Trading Relations and their Implications

Question 1

Why do developed countries (HICs) dominate world trade?

Answer 1

• Similar well-developed infrastructure
• High-Value products (not primary)
• High market volume
• Geographical proximity
• Members of trade agreement (blocs)
• High literacy rate and skill level.

Question 2

What are the advantages of International Trade?

Answer 2

• Can exploit comparative advantages
• Economies of scale
• Multipliers effect
• Purchasing power
• Fewer domestic monopolies
• Transfer of Technology

Question 3

What are the disadvantages of International Trade?

Answer 3

• Specialisation
• Protectionism
• De skilling
• Decline of local industries
• Exploitive work practices.

Question 4

What is a Single Product Economy?

Answer 4

A country, usually a LIC, which relies on one, or a very small number, of products (usually raw materials) for its export earnings.

Question 5

What are some brief snapshot facts to know about Angola for the case study?

Answer 5

• Fought a civil war from 1975-2002
• Democracy since 2002
• Key player in Africa (largest oil producer and third largest economy in sub-saharan Africa)
• Economic problems include: poverty (69% below the poverty line of $2 a day), unemployment (20%), poor state of infrastructure (0.14 doctors per 1000) and slow industrialisation.

Question 6

WHy do we worry for Angola?

Answer 6

• Angola has oil reserves of 9.5 billion barrels and natural gases reserves of 11 trillion m3.
• Oil accounts for 95% of exports, 75% of tax revenue and 34% of total GDP.
• Without global trade and membership of the OPEC, the countries development would be limited.

Question 7

What are the advantages of primary product dependency?

Answer 7

• Allows exploitation of comparative advantage > economic gains/development.
• Often doesn’t require expensive investment and infrastructure > accessible than manufacturing.
• Can attract foreign direct investment
• Higher tax revenues (but dependence on oil and tax revenues).

Question 8

What are the disadvantages of primary product dependency?

Answer 8

• Prices are volatile due to inelastic demand
• Supply is volatile as affected by natural disasters/disease.
• Primary products are often finite > countries often have nothing to replace the source of income.
• Resource curse > corruption; monopoly power; easy wealth discourages investment elsewhere.
• Dutch disease - high value of oil > appreciates currency > other products less competitive > manufacturing declines.