Development Essay A2 Economics

Evaluate the role of International trade and economic integration in promoting development.

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Evaluate the role of International trade and economic integration in promoting development.
Traditionally, development has been measured in terms of income levels (GDP per capita)
as this can show the value of a country's goods and services produced in a year shared
between its population. The GDP per capita can then be compared between multiple
countries to form comparisons. However, the fundamental flaw of GDP is that it does not
show what resources were used, how they were used, pollution or the sustainability of
resource exploitation. Bob Kennedy famously said before his assassination "Our gross
national product counts air pollution and cigarette advertising, and ambulances to clear our
highways of carnage...yet the gross national product does not allow for the health of our
children, the quality of their education, or the joy of their play".
While traditional economics explores how scarce resources can be allocated to maximise
output, the true definition of "development" is unknown and is open to much interpretation.
However the indicators and wealth, which reflects the quantity of resources available to
society, provide little information about the allocation of those resources. For example,
resources may not be equally distributed within society or the social groups. Even countries
which share similar GDP Per capita differ substantially when it comes to people qualityoflife:
access to education, health care, employment opportunities, the availability of clean and safe
drinking water and the threat of crime etc.
Recent United Nations documents emphasised "human development" measured by life
expectancy, at adult literacy, access to all three levels of education, as well as peoples
average income, which is a necessary condition of their freedom of choice. In a broader
sense the notion of human development incorporates all the aspects of individuals wellbeing,
from their health status to the economic and political freedom. According to the Human
Development Report 1996, published by the United Nations Development Program, "human
development is the end--economic growth a means."
The World Bank calculates the country's GDP per capita in US dollars and divides all
countries into the following groups: The groups are: low income ($995 or less), lower middle
income ($996 $3,945), upper middle income ($3,946 $12,195) and high income($12,196
or more). US dollar is used to allow easy comparisons based on one single market value.
The country's GDP is adjusted to take into account the purchasing power parity, highly
watched different currencies will buy in terms and what goods and services can be purchased
in each country.
The economist Simon Küznets, a central figure in the development of GDP, urged the US
Congress in 1934 to remember that "The welfare of a nation can scarcely be inferred from a
measurement of national income." However, until quite recently, it has routinely been assumed
to be a reliable representation for standard of living. The United Nations development
programme (UNDP) has developed an alternative measure of development that recognises
the limitations of GDP per capita. This is known as the human development index and
attempts to reduce and measure that combines some of the outcomes that might be valued in
the development process. The human development index takes into account: life expectancy
at birth, the adult literacy rate and GDP per capita in US dollars at purchasing power parity
(As an indicator of the standard of living). Countries unknown ranked according to the value of
the human development index and grouped into three categories: high, medium and low
human development.

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The HDI is a much broader measure of human development and brings to focus a greater
range of factors that ultimately lead to a happier, healthier and wealthier country. The human
development index also allows judgements to be made on the country's development over
time. The HDI also focuses attention is on the countries with the lowest level of human
development, which might help to guide the allocation of international aid.
However the HDI does have its limitations.…read more

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The sources of comparative advantage are due to different factor endowments, i.e. The mix
of land labour and capital that country possesses and its quality and quantity. Furthermore
they have different factor intensities which is the balance between the factors of production,
e.g. China which has an abundant supply of lowcost labour will have a comparative
advantage in labourintensive production whereas Germany with abundant capital resources
will have a comparative advantage in capital intensive production.…read more

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The World Bank expects the country a more open to trade grow faster over the long run
compared to countries that remain closed. There are two possible reasons for this. Firstly, as
the global economy grows, there is an increasing demand for the country's exports. This
growth in demand may exceed the growth in global GDP for some elastic goods and
services. The growth in exports creates an increase in aggregate demand for exporting
countries.…read more

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South Korea, Singapore, Hong Kong and Taiwan are known as the "high performing Asian
economies" (HPAEs) and have seen spectacular rates of economic growth from the 1960s
through to the 1990s. These economies focused on developing a comparative advantage in
goods export to the developing world. Government focused investment on strategic
industries, sometimes with state ownership, but always exposed to international competition.
Entrepreneurs in these sectors soon learn to adapt to international trade and dynamic
efficiencies were created.…read more

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However, there is likely to be a net
social welfare gain.
Trade diversion refers to a situation where economic integration results in trade switching
from a local supplier to less efficient supplier within the union. Because tariffs are removed
within the integrated area but remain on imports from outside the union, trade is switched to
producers within the union. An example is New Zealand lamb. Before the European Union,
New Zealand lamb had a tariff imposed on it.…read more

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For example, Latin America and
the Caribbean blues about $8.3 billion annually in lost income from agriculture, Asian losers
$6.6 billion in sub Saharan Africa loses $2 billion. The TFPRI is especially critical on the EU,
which it claims is "most guilty of trade distorting measures, accounting for 50% of the losses".
Furthermore, the EU subsidises its domestic farmers through the use of a Common
Agricultural Policy, further enhancing the price differences between goods and services
produced within the union and goods produced outside.…read more

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Ethiopian, a major exporter of coffee brewed in many ways be severely
limited in terms of economic growth by the fact that the vast majority of its population work in
agriculturea lowwage industry. The Economist Raul Prebisch suggests that instead of
relying on a comparative advantage in primary products, developing economies should seek
to change the structure of their economies in order to avoid the development trap created by
declining terms of trade.…read more

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In conclusion, international trade and economic integration is a vital part of global
development. While the term development may be difficult to define, organisations such
as the WTO are working hard to promote development through the use of government
legislation, and the removal of tariff and nontariff barriers, which in the long run should lead
to greater levels of economic growth.…read more


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