Define ‘international trade’.
Buying and selling goods and services with other countries.
How much is world trade worth?
$20 trillion, a 20x increase since the 1950s.
What are 2 obstacles to trade?
1) Barriers
2) Subsidies
How do these elements of trade cause problems?
They mean that the market place isn’t a level playing field for everyone.
What are trade barriers?
- When wealthy countries impose ‘tariffs’ (tax on imports and exports) which increase prices
- Non-tariff barriers are also used for things like health and safety regulation
How do trade barriers hinder trade?
They can stop developing countries from exporting goods if the tariff is too high for profit or if they do not meet health and safety regulations.
What are subsidies?
- Money given by the state to help an industry reduce their costs of production and encourage them to increase output
- Rich governments often subsidise their agriculture
How do subsidies hinder trade?
Exporting at lower prices means that farmers in poorer countries can’t compete in the global or local market when they are flooded with cheap goods from abroad.
State 2 different types of trade.
1) Free trade
2) Fair trade
Describe ‘free trade’.
- Removal of trade barriers
- Free movement of goods between countries
- Increased competition keeps prices low with increasing quality
- Imposed on countries through structural adjustment programmes from the IMF
Describe ‘fair trade’.
- Recognising exploitation in production (e.g. poor working conditions and cheap labour)
- Those in developing countries attain a ‘fair’ wage for their service
- Raising awareness for low standards of living in developing countries
Give an example of how trade can cause problems in falling prices.
- America’s catfish industry is worth $600 million
- However the price of catfish decreased due to the discovery of Vietnamese catfish being almost identical to American
- Getting Vietnamese catfish was cheaper and so had lower prices, making American catfish unpopular
- Catfish industry lost $200 million as a result
Give an example of how trade can cause problems for developing countries.
- Ghana need to trade way out of poverty
- Cost of production doesn’t leave much money for profit
- Old equipment due to financial problems from maize imports being imported which costs less than local maize
- Also hard to meet non-tariff barrier of health and safety with bananas that they have to buy chemical enhancers for which reduces profit
What does Modernisation theory argue about trade?
- Trade is key to development
- Developing countries should improve their technology as the pre-conditions for ‘take off’ (Rostow 1971)
- It encourages countries to produce their own goods and services for exports which encourages entrepreneurs and so competition which can cause countries like Ghana to rise
- Wealth will ‘trickle-down’
Identify 2 criticisms of Modernisation theory.
1) Its assumption that entrepreneurship will transition traditional to modern is too simplistic
2) Kiely (1995) argues that modernity may create as many conflicts as it destroys
What does Neoliberal theory argue about trade?
- They encourage countries to open their borders to imported goods
- Free trade stimulates development if without barriers and subsidies to let the market govern itself with a level playing field
Identify 2 international institutions that partake in trade.
1) IMF
2) World Bank
How does the International Monetary Fund and the World Bank contribute to international trade?
- Set up in 1947
- IMF provides short-term loans (paid back with interest) to countries when they cannot function as a ‘business’ anymore
- World Bank provides long-term loans (paid back with interest) to aid a variety of investments, such as infrastructure projects like roads
- Both only loan money when countries agree to terms of the Structural Adjustment Programme (e.g. limiting government spending)
- Based on the Neoliberal approach to reduce trade barriers
Describe ‘Structural Adjustment Programmes’.
- Set up by IMF or World Bank as conditions when providing aid/loans to developing countries
- Often involve reducing public spending and introduce privatisation
- If a country resists these changes they don’t receive the aid
- Advocates free trade due to being based on a Neoliberal approach
Identify a criticism of Neoliberalism.
Much of Western aid (e.g. IMF) is based on this theory which is ethnocentric towards the cultures of developing countries.
What does Dependency theory argue about trade?
- Satellites (e.g. Ghana) are dependent on Metropolises (e.g. USA) for trade in goods such as maize
- Satellites are exploited by Metropolises due to importing things cheaply
- This means they would need more aid to sustain themselves as their own agriculture can’t compete with prices
- E.g. Kenya’s sugar industry fell in price due to cheap imports which would mean they need more aid to soften the crash
Identify 2 criticisms of Dependency theory.
1) Defining dependency - hard to operationalise with undefined Satellites and Metropolises
2) Deterministic - Frank stated there was no way of changing position, whereas Wallerstein does with the World Systems Theory
What conclusion can be drawn from trade and its impact on the development of LDCs?
Overall, trade can benefit the development of a country when they have goods to sell in order to pay off debt to other countries or organisations such as the IMF. However it can also cause issues with falling prices if they create excess to pay off the debt but would then require more loans to soften the fall of prices so worsens dependency.
