Trade and Development

What is international trade?

 Trading happens because of uneven distribution of

raw materials

 It plays a major role in a countries economy

 No country has an adequate supply of raw

materials

 Countries that trade with other countries are

interdependent

 Trade happens because the producing country is

able to produce goods and services more cheaply
than the consuming country

New words

 Imports: raw materials, goods and services

bought by a country

 Exports: raw materials, goods and services sold

by a country

 Trade surplus: Countries that earn more from

their exports than they pay for their imports

 Trade deficit: Countries that spend more on

imports then they earn from exports

Trade commodities

 Disadvantages of depending on primary products:

1.

Primary products are usually processed else where to
make more sophisticated products

2.

Manufactured products as added value because they
can be sold for a greater profit

3.

Primary products have little added value

4.

Terms:

5.

Primary products: unprocessed raw materials

6.

Commodity: an item of economic value, intended for
exchange

Terms of Trade

 Why does MEDCs make more form trade than LEDCs?

1.

LEDCs export raw materials to MEDCs

2.

MEDCs export manufactured and processed goods to
LEDCs

3.

Raw materials have much less value than
manufactured goods

Is Trade fair?

 LEDCs has gained the least from the growth in the expansion of

trade

 Countries try to protect their own economies by imposing tariffs

and quotas on foreign imports

 The World Trade Organisation aims to promote FREE TRADE by

removing these restrictions

 TRADE GROUPS like the European Union are setup to promote

free trade between their members and reduce foreign
competition

 Countries protect the economy by:

 Having trade relationships, free trade, trade barriers, subsidies

and fair trade

Free Trade

 When the movement of goods and services is not restricted

 This benefits countries who specialise in mass production and

economies of scale can take place

 Economies of scale: in mass production the unit cost of

products falls as the manufactured quantity increases.

 Many countries don’t follow free trade although it

encourages co-operation and goodwill between countries.

 Free trade does not benefit the wealthier nations because

they exploit the labour and resources of poorer contries,

 Tarrifs: taxes that increases the price of import produts

 Embargoes: Import restrictions

Trade Barriers

 Quotas: restrictions on the number of foreign products

that can enter a country

 Permits: official permission is needed for using airports

and harbours it delays a foreign country attempt to sell
and distribute products

 Packaging laws drive up costs on foreign imports

 Quality standards: non-tariffs barrier on the imposition of

the product quality

Subsidies

 When a country give support to one of its own industries

to improve its competitive position

 E.g. farming subsides offered to rural communities

 Most of the benefit goes to the highest income

households because they use more petroleum products

 65% of all fuel subsidies goes to richest 40% of households

Fair Trade

 It differs from free trade, in which it guarantees that

farmers and producers in developing countries receive a
fair deal