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Role of International Trade (Trade strategies (Import substitution/inward…
Role of International Trade
Barriers to development for ELDCs
Over-specialisation
earnings become volatile
Miss out on benefits of diversification
Price volatility of primary products
Inability to access international markets
Higher tariffs imposed by developed countries (to protect sunset industries/existing trade agreements)
Developed countries impose tariffs to discourage development and diversification (COP)
ELDCs impose high tariffs on each other to protect infant industries
Trade strategies
Import substitution/inward-oriented strategies
High tariffs on foreign products to replace major imports
Protectionism and lack of efficiency
Government intervention: tax burden and greater likelihood of corruption
Overvaluation of exchange rate (to make COP cheaper)
Unemployment not resolved (use of capital, inappropriate technology)
Neglect of agricultural sector (worsens equity)
Export-led growth/outward-oriented strategies
Trade liberalisation
Eg. Asian Tigers
Liberalised capital flows
Heavy investments in key sectors such as education, R&D, infrastructure, to promote influx of FDI, use of appropriate tech
Less GI in other sectors
Increased employment
Trade liberalisation
Limited benefits for export growth and diversification
ELDCs remain as commodities exporters
Not enough government support
Africa lost a lot of its export shares
Countries that benefited were those that already had developed significant export sectors (East Asia)
Limited effects on economic growth
Rich countries benefit more
Increasing income inequalities and poverty in ELDCs
Parties who lose out
People who have nothing to export/lack collateral
Less educated people
People who lose jobs in public sector as size is cut down
Bilateral and regional preferential trade agreements
Diversification
Move towards production and export of manufactured & semi-manufactured products
Sustained increase in exports
Development of technological capabilities and skills --> improvement in FOP
Less vulnerable to price volatile changes
Ability to process domestic primary commodities (vertical diversification) (Msia, Thailand, China)