Development gap- trade and investment

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  • Created by: chinwe
  • Created on: 26-03-16 13:06

change in trade flows

There has been a change in the nature of north-south trade flows overt the past 20yrs;

Historically:

  • developing countries were exploited as they exported primary products i.e, agriculture or minerals to rich countries. (visible trade) At a low value.

Now:

  • 80% of exported goods from developing countries are manufactured. There has also been an increase in service exports i.e, finance. (invisible trade)

Uganda's inequality has decreased by 3.8%per capita. However the increase in trade doesnt always lead to equality. For e.g; ecomnomic growth of china has lead to incresed inequality.

Although International trade is increasing, it is dominated by HIC's such as USA, Western europe.

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Terms of trade

Definition; "Terms of trade"- the ration between the money/currencies earned from its exports and the cost of imports.

  • The price of raw materials have fallen, compared to the price of manufactured goods.This is because manufacturing adds value to unrefined (primary goods).

Impacts on developing coutries;

  • Developing countries who export primary products and import manufactured goods are likley to have a declining 'terms of trade'.
  • As the global price for raw materials decline, poor countries are pressured to export higher amounts of raw materials.
  • These materials (e.g, food products) become scarce at home and prices rise.
  • This results in a decline in living standards and a rise in poverty
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CASE STUDY- Trade patterns in coffee

Who are the exporters/producers of coffee?

  • Coffee is produced in tropical/sub-tropical countries such as Latin America, Asia and Africa. Brazil exported $6.1 billion worth of coffee in 2014 (19% of total coffee exports)

Who are the consumers of coffee?

  • Coffee is imported to high income countries such as Europe,North America and Australia.

The coffee industry supply chain;

Producers: Large coffee plantations export their own products to the distributing company 

Exporters: Purchase coffee from farmers below market price, keeping a high sum for themselfs 

Importers: Purchase 'green coffee' from plantation owners/exporters  

Roasters: Sell pre-packaged coffee to TNC's such as Maxwell House- gain the highest profits    

Suppliers: Packeged coffee sold by supermarkets, cafes/shops  

Consumers

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CASE STUDY- Trade patterns in coffee continued

how does this pattern effect developing countries?

Economically;

  • The chain works against farmers, as they often end up reciving a fraction of the price (that the coffee is sold at)
  • The industry is dominated by TNC'S (e.g. Nestle), so it is difficult for local farmers to negotiate fairer 
  • The 'middle men' (those who sell and buy the coffee) dehumanized the workers, forcing them to work for less that $2 a day.
  • The farmers have no other outlet- they are forced to cell their coffe to that distributer for a low price
  • Farms are left abandoned and there is insecure land ownership
  • Declining 'terms of trade', as countrey exports more raw goods than it imports (manufactured goods)

Socially;

  • Increase in rural-urban migration as agricultural indusry becomes unstable
  • Less money available to health care and education in rural areas = imcrease malnutrition 
  • increase on child labour on coffee plantations, poor and dangerous working enviroment
  • Farmers,family and community become trapped in the 'poverty cycle'.

Environmentally;

  • Abandonment of plantations
  • cutting down of shade trees for timber
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