What is long term or development aid?
support for developing economic, environmental, social or political aspects of a country or to address underlying socio-economic causes, which might lead to a crisis or emergency.
Usually financial but could take the form of advice or trained personnel and given by large agencies such as Governments, NGO’s or charities.
what aims do fair trade have for producers in LEDCs
better trading conditions fewer middle men better financial outcomes higher percentage of price received empowerment securing rights developing knowledge and skills to improve their lives
what is tied aid
when one country donates money or resources to another but with conditions attached These conditions may be viewers as being in the HICs favour eg Pergau Dam Malaysia 1991 £234 million in aid towards the construction of a hydroelectric dam to describe trade deals with Malaysia
describe bilateral aid
from one government to another usually largest share of a country’s aid often directed according to strategic political considerations as well as humanitarian reasons
what is a visible import or export
Visible imports are products that are bought and brought into the country that are concrete or can be seen or touched (raw materials, products).
For example, food, raw materials, machinery, cars. Tend to be found in LIC countries with often large amounts of undeveloped natural resources, or the attraction of cheap labour and lack of regulation e.g. flowers in Kenya.
how are water shortages an economic disadvantage of tourism?
caused by tohrist complexes hotels and golf courses using large amounts up to 500 litres per tourist per day may lead to local farms and villages not having enough
what are the overall problems with aid?
dependency undermining local employment structures delaying governments getting to grips with the economy inappropriate large scale schemes uncertainty possible corruption etc
explain how locational advantage affects global trade
Proximity to major host markets. For example, tourism in France has flourished due to the large populations of neighbouring countries that can quickly, cheaply travel.
France is a developed HIC with widespread FDI and domestic investment, that benefits from low budget airlines, subsidised rail fares etc, something not found in LIC countries.
Situated along a trade route/shipping lane. For example, Singapore is situated along the trade route between India, China and the Pacific Ocean.
This means a reduction in transportation costs (no foreign tariffs) and reduced dependency on other countries for favourable trade conditions.
explain how the WTO works?
they are empowered by the organisation to enforce its decisions by imposing trade sanctions against countries that have breached the rules highest body of the WTO is the Ministerial Conference; meets every 2 year setting for negotiating global trade deals known as trade rounds (aimed at reducing barriers of free trade)
describe multilateral aid
assistance provided by governments to international organisations eg world bank, or UN then used to reduce poverty in developing nations
arguments against the provision of aid to LICs?
aid can increase dependency on donor counties where aid is not a gift but a loan; may struggle to repay corruption may lead to local politicians using aid for their own means or for political gain; it may not reach the people and communities it was aimed at tied aid can be used to put political or economic pressure on the receiving country it may be a condition of the air that the projects are run by foreign companies or that a proportion of the resources or profits produced will be sent abroad some aid projects do not benefit smaller communities and some development projects may lead to increased costs of basic food and water
quote about the advantages of developmental aid
give a man a fish you have fed him for today teach a man to fish you have fed him for a lifetime
why does trade imbalance cause countries to get into debt
trade imbalance (value of imports>value of exports over time) e.g. countries that are decolonized look to develop or HIC countries with a trade deficit importing more than they export/ large public spending under a left leaning government requires borrowing e.g. GB.
what social and political problems does national debt create?
social: divert resources away from social provisions most affected poor especially women and children cut in benefit raised pension age political: government instability public unrest: austerity measures structural adjustment programs
what are the main benefits of the WTO?
expanding world trade helps raise global living standards democratic inthst it’s rules were written by its member states many of whom are democracies who also select its leadership
what is multilateral aid
given by a donor country to the international organisation such as the World Bank who then used the aid to assist developing countries
what is developmental aid?
support for developing economic environmental social or political aspects of a country addresses underlying socio economic causes which may lead to crisis or emergency usually financial could be advice or trained personnel large agencies governments charities LONG TERM
negative aspects of trade
dependency on primary products fluctuating market prices competition product innovation unforeseen events eg climate hazards
what is relief aid
short term, for emergency situations, saves lives, reduces suffering and attempts to maintain dignity of people,
free and from a variety of sources - individual to government and international organisations
The institution of policies (tariff quotas regulations) that protect a country’s industries against competition from cheap imports
example of fair trade operating with TNC
supermarkets and tncs such as cadbury’s give fair trade farmers access to global markets
role of the WTO
deals with global rules of trade between countries and trade blocs functions to ensure trade runs smoothly predictably and freely achieved this by negotiating trade agreements, encouraging liberalisation (LEDCS) and by dealing with trade disputes
how many member countries does the WTO have
153 in 2008
what is Charitable aid
Funded by donations from the public through organisations often NGOs Some will raise money to use for the aid programme others are more involved with the management of air projects, ensuring that aid is effectively used and distributed
what is the nature of Fair Trade
Fair Trade applies to a small, but growing number of products, from tropical fruit to cotton clothing, traded by LEDCs with MEDCs. It covers key products such as tea, coffee and sugar
producers are rewarded commensurately for their labour, and the middleman is either cut out or receives modest reward for his services.
It is a small sector within the market for each product, e.g. cocoa, but is growing strongly as awareness grows of some of the effects of TNCs, etc. on individuals, communities and the economies of LEDCs.
why are HICs arguably not to blame for odious debt?
the figurehead of the country mobutu has the right to the money choice how to spend it problematic to assert blame to Hics although politically motivated prevented brutish soviet regime from gaining valuable resources likely worse than mobutu
When the value of a country’s exports exceeds the value of its imports
What is debt relief?
A cancellation of debts owed by developing nations to industrialised nations or institutions such as the World Bank This is done in order to allow the government to shift funds towards social development
What is microcredit?
Involved tiny pond and financial services to help the poor - mostly women - start business and escape poverty
When the value of a country’s imports exceeds the value of its exports
explain how historical factors negatively affect global trade
the poorest countries in the world are former colonies of european Colonial expansion by European countries involved the colonies playing a subordinate role, with only limited benefits and primarily distorted economies.
The colonies then become trade dependent on their coloniser, putting them in an adverse position in terms of global trade - goods sold at a higher cost back to the colony
colonialism can also leave the country in ruin and disorganisation
e.g. Zambia post-independence in the 1960s, was left with few trained and educated Zambians capable of running the government, and an economy dependent on foreign expertise.
This caused mismanaged and inefficient governance
When a developing country is so reliant on its advanced trading partner that any changes in their economic policy or economic condition could have a severe effect on the developing country’s economy
describe LIC employment structure
heavily dependent on agriculture and subsistence farming unemployment very few high paid jobs limited tertiary jobs in teaching and nursing primary product depends makes them very vulnerable to world market
describe failed bilateral aid
peragu dam malaysia top down tied aid thatcher committed 234 million to build dam despite being found not cost effective by ODA received arms deal worth £1.3 billion
what is dumping
the selling by s country of large quantities of a good in another country, at w price lower than the production cost, or at a price significantly below the price in the domestic market
example of a positive and negative colonial trade relationship?
Positive e.g. Singapore (established infrastructure legal and political e.g. independent judiciary, piped water, transport). Mauritania was made independent from France, but they remained the biggest trading partner.
Negative e.g. Zambia post-independence in the 1960s, was left with few trained and educated Zambians capable of running the government, and an economy dependent on foreign expertise. This caused mismanaged and inefficient governance.
why do patterns of global trade change
emergence of NICs Liberalisation and growing role of supply chains changing trade barriers action of trade blocs and agreement s technology led decreases in transport and communication costs
what are the most common trade agreements
free trade agreements which reduce or eliminate tariffs quotas and other trade restrictions in
what is a quota
an import barrier that sets a physical limit on the quantity or value of goods that may be imported into a country
Arguments against the provision of aid to LIC/MIC?
Aid can increase dependency of countries on donor countries where aid is not w gift but a loan they may struggle to repay Corruption may lead to local politicians using aid for their own means or for political gain; it may not reach the people and communities it was aimed at Tied air can be used to put pressure on the country; a condition of the air could be that projects are run by foreign companies or that a proportion of the resources or profis are produced will be sent abroad
describe HIC employment structure
eg UK between 1840 and 2011 employment went up 60% in quaternary areas post industrial societies very few manufacturing mostly quaternary cheap LIC and MIC for secondary robotics replace human labour in manufacturing
transactions that occur across borders or between countries for services that can’t be seen or touched eg payments for services such as tourism or education, remittances, financial transfers beteeen companies
Tend to be found in HIC countries with greater skills due to universal education programmes, giving rise to a better-quality labour force e.g. magic circle law firms.
what is protectionism
when a trading nation introduced policies that aim to restrict the flow of imports into a. country and or create an artificial advantage to exporting firms
arguments for the provision of aid to LICs?
emergency aid can save lives and help rebuild communities livelihoods and housing provision of medical training medicines and equipment can improve health and standards of living aid for agriculture can help improve farming techniques increase food production and improve the quality and quantity of food available developing clean water and sanitation to improve health and living standards aid for industrial development can create employment and improve infrastructure in transport such as roads and railways supporting countries in developing their natural resources and power supplies
explain how resource endowment affects global trade
countries with large reserves of raw materials (iron coal oil) , giving the country the tax base to be able to improve education, meaning invisible trade respectively improves in quality.
This explains the wealth of Canada, who’s wealth is built on the endowment of timber and minerals.
This does require initial investment, something that is impossible in a country plagued with corruption.
For example, the country richest in natural resources – DR Congo, famed for its diamond, gold, bauxite – is also the poorest in terms of development due to its long-standing history of slavery, corruption and colonialism.
how does the WTO encourage trade?
lowering trade barriers discouraging unfair practises - export subsidies or dumping products cheaply to gain market share LEDCs get advice, time to adjust and some privileges
what are the advantages of trade over aid?
Compared on the other hand with the argument that trade (free fair or regulated) may promote economic independence, provide income, support local employment and be more appropriate
define trade agreement
a tax tariff and trade treaty between countries
describe MIC employment structure
Singapore rise in manufacturing FDI from TNCs or tertiary rise eg india domestic companies develop greater agricultural investment
What is international aid?
The giving of resources food money goods technology By one country or organisation to another, poorer country Objective is to improve the economy and quality of life in the poorer country
describe the exploration stage of butlers model
exploration stage when a small number of tourists are attracted by a new location at a minimal impact on the local community there are no services or facilities developed specificslly for tourists
explain how trade agreements affect global trade
the level of economic integration depends on the specific type of trade policies adopted by the trade blocs typically the benefits and obligations of the trade agreements apply only to their signatories
EU single market, customs union e.g. Romania's economy has grown by 7% since the country asked to join the EU.
60% of Mauritania’s exports and imports – part of an agreement with more than 70 countries including Africa, Caribbean and Pacific.
opposition to the WTO?
WTO is too powerful, it can effect compel sovereign stated to change laws and regulations by declaring these to be in violation of free trade rules The WTO aid indifferent to the impact of free trade on workers rights child labour the environment and health Lacks democratic accountability in that its hearings on trade disputes are closed to the public and the media Run by rich countries benefiting themselves and large TNC; this harms smaller countries which have less negotiating power. Less weight on problems of smaller countries eg rich countries have not fully opened their markets to produce from poor countries
What is debt?
external debt - the total debt in a country owed to creditors outside the country money owed to commercial banks, other governments or international financial institutions debtors can be the government, corporations and private households
example of how standard of living is improved by fair trade
36% of profits improving productivity CANN cooperative in the ivory coast 16% spent on farm improvements 19% on shared facilities
What is niche tourism?
Tourism that deals in a specialised product
example of LIC economy
Chad 80% employee in primary sector
what advantage does fair trade have for consumers?
ethical satisfaction as fair trade campaigns for change raised awareness about fair trade issues achieved through fair trade
describe relief aid
humanitarian aid purpose is saving lives reducing suffering respecting human dignity usually employed after events such as natural disasters or humanitarian crisis eg civil war or famine short term eg RED CROSS NGO
why are HICs to blame for odious debt?
immorally lending money banks know of the irresponsibility of the leaders eg apartheid in south african government, that would fund policing prisons or security apparatus enforcing racist “second class status” not only irresponsible, politically motivated eg mobutu the congo leader squandered $8 billion in personal swiss banks, $2 million trip to disneyland, castles in spain people are impoverished and suffering politically didn’t want the DR Congo eg gold or dimaonds fallen into Soviet hands HICs propped up a corrupt regime
what advantages does fair trade have for producers?
better trading conditions eg removing middle men better financial outcome eg higher proportion of final price, higher prices of Fairtradr verified goods increased security of market and a more equitable balance between them and the supply chain developing knowledge and skills to improve lives - empowerment increased income and quality of life; especially small and medium scale producers
what is bilateral aid
where the aid is given directly by the government of a donor country to a recipient country
why do countries find it difficult to get out of debt?
High interest rates on international loans demands of a growing population with increasing aspirations the dominance of cheaper primary exports in their export portfolio changed of government political corruption and economic instability natural disasters eg floods social issues eg pop growth poor infrastructure
benefits of trade if free fair and regulated
may promote economic independence provide income support local employment
why is aid more effective in some countries than others?
transparency accountability development of organisation government corruption top down or bottom up (relief or developmental) involvement of local gov and communities sustainability
explain how tied aid creates issues in donor countries?
political difficulties of justifying spending on aid to some groups
perceived perception that tied as is better for their country’s economy eg china and india
economic consequences of national debt?
interest added to debt makes it unsustainable repayment prioritised over investment in infrastructure rise in unemployment fall in wages long term structural problems
describe tied aid
foreign aid that must be spent buying products from the donor country that provided the aid eg Peragu Dam Malaysia 1991 in exchange for arms deal
example of how fair trade has promoted training and skills
2013 west africa financial training negotiating contracts consumer awareness marketing advocacy campaigns on behalf of producers CANN offer pesticides and kits eg wellington boots
what are the issues for the country recovering aid?
dependency tied aid (agenda) management, governance, corruption problems of delivery
assess the impact of fair trade
provides empowerment education enhanced income however many producers in LEDC find it difficult to meet the standards required to gain and retain Fair Trade Status
the exchange across borders (import and export) of goods which can be seen or touched eg wheat coal vehicles
A movement that aims to creates a direct long term trading link with producers in developing countries To ensure that they revive a guaranteed price for their products on favourable financial terms
What is primary product dependence?
When countries rely on one or a small number of primary products for the bulk of their export earnings
What is tourism?
To travel away from the home environment For leisure, recreation and holidays To visit friends and relatives For business and professional reasons
Arguments for the provision of aid to LICs include:
Emergency aid can save lives and help rebuild communities, livelihoods and housing after a disaster Provision of medical training, medicines and equipment can improve health and standard of living Aid for agriculture can help improve farming techniques, increases food production and improve the quality and quantity of food available Aid for industrial development can create employment and improve infrastructure in transport such as roads and railways, supporting countries in developing their natural resources and power supply Developing clean water and sanitation to improve health and living standards
causes of national debt
global recession structural weaknesses of the economy high levels of fiscal imbalance and high public spending and borrowing inappropriate development policy corruption mismanagement political instability bad decisions dependency on colonial ties trade issues prius loans, rising price of key imported goods
what is an invisible import or export
a product that is traded and flows in and out of s country Invisible as it can’t be touch or seen physically eg a service such as finance information consultancy and tourism
fair trade background
food sales growing by 25% invoking 400 HIC companies roughly 500,000 farmers
What is a debt crisis?
If major debtors are unable to pay the interest and redemption payments due on their debts, or if creditors are not confident they will do so
define locational advantage
a locational advantage is the benefits or competitive edge derived from a place’s unique nature and or position
environmental problems with national debt?
creates pressure to exploit resources quickly with less attention to environmental issues m responding to environmental disasters is more difficult
what are the overall economic advantages of tourism
multiplier effect informal sector foreign currency growth in income
role of the WTO
deals with global rules of trade between countries and trade blocs functions to ensure trade runs smoothly predictably and freely achieved this by negotiating trade agreements, encouraging liberalisation (LEDCS) and by dealing with trade disputes these are negotiated and signed by the majority of trading countries, then ratified in their parliaments
what are Fair Trade goals in a global level
campaigning for change challenging conventional trading practice raising awareness on fair trade issues
recent initiatives providing debt relief
WORLD BANK Highly Indebted Poor Countries Injtative Post G8 summit 2005 african debt cancelled
what is the world trade organisation?
an international body whose purpose is to promote free trade this is done by persuading countries to abolish import tariffs and barriers 159 member states set up in 1995 regulated merchandise goods, services eg telecommunications or intellectual property
causes of the debt crisis
large scale lending by the WTO to newly independent LEDCs for economic development world recession in the 70s and 80s caused increase in oil prices, countries started to default on repayments instability, civil wars, corruption
why are HIC countries to blame for LIC debt? (greedy and explorative)
Following an increase in oil prices in 1970s, OPEC countries invested petro dollars into the International Monetary Fund.
This surge of investment in banks encouraged them to lend it out to LIC countries, in order to turn a profit.
LIC countries were enticed by offers of low-interest, and the opportunity to develop.
In return for the loan, LIC countries were encouraged by the IMF to exploit precious resources, grow cash crops and ultimately abolish protectionism.
During the 1980s/90s global recession, interest and inflation rapidly increased – the price of the loan went up drastically, whilst the price of the crops grew as demand fell LICs had large surpluses of crops.
They thus had increased debt, and decreased income due to a recession that was ultimately caused by HIC greed.
how does poverty affect development
by restricting opportunity, impeding social and economic wellbeing and and, therefore, the potential for improvement
by attracting attention, initiatives of government and NGOs, etc. and so stimulating development.
example of colonial rule leading to inequalities in trade
Zambia was only developed along railway lines that lead to copper mines, leaving large amounts of the country under developed
there is thus difficulties in economic diversification as the infrastructure is limited
left without the means to fund development alone as colonisers plundered resoruces - debt
what is the secondary sector
Raw materials manufactured and processed, then exported as visible trade.
Traditionally been seen in areas such as Detroit’s motor industry.
Contemporarily seen due to the NIDL in Asian NICs, as it has become a global process.
benefits of developing an economy through the secondary sector
Relying on manufactured groups reduces price fluctuations and vulnerabilities that come with primary sector reliance. This means that seasonality and external shocks play a lesser role in exporting the good. Departing from the primary sector also allows the skills of the manufacturers to increase, away from traditional, ineffective ways of living.
Exports are of a higher value, giving workers a higher earning potential. It thus provides employment in formal sector jobs improving the tax base, reinvested into schooling or healthcare. This can therefore provide fertile ground for expansion beyond the secondary sector, as better social services produce a better workforce.
two problems with economic development based on the secondary sector
Environmental damage: high production and industrialism lead to pollution, resource depletion, water depletion, waste dumping e.g. rubbish island in the Maldives. Often part of the reason FDI occurs for secondary sector investment is due to lax (costly) environmental regulation, meaning there is no responsibility or accountability for foreign companies. This can be fatal – in disaster in Bohpal, India, an American owned chemical plant leaked and let toxic gases into the air supply.
Secondary sector often emerges through FDI, which is prone to leakage. In general, 60% of the profit that is made in this sector, ends up in the GNI of a HIC country. In addition, the profit for workers employed in this sector is usually limited, as managerial jobs are taken by foreign (HIC) workers, having been given training and skills in HICs. This then means the extent to which LIC workers can develop skills and look to future development is limited.
what are the reasons for the emergence and growth of NICs
Politics (strong, centeralised leadership): five year plans, squashing rebellions, setting up SEZs, low wages
vs SK democracy
Social: Confucian values; one child policy; high population (and so labour force)
Resource endowment: coal, natural gas
vs SK with mainly imported resources
Locational advantage: trade routes e.g. silk road
Aid: South Korea
Timing Reagan and Thatcher’s free trade programs
example of the dangers of relying on primary product exports
80% of Zambia's exports are copper
when the price of copper falls (as it did when oil crisis occured) Zambia default on debt payments
why is aid advantageous as it is distributed according to need?
trade is an inefficient distributor of resources
the benefit of the trade will stay with a small elite of people (the least needy) who are often amongst the richest in the country initally, used to make their position stronger
Aid, by contrast, may be targeted against specifically identified groups or areas on the basis of need, often being given through local groups, such as churches, mosques, health clinics, etc
Nigeria $7.9bn to $27bn in 2010: healthcare focus
campaigns against aids, TB and malaryia; a scaling up of safe childbirth; increased vaccinations, near-eradication of polio.
why is aid advantageous as it is does not have the same risk free trade does
primary product domination means country is very vulnerable to variations in the international markets, and can quickly become unstable by changes in supply and demand
Zambia’s copper exports fell in price during the 1973 oil crisis, meaning they had to borrow heavily to finance development (newly independent). The 1980s and 1990s recession lead to exports for LIC countries rapidly increasing inflation and so HIC demand fell leaving LIC countries with massive crop surpluses..
Iceland’s 2010 volcanic eruption lead to grounded aviation due to an ash cloud. Kenyan farmers were unable to export flowers out of the country: $3.8 million lost each day and thousands were laid off.
why is misspent aid an advantage for trade
imposing solutions from outside, it favours centralisation
this is inappropriate, benefitting a small number of people, and the majority of suffer from intended consequences e.g. aid workers supporting local millitant groups in order to distribute aid;
corrupt distribution e.g. mobutu's misspending
by contrast trade creates profits that ‘trickle down’ to the whole population, giving people the power to spend additional income as they choose,
for example by reinvesting it in worthwhile local industries and enterprises
enhanced by Fairtrade which offers a Premium to the cooperative that can be reinvested in boosting productivity, as is seen as the CANN cooperative 36% spent/ education funding schooling in Costa Rica from CocoCafe cooperative
why is inappropriate aid an advantage for trade
imposing solutions from outside, it favours big projects, centralisation (unwilling to accomodate local neuances, lack of democracy and accontability within aid organisations) highly centeralisd with a lack of local consultation (pastoral life unsuited to fishing) and progress monitoring
Kenya receiving aid from Norway in the 1980s for Lake Turkana - £152 million over 20 years. This lake was virtually unused but full of fish stocks – Norway built a fish freezing plant and taught Turkana’s semi nomadic pastoral communities how to exploit fish stocks. factory is unused.
by contrast trade is tailored to a countries comparative advantage and if developed sustainably can provide the means for DTM movement
e.g. Asian tigers: since they adopted free market approach they have benefitted from - universal education, reduction to 50% below the poverty line
why is trade advantageous as it promotes international cooperation
Developing countries try to maintain trade relationship with other countries to develop positive relationships and become interdependent e.g. Pakistan and China forged a strong trade relationship
often with benefical terms internaitonally e.g. Iran's nuclear deal, denuclerisation benefical for the world/ WTO's conditions for a democratic, transparent governance
Trade can also act as a disinentive - sanctions can reduce the initiation of war e.g. north Korea peace talks with the south 2018 after decades of trade embargos and heavy tariffs on exports post fall of soviets
by contrast, aid relationships can be severed much more easily as there is not the same level of mutual benefit e.g. Norway severed diplomatic ties to Kenya between 1990-94, but aid was onyl resumed 10 years later
describe how a better financial outcome recieved is an advantage of fair trade
The Fairtrade Minimum price means that buyers must pay at or above the price floor (but if the market price is higher, then at that price).
This provides a stable income to the community, that can be reinvested; in West Africa 36% of Fairtrade Premium spent on improving productivity and quality of Coco organisations.
Within this area, the CANN cooperative spent 16% on farmer level improvements, 19% on shared facilities (to improve the quality of export), which also benefits the consumer, 25% on subsidised equipment e.g. pesticides, wellington boots.
explain why the nature of trade gives rise to unequal trade
based on primary products or tertiary sector (education).
many LIC nations rely on one or a small number of primary products to obtain foreign currency through export
For example, Zambia’s exports are 70% exports and Mauritania entirely dependent on iron ore.
The market price of primary products has generally been low compared with that for manufactured goods and services; the price of primary products is subject to considerable variation year to year, making long term sustainability difficult: vulnerable to market competition.
By contrast, tertiary sector economies tend to rise in price at a reasonably predictable rate, resulting in a more regular income and less uncertainty.
what is resource endowment dependent on
It is reliant on effective planning and management, only possible in more developed countries with the appropriate infrastructure to do so. Mobutu’s DR Congo, stole upwards of $5 billion whilst 50% of citizens are below the poverty line
example of country situated along a trade route
Situated along a trade route/shipping lane.
For example, Singapore is situated along the trade route between India, China and the Pacific Ocean. This means a reduction in transportation costs (no foreign tariffs) and reduced dependency on other countries for favourable trade conditions.
examples of the benefits of trade agreements
EU single market, customs union e.g. 60% of Mauritania’s exports and imports – part of an agreement with more than 70 countries including Africa, Caribbean and Pacific. Romania's economy has grown by 7% since the country asked to join the EU.
explain how fairtrade operates
It operates through small-scale producers that group together to form a cooperative or other democratically run associations with high social and environmental living standards.
Then, these cooperatives deal directly with companies (cutting out the middlemen), such as large HIC supermarkets such as Sainsbury’s.
These HIC companies, through their customers, pay significantly over the world market price for the products traded. The price difference can be as large as 100%.
The higher price achieved by LIC cooperatives provides both a better standard of living (often saving producers from bankruptcy and absolute poverty), and money to reinvest within the cooperatives boosting productivity and skills.
Fair Trade is a small but growing element of trade, involving a small number of key products such as cotton, coffee, tea, some fruit, vegetables and flowers.
It started is now a global market worth £315 million, involving 400 HIC companies and an estimated 500,000 small farmers.
Food sales growing more than 25% a year, with the Swiss and Uk being the largest markets.
describe how unexpected economic circumstances affect exports
Zambia’s copper exports fell in price during the 1973 oil crisis, meaning they had to borrow heavily to finance development (newly independent).
The 1980s and 1990s recession lead to exports for LIC countries rapidly increasing inflation and so HIC demand fell leaving LIC countries with massive crop surpluses.
describe how unexpected environmental circumstances can affect trade
. Iceland’s 2010 volcanic eruption lead to grounded aviation internationally due to an ash cloud. This affected Kenyan flower exporters as it was during peak season, in which they had a higher crop base than usual but were unable to export it out of the country.
Here, $3.8 million was lost each day and thousands were laid off.
describe how unexpected circumstances of conflict affect exports
Conflict destroys lives, property, infrastructure, food supplies, transportation networks; higher military spending.
Even short periods of violence can have long term implications for the agricultural sector, reducing export growth rates e.g. in Kenya.
explain how a bumper harvest can affect exports
Bumper harvest = higher export earnings BUT drives unit prices down.
For example, following the 2014 biggest yield of wheat in Britain ever, prices of wheat went down from £15o to £103 as the market was flooded. However, if internationally harvests are poor the paradox is more negligible.
example of country overly dependent on aid
Haiti used to be largely self-sufficient, a food exporter.
The country previously had a protectionist stance (tariffs on food basics as high as 150%), encouraging domestic food production.
Following US rice subsidies of $12.5 billion ‘Miami-Rice’ is cheaper, meaning 90% of the rice eaten in Haiti is from the US. Under Trump, what happens if the subsidies stop?
May allow donors inappropriate leverage over national policy and diminish national governments efforts to raise revenue independently.
example of a country thats economy was distrupted by aid
following Haiti earthquake 2010, US dumped ‘Miami Rice’ on local Haitians which was useful in the immediate aftermath, but prevented rural Haitians from selling food to the cities (makes rural-urban migration worse – sweatshops, poorly constructed houses over a million homeless)
example of tied aid as a disadvantage
67% of aid from Greece given on the basis that Greek contractors were used on the development projects (2009)
Africa is China’s second largest supplier of service contracts – 70% of contracts go to state owned Chinese firms, the rest are local-Chinese partnerships
no sustainable employment for locals, profit leakage, lack of cohesion with local society, securing resources
criticisms of fair trade
The Fairtrade foundation does not monitor how much of the extra money that the cooperative receives, through the Fairtrade premium, reaches the farmer
The Fairtrade minimum price encourages over supply, reducing global prices (limiting the amount farmers can earn from production, locking them in poverty and primary sector market)
Reduces the incentive to diversify crop production, encouraging the utilisation of resources on marginal land that could be better employed for different produce
Fairtrade status often doesn’t go to the people who need it most: 181 of 300 Fairtrade coffee producers in south America, with just 4 in Ethiopia
overall advantages of fair trade
better trading conditions
developing knowledge and skills to improve lives
better financial outcome
empowerment, securing rights
describe how developing knowledge and skills is an advantage of fair trade
developing knowledge and skills to improve lives e.g. training.
The Fairtrade premium has been used by cooperatives to finance educational scholarships.
E.g. Costa Rican coffee cooperative Coocafé supports hundreds of children at school and university, also use the money to build and furnish schools.
describe how empowerment/securing rights is an advantage of fairtrade
empowerment, securing rights e.g. amongst cooperatives there is a sense of entrepreneurial spirit, operating a profitable business.
CANN cooperative in the ivory coast, west Africa, puts 60% of its Fair-Trade premium towards training in negotiation strategizing and training.
describe how better trading conditions are an advantage of fair trade
better trading conditions, e.g. removing middlemen and so reducing stagnation in negotiation (which given a lack of education and training often put the LIC country in a weaker position)
for example, LIC country cooperatives often deal with HIC companies such as Sainsburys directly
describe religous tourism
Religious tourism involves people travelling individually or in groups for pilgrimage, missionary, or leisure purposes.
According to the World Tourism Organization, an estimated 300 to 330 million pilgrims visit the world's key religious sites every year.
For example, the total number of tourists to Mecca, is expected to rise from about 12 million to almost 17 million by 2025; generating at least $12 billion in revenues from worshippers’ lodging, transport, gifts, food and fees.
Abraj Al-Bait, finished in 2011, is a government-owned megatall complex of seven skyscraper hotels in Mecca, Saudi Arabia. These towers are a part of the Endowment Project that strives to modernize the city in catering to its pilgrims.
why is the responsibility for debt on the country that recieves the loan
Some countries are naturally disadvantaged – experiencing locational curse (being land-locked, a small island etc), unsustainable arid environment, susceptibility to hazards, oppressive cultural traditions. Thus, shortage of internal development potential.
Therefore, a country lending out money is not responsible for debt because it is arguably inherent issues in the country that borrows – even HIC’s have debt.
The money is intended to help the country develop; it is down to the country how this is managed
For example, in Africa there is a shortage of navigable rivers (too many waterfalls and rapids), but internationally the cheapest way to transport goods and technology is by water.
Additionally, much of central and southern Africa receives as low as 0mm of rain a year, retarding development and agriculture.
Therefore, the money given by countries is benevolent, as the country that borrows requires it to get out of poverty – responsibility is on the country that borrows for how effectively this happens e.g. Mobutu squandering billions.
how do unexpected environmental circumstances affect exports
Iceland’s 2010 volcanic eruption lead to grounded aviation internationally due to an ash cloud. This affected Kenyan flower exporters as it was during peak season, in which they had a higher crop base than usual but were unable to export it out of the country. Here, $3.8 million was lost each day and thousands were laid off.
how do unexpected conflict affect exports
Conflict destroys lives, property, infrastructure, food supplies, transportation networks; higher military spending. Even short periods of violence can have long term implications for the agricultural sector, reducing export growth rates e.g. in Kenya.
explain a positive unexpected circumstance affects exports
Bumper harvest = higher export earnings BUT drives unit prices down. For example, following the 2014 biggest yield of wheat in Britain ever, prices of wheat went down from £15o to £103 as the market was flooded. However, if internationally harvests are poor the paradox is more negligible.
why does instability lead countries to debt
Somalia (without stable gov. won’t be accepted into HIPCI), expensive wars e.g. civil war in Sudan since 1983 (unclear government, lack of education – universities in nothing but name, expensive medicine in north), after war social, economic and educational health systems will need to be set up, requiring high public spending and thus loans
why do high interest rates cause a country to get into debt
after the recession 1970s/80s interest went up making loans more expensive, African countries suffered as their once low interest loans were no unobtainable, combined with the decreasing value of their exports – higher loans, lesser income
why does the loss of key markets cause countries to get into debt
loss of key market in trade, export dependency e.g. Zambia’s copper exports fell in price during the 1973 oil crisis, meaning they had to borrow heavily to finance development (newly independent)
why does the rising price of import commodities cause countries to get into debt
rising prices of key imported commodities, e.g. oil funds much of the secondary sector which fuels the development of LIC and MIC countries in manufacturing and processing – likely already in debt, but leads to crippling, odious debt
why does an inability to repay loans cause debt
because countries are forced to borrow more
incompatability with HIPCI regulations (stable government e.g. South Sudan) or recession e.g. Zambia debt to GDP ratio was over 200%
Sri Lanka's inability to pay china back for $1.5bn deep water port means this is now under Chinese control; a strateigic move that challenges the status quo of west
list the causes of debt
increased price of exports
loss of key trading markets
inability tomake loan repayments
example of immoral lending by banks
during Apartheid in South Africa, banks lent money to the government knowing that the money would only go to certain sectors of the population (those not “second class citizens”). In fact, many south Africans suffered as a result of this money, seeing as it provided funding for police, prisons and security apparatus that lead to the torture and reduced existence of many black south Africans.
example of a country combined aid and trade to develop
Bangladesh is equally dependent on trade and aid the two must co-exist; specifically agricultural sector
UK enabled >100,000 farmers to gain improved access to markets - strategy involves both aid and trade
Without aid farmers would be unable to develop sustainable farming methods and introduction of fertiliser etc.,
Without trade agricultural workers won't get more profit from goods - production not efficient; aid wouldn’t have worked so well if there hadn’t been established markets to sell produce to.
impact of miami rice aid on haiti
This has undermined Haitian peasant agriculture for three decades: high unemployment/sweatshop workers working and living in squalor conditions on unstable land, over 1 million homeless; aggravated food crisis (1/4 of population food insecure)
80% of Haitians are small farmers; but Haitians consume 50% of imported food
Haiti used to be largely self-sufficient, a food exporter. The country previously had a protectionist stance (tariffs on food basics as high as 150%), in order to get loans for development, they had to cut this to as low as 3% on food basics.
international postive trade examples
Asian tigers: since they adopted free market approach they have benefitted from universal education, reduction to 50% below the poverty line
Romania's economy has grown by 7% since the country asked to join the EU
Can greatly reduce the risk of conflict: reallocating resources efficiently, opening up opportunities and creating jobs
Trade sanctions can reduce the initiation of war e.g. north Korea peace talks with the south 2018 after decades of trade embargos and heavy tariffs on exports post fall of soviets
Research shows that in the absence of the WTO, the average country would face an increase in tariffs on their exports by 32
environmental impact of Peragu dam
Deforestation (roads built to construct electricity pylons has opened up the road to flooding), soil erosion, flooding
Sumatran rhino tiger endangered
Soil was washed into the Pergau River, silting up and damaging neighbouring farms
positive aid example
Aid from USA after Korean War; a western attempt to extol the virtues of capitalism
Contributed to huge amount of GDP - 18.5%
This aid provided the basis for the manufacturing sector that allowed growth
describe the HIPC
Initiated in 1996 by IMF and the world bank
Anti-corruption efforts, promote democracy, account for expenditure
e.g. Nicaragua became eligible for HIPC status in 2000, receiving $4.5 billion. This reduced its debt burden by 150%, allowing the government to spend 91% of its budget on other things.
international examples of debt relief
Since 1996, $95 billion of debt has been cancelled in more than 35 poor countries, mostly in sub-Saharan Africa.
Tanzania abolished school fees in 2002 after receiving it; this increased primary enrolment increased from 49% (1999) to 98% (2008).
Cameroon’s debt savings funded a national HIV/AIDS plan.
case study of positive impacts of debt relief
Those who suffer the consequences incurred by repaying the third world’s external debt rarely benefited from the loans in the first place.
Immediately received a 50% debt reduction, down $7.3 billion saving the country millions of dollars in debt payments each year.
Used debt relief to fund free ARV drugs for 100,000 people, bringing the AIDS epidemic under control.
case study negatives of debt relief
Has left the country with debt equivalent to $550 per Zambian, which cannot be paid back considering GNI is $300
The country still has 80% of people under the poverty line.
example of positive bilateral developmental aid
After the Korean war, South Korea was one of the world poorest countries with only $64 per capita income. South Korea benefited from $60bn in grants and loans from the US over 30 years between the 1940s and 1970s: a western attempt to extol the virtues of capitalism
Ultimately successful as aid was not squandered in a stable multiparty democracy, unlike Mobutu in DR Congo (fall in soviet union, fall of Mobutu, fall in aid)
This aid provided the basis for successful Korean brans in the world market, such as Samsung and LG.
South Korea has since become America’s sixth largest trading partner
two example of aid distribution failing (conflict; alterior motivation)
in Somalia difficulties in distribution due to a war following the overthrow of a dictator, as fighting and supplies were frequently seized.
Aid agencies paid armed militia to help, fuelling conflict.
Ethiopian government used aid to resettle people from the North to the South – huge numbers of people moved by plane; aid used as bait. People died through forced relocation. MSF objected and were subsequently expelled.
example of the disadvantage of tied aid
Pergau dam in Malaysia: aid from the UK was tied to the purchase of arms, construction was done by a British company and Malaysia could have produced energy cheaper from other sources.
explain the disadvantages for countries of receiving tied aid.
Usually a developed country will provide a loan or grant to a developing country, the money has to be spent on goods or services produced in the donor country. The disadvantage broadly is the fact that tied aid increases the cost of assistance and decreases the value: as a higher price has to be paid for the goods and services; there is an increase in transport costs and time delay (in comparison to buying from neighbouring countries, with a surplus and a lower price);
the aid might not be focused on the needs of the receiving country;
experts from the donor country do not always coordinate their programs with the recipient government’s national plans, causing duplication of efforts and inefficiencies; these experts have to be paid, so more of the aid leaves the receiving country.
impact of debt on host country
Economic: long-term structural problems; interest which adds to debt and can render a serviceable debt unsustainable; repayments taking priority over investment in areas such as infrastructure; rises in unemployment levels and falling wages.
Social: countries are diverting resources away from social provisions to repay debt, those most affected are the poor, especially women and children; cuts in benefits and raising of pension age.
Environment issues: debt creates pressure to exploit resources quickly and with less attention to environmental issues.
Political problems such as structural adjustment programs and austerity measures and consequent public unrest
role of fair trade
prioritising development and responsibility over profits (for the middleman) and low prices (for consumers in MEDCs).
appeals to the ethics and consciences of comparatively wealthy consumers.
works to enhance the income and quality of life of small and medium-scale producers in LEDCs, allowing them both to develop their businesses and to enhance their life, e.g. through training.
explain how historical factors can postively affect global trade
Positive e.g. Singapore (established infrastructure legal and political e.g. independent judiciary, piped water, transport).
Attractive for western FDI: stability and appropriate infrastructure
Mauritania was made independent from France, but they remained the biggest trading partner.
why do countries find it difficult to get out of debt due to social issues
high levels of population growth, (funding ever greater welfare spending, greater vaccinations, over-grazing),
limited education/skills (development stays within the primary and secondary sectors, inability to progress),
lack of infrastructure (discourages FDI which would improve balance of trade)
how does tied aid cause issues in recieving country
become part of agressive military strategy e.g. China;s belt road initative developing sea ports from South China to Africa
adverse effects on local communities - distruption to economy
benefit of aid only superfical - subcontracting within the host country reduces the boost to economic growth for the local economy