30. International trade and development

Question 1

What are the barriers to development in trading?

Answer 1

• over-specialization: vulnerability and uncertainty
• price volatility of primary goods: PED for commodities is inelastic - inelastic demand and supply - any change in D / S - high price fluctuations - price -> revenue volatility
• inability to access international markets: protection by developed countries is damaging developing countries

Question 2

What are the trade strategies for higher development?

Answer 2

• import substitution: import substitution industrialization (ISI), inward oriented strategy: where possible country should produce goods domestically rather than import - markets grow - strong for international markets, subsidies for domestic industries, protectionist system
• export promotion: export-led growth, increasing exports - increasing AD, needed conditions: liberalized trade, foster FDI, floating exchange rate, investment in infrastructure, minimal gov intervention (Asian Tigers were created this way)
• trade liberalization: reduction of trade barriers, WTO works on trade liberalization, needed conditions: competitive exchange rate, privatization, deregulation
• bilateral and regional preferential trade agreements: reducing protection in the agreement area
• diversification: common problem - overdependence on few primary products - move to manufactured / semi-manufactured products (more value) - higher demand for skilled workers

Question 3

What are the development strategies?

Answer 3

fairtrade organization

• aims at protect small sclae workers in developing countries
• to be certfied fair trade - producer must meet requirements

Question 4

Define growth strategies vs development strategies

Answer 4

Growth strategies are economic policies and measures aimed at growth

Development strategies are economic policies and mmeasures aimed at development

Question 5

Evaluate import substitution growth strategy

Answer 5

ADVANTAGES:

• protects domestic jobs
• protects local culture and social habits
• protects from foreign power

DISADVANTAGES:

• in long-run growth may be smaller
• inefficient production beause no specialization
• might worsen relationships with countries because of protectionism
• expenditure from gov budget to subsidise local producers

Question 6

Evaluate export-led growth

Answer 6

ADVANTAGES:

• effective - Asian Tigers

DISADVANTAGES:

• increaes protection in developed countries - want to protect their markets from low cost labour
• gov intervention and expenditure is needed
• attracted MNCs for investment may have too much power
• increase in inequality