How trade reduces the development gap

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  • Created on: 18-06-14 09:21
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How can trade reduce the development gap?
Developing countries world share of trade tripled from 12% in 1995 to 36% in 2006
Neo-literalists: believe that free trade will lift people out of poverty. Trade can help the
development of countries if they're able to export value added manufactured goods to
OECD countries
Methods of managing trade:
Influencing imports: tariffs, import quotas, tight regulations, exchange rates, trade
Influencing exports: incentives, export credits, EPZs, free trade zones, exchange rates,
trade blocs
Free Trade allows traders to trade across national boundaries without interference from the
respective governments. It implies the following features:
Trade in services without taxes or other trade barriers
Free access to market + market info
Free movement of labour + capital within and between countries
Advantages Disadvantages
Generally Removal of trade barriers promotes Many agreements biased towards rich countries'
expansion of trade ­ increases wealth interests
Free trade concentrates production of Agreements often require policy changes to allow
goods and services where they're most foreign investment: new labour and
cheapest & efficient ­ lowering prices environmental regulations, new competition rules
to benefit of consumers Subsidies in farmers in some rich countries
reduce effect of agreements
For developing Concessions that are not given to Often require something in return ­ if TNCs
countries other countries, eg better market based in rich countries gain access to
access for products poor-country markets, local producers put out of
New trading opportunities business
More FDI attracted Local firms find it difficult with restrictive rules of
origin regulations on goods for export to the rich
Fundamental in emergence of different generations of NICS
High growth of RICs related to increasing share of global trade
Lift people out of poverty vs. widening gap between rich and poor > DIFFERENT POV
Global market worth over 350mn a year

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Now fair trade systems operate
Small scale producers group together to form a cooperative or other democratically run
association: with high social and environmental standards
Cooperatives deal directly with companies: Tesco & Sainsbury's / cutting out `middle men'
MEDC companies through customers pay over world market price for products traded: pay
few pence more for kilo of bananas for example
Higher price achieved by LEDC cooperatives:
o Better standard of living
o Avoid absolute poverty
o Saving producers from bankruptcy
o Money to reinvest in…read more

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Tourism can generate a multiplier effect = profits from tourism increase and become more
widespread, they begin to trickle down into the local economy.
vulnerable to factors such as downturns in the world economy, changing fashions in
destinations, terrorist incidents and disasters
can be so effective in regenerating an area that it leads to localised inflation, making basic
foods and services $
problems can be caused for other sectors of the economy, e.g.…read more

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One important issue is to
ensure that women as well as men gain their rights.
South-South links
Idea of south-south cooperation stems from a growing realisation that poor nations
might find appropriate, low-cost and sustainable solutions to their problems in other
developing countries rather than in the "rich" north.
EG: if African farmers need boreholes to access water, it makes more sense to access
India's huge pool of expertise than to send expensive European water engineers.…read more


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