4.4 The Role Of International Trade Flashcards
What are the barriers to economic development in LEDCs caused by problems with international trade?
Over specialisation on a narrow range of products
Price volatility of primary sector output
Inability of LEDCs to access and compete in international markets.
What is overspecialisation on a narrow range of products?
Refers to an individual or country focusing on producing only a small range of products for trade thus this limits economic growth and development. Food and agricultural exports account for a large proportion of total export earnings for most LEDCs.
What is price volatility of primary sector output?
Refers to instable market prices for primary sector output such as agricultural production. A major drawback of LEDCs specialising in the output of primary sector exports is that the prices of primer products are highly volatile and often exhibit a downwards trend.
What are the issues associated with price volatility of primary sector output?
In many LEDCs technological progress is relatively slow in portray sector production thus limiting the ability of LEDCs to compete on an international scale.
Supply of primary sector output tends to be inelastic in supply so producers cannot respond quickly to changes in the market again this puts LEDCs in an unfavourable position.
Consequences of a long term decline in the average price of primary sector output include a fall in export earnings for LEDCs a fall in domestic employment and a deteriorating current account on the balance of payments.
LEDCs are more vulnerable to external shocks thus making price predictions highly inaccurate. Such volatility in prices therefore creates uncertainty and obstructs international trade.
What is the inability to access international markets?
Many LEDCs find it difficult to enter foreign markets especially when trying to compete with developed countries. LEDCs struggle to access international markets due to the trade protection policies imposed by developed countries is regional trading blocs.
What re trade strategies for economic growth and economic development?
Import substitution Export promotion Trade liberalisation The role of two Bilateral trade agreements Regional trade agreements Diversification
What is import substitution?
An inward looking strategy of economic growth and development that encourages domestic production and the purchase of domestic output though protections policies such as traffic and quotas. It is a development strategy often used to protect infant industries from larger foreign producers.
What is the disadvantage of import substitution?
Consumers pay higher prices so there is a loss of consumer surplus and the use of trade protection is detrimental to economic efficiency.
What is export promotion?
An outwards looking strategy of economic growth and development through international trade with overseas customers. Countries the adopt an outward development strategy tend to benefit from increased specialisation and a greater choice of goods and services being available.
What are the advantages of export promotion?
Exposes domestic firms to foreign competition possible resulting in greater efficiency, higher productivity and relatively lower production costs. Supporters of this trade strategy for economic development advocate international trade.
What is trade liberalisation?
Involves the freeing up of international trade without government interference in the exchange of goods and services across borders, eg the removal of tariffs and quotas, another way to achieve this is to remove barriers and restrictions to FDI. This would enable MNCs to operate within the LEDC thus creating employment opportunities.
What is the advantage of trade liberalisation?
The argument for trade liberalisation is based on the notion that free trade and market forces improve the global location of resources thereby improving economic efficiency. In turns this leads to economic growth and development.
What is the disadvantage of trade liberalisation?
However negative impacts of trade liberalisation policies include unemployment cause by privatisation as firms cut costs and achieve efficient and social welfare losses due to less government involvement ie. cuts in government spending affecting many people in LEDCs.
What is the role of the WTO?
An international body set up to encourage and oversee non discriminatory and open trade negotiations between its member countries. The WTO ha the right to create favourable international trade terms for LEDCs, It also has the right to sanction member countries that violator their trade agreements thereby helping to promote economic harmony between its members. By encouraging international trade the WTO stimulates economic growth and development for the global economy.
What are bilateral trade agreements?
Preferential international trade deals between two countries that strive to reduce and/or abolish trade barriers such as tariffs and quotas. This leas to an increase in GDP and more job opportunities in both countries. A potential disadvantage of bilateral trade agreements is that foreign goods from the partner country could be more appealing to consumers thus causing problems for domestic firms.
