Besides technological advancement that have made it possible to lower the costs of
transportation, communication, and computation to the extent that it is often economically
feasible for a firm to locate different phases of production in different countries, the
Increasing liberalization of trade and capital markets meant that more and more
governments are refusing to protect their economies from foreign competition or influence
through import tariffs and nontariff barriers such as import quotas, export restraints, and
legal prohibitions (World Bank). This trend has been particularly beneficial to industrialized
and developed countries as they have a comparative advantage in the production of
manufactured goods for which there is demand globally. On the other hand, primary
exports constitute the bulk of exports from developing countries.
According to the World bank, terms of trade deteriorated in the 1980s and 1990s because
prices of primary goods—which used to make up the largest share of developing country
exports—have fallen relative to prices of manufactured goods. For example, between
1980 and 1995 real prices of oil dropped almost fourfold, prices of cocoa almost threefold,
and prices of coffee about twofold. While some experts believe that poor policies, weak
institutions and corruption have been major factors responsible for the weak integration
and lack of competitiveness, others believe that geographical and climatic factors also
have a huge role to play in globalization. For instance, landlocked countries may not be in
a position to fully take advantage of the international trade as they have to deal with greater
transportation costs and various tariffs and legal restrictions associated with moving goods
and services across international borders, in the end this reflects in the final price of their
products and reduces their competitiveness. To reduce the... [continues]
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