Trade and Development
Benefits of Trade and Development:
ALWAYS COME BACK TO DEVELOPMENT OUTCOMES
1) Exploit Comparative Advantage
- Where firms have comparative advantage - exploit and sell
- Developing countries have lost of natural resources - in high demand
Can increase exports = Can Increase AD = Can Increase Growth
= Increased Development
2) Consumers Benefit from Lower Prices, Increased Choice and
Improved Political relations
Bigger markets = higher competition = lower prices = consumers benefits
Consumers have higher choice - as they have access to bigger markets.
By opening up the market to the world - can develop trade ties (CHINA -
PAKISTAN) - improve political relations.
3) EOS and Efficiency Benefits
Increasing output and lower costs - productive efficiency gains means
Higher Profits = Higher Corporation Tax Revenues
4) Technological Transfer and Growth of Secondary Industries
- Improving technology - keeping upto tarde - importing capital goods -
can copy technology from other countries - improve technology in
country = higher development
- Firms see higher profits = reinvested into business = dynamic
efficiency = improving technology
- By investing/improving technology = Breaking Dualistic
Structures/Primary sector industries = higher incomes = increased
development.
Problems with Trade and Development:
(International Barriers to Development)
1) ‘Resource Curse’ - Primary Commodity Dependence
Developing countries rely of Primary commodities for exports therefore
growth
In future:
, i) Prices fall
Price of primary commodities fall - export revenue falls - AD falls - Growth
falls - Development falls
ii) Depletion of Resources
In future there are not infinite resources left
Restricting a key avenue of growth
iii) Slowing Demand
If demand falls - decreases in export revenues - development falls.
2) Price Fluctuations
Primary commodities are susceptible to price fluctuations/
Demand for primary commodities is price inelastic - because goods are
necessity goods/ very few substitutes available.
Supply is inelastic as it takes a long time to produce primary goods (e.g
corn).
If supply increases (s1-s2) - very large fall in price but a very small increase
in quantity
If supply falls (s1-s3) - very large price increase but a very small fall in
quantity.
ANY CHANGE IN MARKET CONDITIONS LARGELY AFFECTS PRICE.
Benefits of Trade and Development:
ALWAYS COME BACK TO DEVELOPMENT OUTCOMES
1) Exploit Comparative Advantage
- Where firms have comparative advantage - exploit and sell
- Developing countries have lost of natural resources - in high demand
Can increase exports = Can Increase AD = Can Increase Growth
= Increased Development
2) Consumers Benefit from Lower Prices, Increased Choice and
Improved Political relations
Bigger markets = higher competition = lower prices = consumers benefits
Consumers have higher choice - as they have access to bigger markets.
By opening up the market to the world - can develop trade ties (CHINA -
PAKISTAN) - improve political relations.
3) EOS and Efficiency Benefits
Increasing output and lower costs - productive efficiency gains means
Higher Profits = Higher Corporation Tax Revenues
4) Technological Transfer and Growth of Secondary Industries
- Improving technology - keeping upto tarde - importing capital goods -
can copy technology from other countries - improve technology in
country = higher development
- Firms see higher profits = reinvested into business = dynamic
efficiency = improving technology
- By investing/improving technology = Breaking Dualistic
Structures/Primary sector industries = higher incomes = increased
development.
Problems with Trade and Development:
(International Barriers to Development)
1) ‘Resource Curse’ - Primary Commodity Dependence
Developing countries rely of Primary commodities for exports therefore
growth
In future:
, i) Prices fall
Price of primary commodities fall - export revenue falls - AD falls - Growth
falls - Development falls
ii) Depletion of Resources
In future there are not infinite resources left
Restricting a key avenue of growth
iii) Slowing Demand
If demand falls - decreases in export revenues - development falls.
2) Price Fluctuations
Primary commodities are susceptible to price fluctuations/
Demand for primary commodities is price inelastic - because goods are
necessity goods/ very few substitutes available.
Supply is inelastic as it takes a long time to produce primary goods (e.g
corn).
If supply increases (s1-s2) - very large fall in price but a very small increase
in quantity
If supply falls (s1-s3) - very large price increase but a very small fall in
quantity.
ANY CHANGE IN MARKET CONDITIONS LARGELY AFFECTS PRICE.
