International Trade and Developing Countries
The purpose of this paper is to examine the problems faced by developing countries on global market and to evaluate the steps that governments take in order to assure that developing countries obtain a fair share of the benefits of international grade.
As Carbaugh (2011) pointed out, most economists today agree that taking advantage of international trade is “the best strategy for a poor nation to develop” (p. 233). In the past two decades, many developing nations, including China, Singapore, Hong Kong, South Korea, Bangladesh, India, Indonesia, Sri Lanka, Vietnam, Mexico, Turkey, and Morocco, followed this strategy, opened their markets to international trade and foreign investment, and realized significant poverty reduction (Carbaugh, 2011). By investing into technology, infrastructure development and education, these nations were able to shift from exporting agricultural commodities to integrating their economies into the world’s industrialized economy by exporting manufactured products. Another group of developing nations that realized wealth in recent decades consists of oil-exporting nations such as Saudi Arabia, Iran, Iraq, Egypt, Syria, Algeria, Angola, Ecuador, Kuwait, Libya, Qatar, Venezuela, and the United Arab Emirates (Carbaugh, 2011).
However, not all developing countries experience a positive effect of global trade. According to Carbaugh (2011), “some developing nations have become dubious of the distribution of trade benefits between themselves and advanced nations” (p. 234) and accused the protectionist trade policies of developed nations in slowing down the industrialization process of the developing world. It is true that the gap between export revenues and the prices that developing countries pay for imported goods is growing. Carbaugh (2011) cited the study conducted by the United Nations in 2004. The study found that “between 1961 and 2001, the average prices of agricultural commodities sold by developing nations fell by almost 70 percent relative to the price of manufactured goods purchased from developed nations” (Carbaugh, 2011, p. 237). Among other problems that hold developing nations back from free trade, Carbaugh (2011) highlighted unstable export markets, worsening trade terms, and limited access to the markets of developed countries.
In an attempt to stabilize export of primary products, developing nations attempted to form international commodity agreements, or ICAs (Carbaugh, 2011). ICAs are agreements between producing and consuming nations of commodities such as coffee, cocoa, and rubber. Despite their objectives to stabilize prices and promote the economic development of producers, these agreements historically had very limited success in improving the economic climate of developing nations (Carbaugh, 2011). According to Seungheon (2008), factors that led international commodity agreements to fail were small number of members, weak control system, and absence of strict sanctions.
Dissatisfied with the outcomes of ICAs, developing nations pressed collective demands on governments of advanced nations to create institutions and policies that could improve conditions for economic growth. Among the institutions and policies that have been created to support developing nations were the World Bank, the International Monetary Fund, and the generalized system of preferences (Carbaugh, 2011).
Established in 1944, the World Bank and the International Monetary Fund serve as sources of funds to promote economic development and financial stability of developing countries (Carbaugh, 2011). The World Bank is an international organization that receives contributions from wealthy nations and provides loans and grants to developing nations in the situations when money cannot be obtained from other sources at reasonable terms. These funds are issued for specific projects in the areas of energy, transport,...
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