Trade and Investment - role in global development

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TRADE

The North are exploiting/ buying goods cheaply from the South and then selling the manufactured goods back to them for a lot more money; a price they can't really afford

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How can trade influence development?

  • trade is important to development, because it generates income
  • least developed countries play a limited role in trade:

- LDCs tend not to be part of trade blocs, so their exportsaresubjectto tariffs/taxes (they trade with those who have the cheapest)

- LDCs often export raw commodities, the price of  which fluctuates wildy e.g. food or raw materials

- cheap commondity exports earn few dollars, but they spend these dollars on importing expensive manufactured goods - this creates poor terms of trade

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Terms of Trade

  • this is the money earned from exports against the price ofimports
  • if a country is reliant on exporting raw materials e.g. food crops or cereals then they have declining terms of trade
  • this means they have to sellmore of the resource, leaving food supplies short in that country and therefore increasing the price of that good for local people. Often people earn less and living standards decrease and poverty increases
  • very vulnerable to changes in the global market
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Why do MDCs/NICs have continuous improving ToT?

  • legacy of MDCs e.g. British Empire, Japan and USA dominating
  • LDCs willing to allow it to happen; better than selling nothing
  • exploitation, blackmail, not many options
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Changes in Global Trade

  • traditionally North-South trade flows have seen developing countries exporting primary products (minerals) but in the last 20 years they have moved to manufacturing
  • 80%of their export are now manufactured goods with growing % of service exports too
  • trade is still often very unequal despite these countries exporting more expensive goods
  • trade surplus = Exports > Imports
  • trade deficit = Imports >  Exports - can leadto the 'debt trap'
  • globalisation has had a massive impact e.g. China, India,Mexico, Brazil all exporting more, but  some have not benefitted e.g. sub saharan Africa
  • trade doesn't always reduce inequalities within a country e.g. Vietnam and China who have an internally increasing gap in wealth between the rich and poor
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