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The Role of International Trade (Problems for LDCs (Inability to access …
The Role of
International Trade
Problems for LDCs
Overspecialisation
Price Volatility of
Primary Products :male-farmer::corn:
Inability to access
international
markets :earth_americas:
Tariff escalation
Strategies
Import Substitution
Strong government intervention
Heavy protection of domestic industries
Replace imports with domestic production
Disadvantages
Increased imports of capital equipment by domestic firms for production
Increases trade deficit
Less investments in agriculture
Higher food imports
Overvalued currency used to make imports of capital goods cheaper
Weaker agricultural exports
Cheap capital goods leads to
capital intensive production
Higher unemployment
Global misallocation of resources
Advantages
Protects infant industries
Reduce trade deficit
in the short run
Allow the country to
industrialisation
Export Promotion
Some protection of
domestic industries
Support for export industries
through industrial policies
High investments in
infrastructure, R&D
Advantages
Increased exports
Avoid trade deficit problems
Targeting of specific industries
Supports the diversification
of economy based on higher
value-added activities
Decreased unemployment
Avoids excessive specialisation
Disadvantages
Export-oriented countries dependent on demand economies in import countries
Can be affected if trading
partners face recessions
Trade Liberalisation
Advantages
Disadvantages
Increased income inequality
ELDCs are disadvantaged
Trade protection on ELDC exports by developed countries
Lack of well-developed institutions (property rights, tax systems)
WTO
Bilateral/Regional
Free Trade Agreements