country should, whenever possible produce goods domestically rather than import them. This should mean that the industries producing the goods domestically will be able to grow as will the economy and they will be able to be more competitive and gain economies of scale. It is the opposite of -export led growth and does not follow the advantages of free trade.
Trade strategies for economic growth and economic development: Export Promotion: Disadvantages
- People may say that is is unfair and will lobby protectionist measures against goods produced in export-led countries - Certain assumptions are made about the conditions for export-led growth however it doesn't necessarily need to be met.
Trade strategies for economic growth and economic development: Export Promotion: How?
In order to achieve export-led growth it is assumed the country will need to adopt certain policies such as; • Liberalized trade (Open up domestic markets to foreign competition in order to gain access to foreign markets) • Liberalized capital flows (reduce restrictions on foreign direct investment) • A floating exchange rate • Investment in the provision of infrastructure to enable trade to take place • Deregulation and minimal government intervention
Trade strategies for economic growth and economic development: Bilateral and regional trade agreements
Related to preferential trading areas such as trading blocs this is usually done by reducing tariffs. The belief is that the more agreements are made the greater will the ability of developing countries will be to trade.
International barriers to development: Price volatility of primary products
- PED for primary products tend to be relatively inelastic - Change in demand or supply will result in large price fluctuation - Makes it difficult for government to plan ahead, and may impact on investment in companies and therefore growth and on government plans for education, health care and infrastructure
International barriers to development: Inability to access international markets
- Protectionism is any economic policy aimed to supporting domestic producers at the expense of foreign producers. - Protectionist measures by developed countries against the export of developing countries may be very harmful. If the measures prevent developing countries from using their comparative advantages and exporting to developed countries, then developing countries will be limited in their ability to earn foreign exchange.
International barriers to development: Over-specialization on a narrow range of products
- Tend to be dependent on primary commodities for a significant share of export revenues. - Rising commodity prices may be beneficial to those countries. It will increase the rate of economic growth if revenue are used to finance education, health and infrastructure. However if prices fall countries will experience a deteriorating Terms of Trade. These economies will find it difficult to gain much economic growth through international trade. - Regardless of whether the good is a primary commodity, or secondary, the risks of overspecialization remain with the country. - May be impacted by environmental factors
Trade strategies for economic growth and economic development: Import substitution: Advantages
Advantages • Protects local culture and social habits by isolating the economy from foreign influence • Protects economy from bad influence of MNCs
Trade strategies for economic growth and economic development: Import substitution: Disadvantages
Disadvantages • May only protect jobs in the short run. Economic growth in the long run may be lower and lack of growth leads to lack of job creation. • Isi means that the company does not enjoy the benefits to be gained from comparative advantage and specialization so they are producing products inefficiently. • ISI may lead to inefficiency in domestic industries because there is not enough competition to encourage research • Isi may cause other countries to take retaliatory protectionist measures
Trade strategies for economic growth and economic development: Fair trade organisations
Establishing certain criteria for trade to occur between producing country and other countries to protect vulnerable economies.
Trade strategies for economic growth and economic development: Export Promotion
Export promotion often called export-led growth is an outward-oriented growth strategy based on openness and increased international trade. It is where growth is achieved by concentrating on increasing exports and export revenue as a leading factor in the aggregate demand of the country.
Trade strategies for economic growth and economic development: Diversification
One major problem for developing countries has been their dependence on primary products. By pursing export diversification as a means for economic growth. The aim is to shift from primary goods production to manufactured or semi-manufactured products this will lead to export revenue stabilizing and increasing employment.
Trade strategies for economic growth and economic development: Import substitution: How?
The necessary conditions to fulfill it are - The government needs to adopt a policy of organizing the selection of goods to produce domestically. - Subsidies are made available to encourage domestic producers - The government needs to implement a protectionist system with tariffs to keep out foreign imports.
