Transcript International Trade

Why do less developed
countries face obstacles to
development?
4 Approaches to Development
• Development
Through Selfsufficiency
• Development
Through
International Trade
• Financing
Development
• Fair Trade
Two Paths of Development
• Self Sufficiency (balanced growth) –
countries encourage domestic production
of goods, discourage foreign ownership of
businesses and resources, and protect
their businesses from international
competition
• International Trade – countries open
themselves to foreign investment and
international markets
Development Through Selfsufficiency
• Dominant most of 20th
century
• Key Elements:
– Tarrifs
– Quotas
– Licenses
• Isolation from competition
• Equal spread of
economic investment
• “Fair System” –
encourages equal
investment for entire
country
• Reducing poverty most
important
Self-Sufficiency Challenges
• Protection of
inefficient business
– Little incentive to
improve quality
• Need for large
bureaucracy
– Complex
administrative
system needed to
administer the
controls
Development through
International Trade
• Identify distinctive or unique economic
assets
– what do you have an abundance of that other
countries are willing to buy?
• Country can develop by concentrating
scarce resources on expansion of its
distinctive local industries
– Sale on world market brings funds back that
can be used to finance development
Development Through
International Trade
•
Rostow’s Development
Model
1. The Traditional Society
2. The Preconditions for
Takeoff
3. The Takeoff
4. The Drive to Maturity
5. The Age of Mass
Consumption
Rostow - Stages of Growth
1.
•
Traditional Society
Characterised by
–
Village in Lesotho. 86% of the resident workforce in
Lesotho is engaged in subsistence agriculture.
subsistence economy
– output not traded or
recorded
existence of barter
high levels of
agriculture and labour
intensive agriculture
National wealth
allocated to “nonproductive activities”
Copyright: Tracy Wade, http://www.sxc.hu/
(military and religion)
–
–
–
Rostow - Stages of Growth
2. Pre-conditions for takeoff:
The use of some capital equipment can help increase
productivity and generate small surpluses which can be
traded.
Copyright: Tim & Annette, http://www.sxc.hu
– “Elite group” initiates
innovative economic
activities
– Country invests in new tech.
and infra. (water
supply/trans.)
– Increase in capital use in
agriculture (commercial
agr.)
– Necessity of external
funding
– Some growth in savings and
investment
– Increase in productivity
Rostow - Stages of Growth
3. Take off:
At this stage, industrial growth may be linked to
primary industries. The level of technology required
will be low.
Copyright: Ramon Venne, http://www.sxc.hu
– Rapid growth in few
economic activities
(textiles/food)
– Increasing
industrialisation
– Further growth in savings
and investment
– Some regional growth
– Number employed in
agriculture declines
– Other sectors of
economy still traditional
Rostow - Stages of Growth
4. Drive to Maturity:
As the economy matures, technology plays an
increasing role in developing high value added
products.
Copyright: Joao de Freitas, http://www.sxc.hu
– Growth becomes selfsustaining – wealth
generation enables
further investment in
value adding industry
and development
– Industry more diversified
– Increase in levels of
technology utilised
– Workers become more
skilled and specialized
Rostow - Stages of Growth
5. High mass
consumption
– High output levels
– Mass consumption of
consumer durables
– High proportion of
employment in
service sector
Service industry dominates the economy – banking,
insurance, finance, marketing, entertainment, leisure
and so on.
Copyright: Elliott Tompkins, http://www.sxc.hu
International Trade Examples
• Four Asian
Dragons
– South Korea
– Singapore
– Taiwan
– Hong Kong
• Arabian Peninsula
International Trade
Challenges
• Uneven resource
distribution
– Commodities not
priced evenly
• Increased
dependence on
developed countries
• Market decline
– MDC’s populations
decreasing
– Stage 4 DTM
Why Do LDCs Face Obstacles
to Development?
• International trade approach triumphs
– The path most commonly selected by the
end of the twentieth century
– Countries convert because evidence
indicates that international trade is the
more effective path toward development
• Example: India
– World Trade Organization
– Foreign direct investment
Triumph of International Trade Approach
Figure 9-27
Figure 9-28
World Trade Organization
• Est. in 1995 by
countries representing
97% of the world trade
• Works to:
– Reduce barriers to int’l
trade (tarrifs, quotas,
etc.)
– Eliminate int’l
movement of money
WTO Criticisms
• Progressives
– Decision made behind closed doors promote interests of
corporations not poor people
• Conservatives
– Compromises power and sovereignty of individual countries
Financing Development
• Foreign Direct investment
– Transnational Corporations
• Loans
– International Monetary Fund
– World Bank
Structural Adjustment Programs
• Must have to apply for debt relief
– Includes economic “reforms” or “adjustments”
• Spending only what it can afford
• Directing benefits to poor, not just elite
• Diverting from military to health and education
spending
• Investing scarce resources where they will have
the most impact
• Encouraging more productive private sector
• Reforming the gov’t
Fair Trade
• Advocates
– Producer
Standards
– Worker
Standards
• https://www.yo
utube.com/wat
ch?v=4tvLHDx
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