Trade, Debt and Aid

Human Course (Global Themes, Paper 3) 

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Global capital transfers

Global Capital transfers 

How can they occur? 

  • Trade, FDI & aid 

Trade (balance & payments)

What does trade result from? The uneven distribution of resources and raw materials across the earth's surface 

How does it balance production & consumption? 

  • moving raw materials/goods/services from regions of supply to demand 

The impact of Globalisation 

  • comparative advantage & specialisation of countries in one particular area of manufacturing 

Trade is responsbile for widening the development Gap 

  • rich & poor, China, even though large manufacturing in past 30 years, still largest gap 
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The direction of world trade

Where does most of the world's international trade occur?

  • one or more neighbouring countries (e.g. Japan exports heavily to Asia & Oceania) 
  • little trade between HIC and LIC - have - blamed for widening development gap by exporting high value goods & importing low value goods in return 

Who are the dominant players?

  • Global Triad: EU, NAFTA & Japan 
  • advanced market economies 

Why does Japan have a trade surplus?

  • exports greater than imports
  • earning more from ecorts than paying to import materials 
  • total merchandise is smaller: selective in trade, smaller network ($500 billion)

Why does Western Europe have a higher total merchandise?

  • less selective, trades with LICs as well
  • $3200 billion 
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The rise of NICs/RICs

  • They are now greater players on global market 
  • able to meet demand of HICs as more capital 
  • greater % of imports now manufacturing based, raw materials into more requiste goods/fuels/minerals 
  • less agriculture 

Able to meet market for fuels of OPEC countires e.g. Russia (price is beyond LICs) 

Why are LICs less dominant?

  • cannot develop their economy as quickly due to basis of primary goods 
  • smaller demand than for oil & gas on world market 
  • trade deficit 

Why does little trade occur between LICs and RICs or LIC-LIC?

  • Latin America and Africa - exports are similar 
  • agricultural products over half of ecports, less beneficial, due to corresponding level of economic growth 
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The role of FDI

The role of FDI

Influence of foreign companies, by purchasing land, equipment or buildings or construction 

Purchase of a controlling interest in an exisitng operation/buisness 

Case Study

Guinea & China (oil agreement) 

Many African countires now have a growing deficit with China, despite favourable tax-free trading agreements, e.g. Ethiopia exports to China reached £63m, whereas Chinese imports £206m in 2006 

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Remittances (aid)

Remittance: A transfer of money by a foreign worker to his or her home country 

Money sent back home far exceeds international aid given to developing countires 

E.g. 2006: $300bn was sent home by more than 150 million migrants (IFAD, International Fund for Agricultural Development), compared to $104billion from aid (donor countires) & FDI of $167billion 

Asia recevied most remittances, 114bn, followed by Latin America and Caribbean 

Benefits: stable, can help to improve soverign credit rating for African countries 

  • FDI & private capital, help African countires to wean themselves off donor aid 
  • personal & targeted 
  • compared to "traditional aid", only small amounts end up with those who need it 
  • e.g. Uganda, attacting FDI - cut share of poor people by 11% & 5% in Ghana 

Disadvantages: can encourage dependency (supplments income as wages are inadequate), promote inequality in LICs, long term e.g. Phillipines - sends more than 3,000 workers abroad a day, largest proportion of income, disposable (less willing to work)

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Development Aid

Development Aid 

  • Aid given by government & other agenices 
  • support economic, environmental, political & social development
  • of developing countries 

NB: problems due to recession, aid is cut back 

How does it distinguish from humanitarian aid?: It focuses on alleviating poverty in the long-term, rather than a short-term response 


  • US was the largest donor, giving $26 billion, and the UK (third) with $11.8 billion
  • What are the problems?
  • Even though US and UK were largest donors, did not meet the UN target of 0.7% gross national income
  • DAC (Development Assistance Comittee): US (0.16% of GNI) and Japan 0.17% of GNI), giving least 
  • Only Norway (0.96% of GNI) and Sweden (0.93% of GNI) close to meeting target 
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  • Money borrowed from the IMF, World Bank or private companies
  • to aid development 
  • loaned money needs to be invested wisely to get a return to service the debt 

NB: problems are due to the fluctuating interest repayment rates on the global economic market 

Ghana 2008

  • held the 26th African Cup of Nations, led to encouraging economic effects due to the tournamnet 
  • Ghana to receive a $600 million three year loan from the IMF due to results
  • help to reduce budget deficit, support currency
  • due to high food & fuel prices 


  • IMF gave go-ahead for $741m loan to help rebuild infrastructure after years of conflict & US-led invasion in 2003 
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Disadvantages of Loans



Case Study: "The Luckiest Nut in the World" 1980s 


  • groundnuts 
  • 1960s, independencm main export crop -> specialisation 
  • loan from World Bank, to focus on exports 
  • price fell on the market (law of supply & demand ), when supply goes up without a corresponding increase in demand, the price went down 
  • bankrupty, IMF & SAPs, trade liberalisation, taxes on imports of foreign duties removed
  • privitisation (decline in govt involvement)
  • cuts in public spending e.g. healthcare & education
  • 10 years

Comparison: US govt, peanuts heavily subsidies, financial bonus by state fro every ton of nuts they produce, able to sell nuts at a lower price 

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The global patterns of FDI 

  • overseas investments in physical capital 
  • actions of TNCs 
  • brings private (non-governmental) investments into country
  • primary, secondary, teritary sectors of the economy 

Four many ways:

  • Equity investment (investment in capital)
  • intra-company loans 
  • reinvested earnings 
  • greenfield investment (new project) 

Why is FDI increasing?

New International Division of Labour (relocation of TNCs)

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Global Patterns (2007-11) of FDI

Highest FDI: USA - 16.75% of world total (2007-11) 

Lowest: Kenya (0.01%) and Sri Lanka (0.02%) 

Inflows & outflows (2006) 

Inflows: HICs (65.7%), NICs (5.8%) and Africa (2.7%) - net value of inward investment 

Outflows: HICs (84.1%), NICs (1.5%) - exporting countires 

Uses of FDI: LICs, only use $15,000,00 for services 

EU was the largest host union with 41% of total FDI inflows in 2006 

SInce the 1980s, a shift towards services, away from the primary sector, therefore service sector 2.3rd of global FDI in 2006 

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The role of TNCs, World Bank & IMF

SAPs during 1980-98 e.g. Senegal 

Since 1989, a shift towards focus on Millenium Development Goals, lending primarily to LICs to promote economic growth through investment 

Dependency: LICs on money & services from abroad to modernise 

e.g. Motorloa in China, 1993, 700 units today, 

Nike in Indonesia (oustouriig in Taiwan where it is cheaper, workers paid less thatn $2 a day, cheap laours & exploitation) 

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The reasons for global patterns of FDI

Reasons (CATISE) 

  • Colonialism - donor countries's domain, conditions favourable for colonialist power 
  • Attraction of a particular country - stable govt, unlikely to be affected by war, financial and general security offers to potenital investors (e.g. USA), Zimbabwe: oppressive political regime, unstable economic climate 
  • HIC incentives - tax havens , subsidies, e.g.Britain £300moneconomic zones to attract Samsung to locate in peripheral areas 
  • Trade blocs - e.g. EU, with favourable grounds to invest (NB: 41% of total inflows in 2006) 
  • 'Scramble for Africa' - relatively untapped abundence of resources, e.g. oil (Angola, Sudan), e.g. currently 40% of Sudan's exports are oil alone, India into Ethiopia & agricultural ventres, over $500m 
  • Economic potential - China's reasoning, neo-colonialism, or mutualistic relationship?               
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Advantages of FDI

Unlimited debt-relief programme: (U, T, T, I, S) 

e.g. clean slate in Mozambique, debt relief, able to establish pre-conditions for take-off 

Establish new trading links 

  • Shire-Zambezi Canal Project - between Malawi & Mozambique, access to Indian Ocean ports, prev. landlocked 

Transfer of skills

  • US $250m in agriculture in Limpopo Valley (Mozambique), skills of Chinese agronomist 

Infrastructure loans 

  • Angola, to rebuilt after civil war, e.g. schools & hydropower in Congo, to be repaid by oil - chances of long-term development 

Setting up special trade and economic zones 

  • development of export-oreintated industries, 7 zones to date e.g. 2 in Nigeria, brings employement, new $1 billion fund, help African entrepeneurs set up small entreprises in zones 
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Disadvantages of China into Africa

Merowe Dam (2003-2009) 

  • Northen Sudan, labelled 'world's most destructive hydropower project', $1.8billion, financed by China Export-Import Bank, built on Nile's fourth catact 
  • displaced 50,000 from fertile Nile Valley to arid conditions 
  • Sinohydro - plans for further 3 dams
  • Darfur conflict, social impacts 

Role in the scale of genocideal civil war in Darfur 

  • embago cannot be enforced until China agrees to stop buying oil
  • undermining UN Secuity Council's attempts to stabilise Sudanese govt 
  • catalyst 

Human rights 

  • Chambishi Copper Mine in Zambia, explosion in 2005, killing 51 people, poor safety record, reduction in worker's benefits, paid £53 a month despite rising copper prices 

Undercutting local economies e.g. Lesotho, competition, failure, more didifuclt to export products on global market 

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Guinea & China 

  • More than $7 billion in infrastructure 
  • "strategic partner" in return for mining projects 
  • danger of slipping into another dictatorship
  • legitemacy of China? building of ports etc, worth the investment? 

Environemtal issues 

e.g. Gabon, Sinopec, prospecting for oil in national park, causing pollution, damaging ecosystems, dynamiting areas of park & carving roads through forests 

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