Developing countries and trade
International trade is an important source of foreign income in almost all developing economies, these countries are referred to as developing due to their low GDP level and they are faced with high levels of poverty and unemployment, according to David Ricardo and Adam smith international trade plays a crucial role in the development of an economy, the Mercantile theory of development states that trade led to the wealth of nation. This paper discus the various problems that the developing countries face in international trade and their effect on the agricultural, industrial and service sectors. Some of these problems are external while others are internal problem. Some external problems include competition in the global market, tariffs and other trade barriers, required quality standards. Some internal problems include high cost of production, tariffs of inputs and Problems faced by developing countries:
There are various problems that developing countries face in international trade which will be discussed; this paper also provides possible solutions to these problems of trade. Some of the problems include trade barriers, unfavorable terms of trade, high quality standards, Agricultural sector:
A large portion of GDP in developing countries depend on agriculture, agriculture helps in providing food to the population, providing employment and surplus is exported to other countries. Foreign income highly depends on agricultural products exported and also tourism, however agriculture plays an important role in these countries in providing employment and food, there are various problems that these developing countries face in this sector and they include: Trade barriers:
High tariffs are imposed on imports in international trade; tariffs are a source of revenue to the government but at the same time they restrict the level of imports in a country, the agricultural sector in developing countries are faced with this problem because their good become more expensive in the internal market due to imposed tariffs. The tariffs will reduce the amount demanded due to the increase in price, therefore the agricultural sector is faced with the problem of declined demand for their products, and for this reason therefore the surplus amounts produced is not exported. Bans and quotas are also trade barriers that cause problems in internal trade, in the case of quota the developing countries are only required to export a certain quantity to country, this is a major draw back to the agricultural sector in the developing countries. High input costs:
Most developing countries import inputs such as fertilizer, pesticides and oil, their cost in the internal market are usually high and some producers cannot afford these costs, for this reason therefore the cost of producing the agricultural products is usually very high making the final price for these products to be high. Therefore the high cost of inputs will lead to an increase in the cost of production, the final price of the agricultural products is usually very high and therefore less competitive in the internal market, for this reason therefore the agricultural products are usually less demanded in the internal market due to competition from more efficient producers. Oil is also a major input in production in each and every sector in an economy, the developing countries in most cases will import oil from developed countries where prices fluctuate frequently, and the cost of oil will lead to an increase in the cost of production of these products leading to less competitive prices in the internal market. Subsidies:
Many countries subsidize their agricultural sector in order for them to produce more, this has posed a major problem to the developing countries that cannot afford to subsidize its agricultural sector, subsidizing of agricultural production in developed countries...