Chapter 7 Trade Policies for the Developing Nations Flashcards
What do developing nations typically export?
Primary products like agriculture and raw materials
What do developing nations rely on for imports?
Machinery, technology, and manufactured goods from advanced countries
What economic transition have many developing countries made?
From primary goods to manufacturing and services via reforms and investment
Why are export markets unstable for developing countries?
Due to price volatility in primary products
What causes declining terms of trade in developing nations
Raw material exports lose value relative to the prices of manufactured imports
What limits market access for developing countries?
Protectionism, tariff escalation, and agricultural subsidies in advanced nations
What are the major barriers to trade diversification?
Poor infrastructure, limited education, corruption, and high transport costs
Why is global supply chain integration hard for developing nations?
High trade and logistics costs make them less competitive
What is import substitution?
protecting domestic industries with trade barriers, often leading to inefficiency
What is export-led growth?
Focusing on exports and global competitiveness as a growth strategy
What does East Asia’s experience suggest?
Investment in people and infrastructure is key to export-led success
What are the benefits of foreign direct investment (FDI) for developing nations?
Capital inflows, technology transfer, job creation, and increased exports
What are the drawbacks of foreign direct investment (FDI)?
Profit repatriation, crowding out local firms, and reliance on foreign capital
What do International Commodity Agreements (ICAs) aim to do?
Regulate prices and supply of primary goods
How do buffer stocks stabilize prices?
Buy commodities when prices are low and sell when prices are high
What are multilateral contracts used for?
To establish price ranges without heavy government intervention
How does the Organization of Petroleum Exporting Countries (OPEC) influence oil markets?
By restricting supply to raise prices and maximize profits
What undermines the Organization of Petroleum Exporting Countries (OPEC’s) effectiveness?
Quota cheating and competition from non-cartel producers
What are the obstacles to successful commodity cartels?
Cost differences, demand shifts, and substitute goods
What is the goal of fair trade?
To support producers with minimum prices and ethical sourcing standards
What is a major criticism of fair trade?
Retailers benefit more than farmers, and it may distort markets
What role does foreign aid play in development?
It can reduce poverty and support development efforts (e.g., via IMF, World Bank)
What is the Generalized System of Preferences (GSP)?
A trade policy allowing lower tariffs for developing country exports
What are the criticisms of aid and preferences?
They may foster dependency and corruption without institutional reforms
