Free Economics Dissertations - Discuss The Role Of International Trade In Economic Development With
Discuss the role of international trade in economic development with particular emphasis on adverse movements in the terms of trade of countries which depend mainly on the export of primary products.
Introduction
It is a common belief that international trade has led to considerable economic growth and development not only for industrialised economies but also for developing countries alike. Several debates have revolved around the above subject matter. The following paper will analyse and critically evaluate international trade’s contribution to economic development. The paper will also analyse the movements in the terms of trade. Todaro and Smith (2003) state that in strict economics terms, economic development refers to the capacity of a national economy, whose initial condition has been more or less static for a long time, to generate and sustain an annual increase in its Gross National Product (GNP) at rates of 5%-7% or more. It is also a planned alteration of the structure of production and employment in a manner where there is a shift from agricultural dependence to industrialisation. Terms of trade can be defined as the price they receive for their exports relative to the price countries have to pay for the price of their imports.
A paper published by DTI highlighted that international trade has led to the world becoming more economically interdependent. It has further stated that an increase in the volume of world trade has been supported by a steady decline in trade barriers, helping to sustain global growth. This has been possible because a decline in trade barriers has led to a change in the structure of international trade. New information and communication technologies have had a profound effect, for instance some services which could only be provided domestically can now be traded internationally.
Economic theories and country’s experience justify the fact that economies which trade more tend to grow faster. Trade occurs because it is a profitable thing to do. It is believed that openness to trade in terms of removing barriers, for both, imports and exports strengthens the drivers of productivity, by enabling a more efficient allocation of resources, by providing greater opportunities to exploit economies of scale; by exposing the domestic economy to greater competitive pressures; by rewarding innovation and providing access to new technologies and by increasing incentives for investment. Thus the above strengthens the argument that trade is good for the country as it helps in maximising the utilisation of scare resources globally rather than for a specific country or area. In addition to the above, trade increases choices for the consumers and reduces costs for the suppliers. Hence it is a win-win situation for everyone.
TERMS OF TRADE
International free trade which had been considered as the engine of growth, led to the economic development of today’s economically advanced economies.
