Free Economics Dissertations - Less Developed Countries (ldcs) Could Borrow Money From The Developed Nations
Less developed countries (LDCs) could borrow money from the developed nations at a very low interest rate thereby increasing production eventually leading to a more diversified industrial structure. However, today the situation is very different for the LDCs with the exception of some of the East Asian countries. The developed nations have continued to grow at a faster pace. Technological advancement has meant that developed economies are able to make cheaper and develop better products, and often they are the synthetic substitutes for traditional LDC primary commodity exports. Needless to say it has upset the terms of trade for the LDC.
DTI argues that it is important to open UK markets and put an end to unfair subsidy practices which distort world markets particularly in agriculture and labour intensive goods where protection is highest and developing countries are most competitive. It further states,
it is the duty of the developed economies to face our historical responsibilities and help those developing countries whose export revenue has become increasingly dependent on our Byzantine preferential regimes and who could face significant adjustment costs during the transition to a fairer world trading system
According to Greenaway (1998) the replacement of a quota by a tariff can be considered liberalization of trade policy, which can help solve the problem. McKay, Morrissey and Vaillant (1997), believe that there are two types of trade liberalization which have the purpose of improving the anti-export bias. The first is import liberalization, which makes it easier to import goods by reducing tariffs and/or other restrictions. The second are attempts to encourage exports by increasing incentives which will shift resources into the export sector. However, they believe that trade liberalization is of greater benefit to the manufacturing sector than the agricultural sector. And since export promotions are rarely directed towards the agricultural sector, the greatest incentives for improving the production of the agricultural sector will be the result of an adjustment of the exchange rate. Greenaway (1998) explains that in the short to medium term, effective trade reforms will have an impact on the composition of output, as resources switch from inefficient import substitute production to export oriented activities. In turn this would impact the level and composition of factor utilization and on the structure of trade. Whilst the short to medium run responses are on factor allocation,, the medium to long term the impacts should be felt on accumulation processes: capital formation, the growth of real output and the growth of trade.
The question of changing relative price levels for different commodities highlights another important quantitative dimension of the trade problems historically faced by developing nations.
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