How Can Developing Countries Use International Trade to Achieve Development Goals.pptx

PPT

1. H ow C an Developing Countries U se I nternational T rade to A chieve Development Goals

2. Introduction • Most of the world’s economies are developing countries characterized by low per capital income, high rates of population growth, high rates of literacy, etc. • Approximately 155 developing countries globally based on the IMF World Economic Outlook Report (2022) • International trade has an impact on the development process. • Most developing countries produce and export primary agriculture commodities and raw materials; whereas developed countries mainly export manufactured products and services. • Opinions on the nature of the impact of international trade on the development process differ. • The dependency school of thought believed that international trade hindered development because the theory of comparative advantage kept developing countries exporting mainly primary products.

3. Introduction • Endogenous growth theory argues that trade has a positive impact on the growth process. • The COVID-19 pandemic has disrupted international trade, causing exports of goods and services in developing economies to decline by 9% and 15% year-on-year, respectively, in 2020. • Trade in goods for developing countries propagated at a faster pace than trade in services, growing at a rate of 40% in 2022, down from 2019. It was worth US$11 trillion to developing countries. • Service stores in developing countries were smaller and grew by 15% compared to pre-COVID-19 levels.

4. The Importance of International Trade to Achieve Development Goals • Traditional trade theory is based on factor endowments which would lead to a fixed pattern of production and export from developing countries based on raw materials, fuels, minerals, and food. • Developing countries will not reap the dynamic benefits of industrialization such as innovation, improved terms of trade, higher incomes, etc • Developing countries would continue to be dependent, poor, and underdeveloped relative to developed countries. • Development can only proceed if the underlying conditions are allowed to change rather than remain static as might be inferred from trade theory.

5. The Importance of International Trade to Achieve Development Goals • Traditional trade theory allows the pattern of development to change (relatively static) as it is incorporated with changes in factor supplies, technology, and tastes. • Developing countries can change their export patterns which can change their underlying factor conditions.. • Developing countries’ exports of manufactured products have increased to over 70% • Developing countries such as Brazil, Korea, Taiwan, and Mexico export manufactured products.

6. The Contribution of International Trade to Achieve Development Goals • Trade can lead to the full utilization of otherwise underemployed domestic resources (vent for surplus.) e.g. South East Asia and Africa • Trade makes possible division of labour and economies of scale (such as Taiwan, Hong Kong, and Singapore) • International trade is the vehicle for the transmission of new ideas, technology, managerial and other skills • Trade also stimulates and facilitates the international flow of capital from developed to developing countries • The importation of new manufactured products stimulates domestic demand until efficient domestic production of these goods becomes feasible (Brazil, India)

7. The Contribution of International Trade to Achieve Development Goals • International trade is an excellent antimonopoly weapon because it stimulates greater efficiency by domestic producers to meet foreign competition • In 2021, top export destinations for developing countries included the United States of America, with about 17%, China with about 13%, and India with 4%.

8. International Trade Policy of Developing Countries Advantages of Import Substitution Industrialization (ISI) • Market for the industrial product already exists as evidenced by imports so that risks in setting up an industry to displace imports are reduced. • It is easier for developing countries to protect their domestic markets against foreign competition than to force developed countries to remove import barriers against their manufactured exports. • Foreign firms are induced to establish tariff factories to overcome the tariff wall of developing countries. Disadvantages of Import Substitution Industrialization (ISI) • Domestic industries have no incentives to be efficient. • Inefficient firms can arise because the domestic market in many developing countries does not offer scope for economies of scale. • ISI becomes more and more costly and difficult as the need to produce capital-intensive and technologically advanced commodities arises.

9. International Trade Policy of Developing Countries Advantages of Export-oriented industrialization (EOI) • Overcomes the smallness of the domestic market and allows for economies of scale. • Production of manufactured goods for exports requires and stimulates efficiency throughout the economy. • The expansion of manufactured exports is not limited by the growth of the domestic market. Disadvantages of Export-oriented industrialization (EOI) • Competition from other established industries in developed nations makes it difficult for developing countries to set up export industries. • Developed nations often provide a high level of protection to import-competing industries.

10. Current Problems Facing Developing Countries • Severe poverty in places such as Sub-Saharan Africa. • Foreign debt ($1 trillion dollars was the debt accumulated by developing countries during the 1970s to 1980s). • Trade problems: trade frictions between developed and developing countries. • Sri Lanka requires a range of services and high-end products. Sri Lanka also seeks to position itself as a logistics and technology hub for the region, which creates an opportunity for information technology equipment and services exports. Priority sectors include: Infrastructure Development: Engineering, construction, and equipment products and services for road, power plants, sewage, water, rail, port, and airport projects. Real Estate and Construction: The country’s construction sector was a key economic driver, however, the economic crisis has stalled progress on many projects.

11. Current Problems Facing Developing Countries Textiles: Sri Lanka imports approximately $2.8 billion of textiles and yarn annually for the apparel industry and requires a range of equipment and services. Agriculture: A growing need for wheat grain, lentils, cotton yarn, and fruits; and development of agriculture-related infrastructure, including cold-storage facilities. Telecommunications and Technology: Sri Lanka aims to become an information technology hub and 5G trials are already underway.

12. Examples of Key Products & Services in Developing Countries • Sri Lanka - Ceylon Tea, Rubber & Rubber Based Products, Coconut & Coconut based Products, Apparel & Textiles, Spices, Essential Oils & Oleoresins, Food, Feed & Beverages, Diamonds, Gems & Jewelers, Boat and Ship Building, ICT • Egypt - Petroleum and petroleum products, followed by raw cotton, cotton yarn, textiles, mineral and chemical products, and agricultural exports such as rice, onions, garlic, and citrus fruit • Ethiopia – coffee, gold, cut flowers, oil seeds, leather and leather products • Sudan - Gold, Ground Nuts, Other Oily Seeds, and Crude Petroleum • Algeria - Natural gas and petroleum products • Kenya - Tea, Cut Flowers, Coffee, Refined Petroleum, and Titanium Ore

13. References • Predrag, B., & Ivana, P. P. (2012). Developing Countries` Position in International Trade and the Increase of their Competitiveness at the Beginning of the New Century. International Business, 407-427. • Santiago, F. d. (2015). Trade and the MDGs: How Trade Can Help Developing Countries Eradicate Poverty. Retrieved from United Nations: https://www.un.org/en/chronicle/article/trade-and-mdgs-how-trade-can-help-developing-countries-eradicate-poverty • The World Bank. (2023, February 12). Trade Has Been a Powerful Driver of Economic Development and Poverty Reduction. Retrieved from https://www.worldbank.org/en/topic/trade/brief/trade-has-been-a-powerful-driver-of-economic-development-and-poverty-reduction#:~:text=Trade%20has%20multiple%20benefits.,product%2C%20like%20a%20personal%20computer. • UNCTAD. (2023). Economic transformation and progress towards the SDGs through trade. Retrieved from SDG Pulse: https://sdgpulse.unctad.org/trade-developing-economies/#:~:text=In%202022%2C%20developing%20economies'%20share,cent%20target)%20was%20not%20met.

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