Trade and investment

  • Created by: essalenko
  • Created on: 06-06-15 15:21

Trade flows

Increasing exports can help a country to narrow the development gap. Traditionally, North-South trade flows have focused on developing countries exporting primary products such as minerals and agricultural produce. However, in the last 20 years developing countries have moved into manufacturing- about 80% of their merchandise exports are now manufactured products. 

Trade is often unequal. Some countries have trade surpluses (exports exceed imports) while others have trade deficits (imports exceed exports). Trade deficits may eventually lead to a 'debt trap' that inhibits investment and growth. 

Economic globalisation has had a big impact on the flows of goods between countries. Some countries have had large increases in trade (China, India, Mexico, Brazil) while others have had decreases. Inequality between rich and poor does not always change with increases in trade. In Uganda, inequality has decreased, with a good growth rate of 3.8% per capita. 

Some countries organise themselves into trade blocs. The volume of international trade is often dominated by the EU, North America and East Asia. Over 80% of all exported goods come from these regions with only 2.5% from Africa.

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Terms of trade

Another important consideration in international trade is the terms on which it takes place. A country's terms of trade is the ratio between the currencies earned from its exports and the prices of imports. World prices for raw materials have fallen over recent years in relation to the price of manufactured goods. Manufacturing adds value to commodities. Therefore, any countries that export raw materials and import manufactured goods are likely to have declination in trade. 

Often the poorest developing countries in this situation have to export even more as the world price falls. If all they have to export is cereals and other food products, food becomes scarcer at home and prices rise. As a result, there might be a decline in living standards and increased poverty.

Recent rises in commodity prices have brought improved terms of trade for some countries, particularly those exporting minerals. 

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