Trade and development: Difference between revisions

Revision as of 22:00, 20 November 2016

Revision as of 16:21, 25 November 2016

Line 1:

'''[[Trade]]''' can be a key factor in '''[[economic development]]'''. The prudent use of trade can boost a country's [[Economic development|development]] and create absolute gains for the trading partners involved. Trade has been touted as an important tool in the path to development by prominent economists. However trade may not be a panacea for development as important questions surrounding how [[free trade]] really is and the harm trade can cause domestic infant industries to come into play.

==Overview==

The current consensus is that trade, development, and [[poverty reduction]] are intimately linked. Sustained strong[[economic growth]] over longer periods is strongly associated with [[poverty reduction]], while [[trade]] and growth are strongly linked. Countries that develop invariably increase their integration with the [[global economy]], while [[export-oriented industrialization|export-led growth]] has been a key part of many countries’ successful development strategies.

Continents, countries and sectors that have not developed and remain largely poor have comparative advantage in three main areas:

* natural [[resource exploitation]], i.e. running down of [[natural capital]] such as [[rain forest]] [[timber]];

* low-education labor-intensive [[manufacturing]], due to high [[population density|population densities]] and little suitable land per person;

* [[agriculture]], due to low population densities and relatively large areas of suitable land per person.

Crucially for poverty reduction, the latter two at least are labor-intensive, helping to ensure that growth in these sectors will be poverty-reducing. However, low value-added, [[price instability]] and sustainability in these [[commodity]] sectors means they should be used only temporarily and as stepping stones in the path to [[economic development]].

==Agriculture==

In many developing countries, [[agriculture]] employs a large proportion of the [[labor force]], while [[food consumption]] accounts for a large share of household income. The [[United Nations Conference on Trade and Development]] (UNCTAD) notes that this means that “even small changes in agricultural employment opportunities, or prices, can have major socio-economic effects in developing countries”. Thus whatever the development strategy a particular country adopts, the role of agriculture will often be crucial. In 1994, the agricultural sector employed over 70% of the labor force in low-income countries, 30% in middle-income countries, and only 4% in [[World Bank high-income economy|high-income countries]] (UNCTAD 1999).

In [[poor countries]] with low [[population densities]] and enough suitable land area, which includes most countries in Africa and Latin America, agriculture is central to the economy. In poor regions and rural areas within middle-income developing countries, the concentration of poverty in rural areas of otherwise better-off developing countries makes the development of agriculture vital there. Finally, in Net Food Importing Developing Countries (NFIDCs), there is a positive link between growing agricultural exports and increases in local food production, which makes agricultural development if anything even more important, as [[food security]] and the financial stability of the government are also at stake. In [[Vietnam]] in the 1990s, increases in production and export of coffee of 15% a year contributed to a nearly 50% rise in food production in the same period. As agricultural GDP grew 4.6% per year, rural poverty fell from 66% in 1993 to 45% in 1998 (Global Economic Prospects 2002:40).

Anderson et al. (1999) estimate annual [[welfare]] losses of $19.8 billion for developing countries from agricultural tariffs – even after [[Uruguay Round]] reforms. This is three times the loss from [[OECD]] import restrictions on textiles and clothing. A combination of better market access, and domestic reforms and foreign aid to enhance the ability of developing countries to take advantage of it, could have a significant impact on poverty reduction, and help to meet the [[Millennium Development Goals]].

The largest beneficiaries of agricultural [[economic liberalization|liberalization]] would be OECD countries themselves: welfare losses of $62.9bn a year are estimated as resulting from the distortionary policies (Binswanger and Ernst 1999:5). Nor is the traditional objective of OECD agricultural subsidy (supporting small farmers) achieved by this system in a manner that could be characterised as efficient: most of the producer support incomes goes to better-off farmers, with the poorest 40% receiving just 8% of the support spent.

==Market access==