Core - Chapter 2 - Reducing Disparities

Question 1

How much of the world’s export and manufactured exports do the MEDCs account for?

Answer 1

75% of the world’s export and 80% of the manufactured exports

Question 2

What is necessary to protect LEDCs and small countries and why?

Answer 2

A reform of trade, as most of the flow of profits is back to MEDCs,while an increasing share of FDI (foreign direct investment) is to NICs (newly industrialized countries)

Question 3

Which main regulatory bodies are there?

Answer 3

• international regulators such as the International Monetary Fund (IMF) and the World Trade Organization (WTO)
• coordinating groups of countries such as the G8
• regional trading blocs such as the European Union (EU), North America Free Trade Association (NAFTA) and Association of South East Asian Nations (ASEAN)
• national governments

Question 4

What is fair or ethical trade?

Answer 4

Trade that attempts to be socially, economically and environmentally responsible, where companies take responsibility for the wider impact of their business

Question 5

Give an example of fair trading

Answer 5

Pineapple exporting companies Prudent Exports and Blue Skies in Ghana. PE has introduced better working conditions for its farmers including longer contracts and better wages. It has its own farms and buys pineapples form smallholders and exports directly to European supermarkets. Has responded to requests to cut back the use of pesticides and chemical fertilizers. Result: an increase in productivity and sales, supplying a leading British supermarket.

Question 6

Describe the link between higher food prices in MEDCs and child education in LEDCs.

Answer 6

The farmers supplying the food for the MEDCs are often willing to send their kids to school but due to the low profits made from their produce they do not have the economic possibility to pay for their children’s education.

Question 7

What is a trading bloc?

Answer 7

An arrangement among a group of nations to allow free trade between member countries but to impose tariffs on other countries who may wish to trade with them.

Question 8

How may trading blocs affect LEDCs?

Answer 8

By the use of trading blocs, LEDCs do not have the same access to the wealthy customers of the west as the countries within the bloc. This makes it harder for them to trade and develop.

Question 9

What is an EPZ and FTZ?

Answer 9

An EPZ is defined as labour-intensive manufacturing centre that involve the import of raw materials and the export of factory products
An FTZ can be classified as zones in which manufacturing does not have to take place in order for trading privileges to be gained and, hence, such zones have become more characterized by retailing.

Question 10

What are the long term and short term causes of EPZs in a country?

Answer 10

Short term: relatively easy path to begin industrialization in a country, where the MNC normally provides technology, capital, inputs and the export markets
Long term: MNCs are usually attracted by trade and tax incentives, low labour costs and labour flexibility to locate a branch plant in an EPZ, though may pull out when the economic conditions deteriorate.

Question 11

Where are most EPZs located?

Answer 11

Usually by the coast (as in the case of China).
Asia-Pacific region, (1990s approximately 40% of EPZs were located, yet two thirds of employment in EPZs were generated) Latin America and the Caribbean next most significant regions

Question 12

What concessions do the LEDCs government sometimes offer MNCs when introducing a EPZ?

Answer 12

• trade - elimination of customs duties on imports
• investment - liberalization of capital flows and occasionally access to special financial credits
• important investment in the provision of local infrastructure by the central and/or local government of the host country
• taxation - reduction of exemption from federal, state and local taxes
• labour relations - limitations on labour legislation that apply in the rest of the country, such as the presence of trade unions and adherence to minimum wage and working hours legislation

Question 13

What has caused the popularity of EPZs?

Answer 13

1. problems of indebtedness and serious foreign exchange shortfalls in LEDCs since the 1980s
2. the spread of new-liberal ideas in the 1990s that encouraged open economies, foreign investment and non-traditional exports
3. the search by MNCs for cost-saving locations, particularly in terms of wage costs, in order to shift manufacturing, assembly and component production from locations in the advanced economies