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International Trade and Economic Development

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International Trade and Economic Development
INDIAN INSTITUTE OF TECHNOLOGY, KHARAGPUR

International Trade and Economic Development

Swapnil S. Bagmar
06HS2004

Development Economics term paper (Spring 2007-08)

International trade International trade is the exchange of goods and services across international boundaries or territories. In most countries, it represents a significant share of GDP. While international trade has been present throughout much of history, its economic, social, and political importance has been on the rise in recent centuries. In this paper we will not go into the theories governing international trade but the focus will be more on its implications on economic development.

Consider the following data:

Sources: World Development Report

Economies Trade per capita (US$, 2004-2006) Trade to
GDP
ratio (2004-2006) Share in world total exports Share in world total imports
High income economy: United States 10864 25.9 8.59 15.46
Upper-middle-income economies: Mexico 4643 62.7 2.07 2.16
Lower-middle-income economies: China 1207 69 8.02 6.38
Low-income economies: India 307 41.8 1 1.41
As evident from the above data, the volume of trade directly reflects a country’s per capita income. Likewise the share of the developed economies in world exports and imports is high. The imports consist mainly of raw materials which are the exports of the developing countries. The reason China is still a lower middle-income economy is due to its large population.

During the 1950s and 1960s, most developing nations, particularly the larger ones, strongly opted for a policy of import substitution industrialization (ISI). This was based on heavy protection and generally led to very inefficient industries. Since the early 1970s, an increasing number of developing countries deregulated their economies and liberalized trade, and this

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