Most developing countries especially the sub-Saharan African countries have not realized the full benefits from International Trade.
Required:
Discuss the main reasons why such countries have not realized these benefits
Some of the reasons why most developing countries (especially the Sub-Saharan African countries) have not realized the full benefits from international trade:
- Impact of economic integration – Loss of tax revenue to governments initially in form of import duties.
- The infant industry argument – dumping of foreign goods tends to reduce the industrial development potential in the country of destination.
- Similarity of products – reduces comparative advantage as specialization chances are minimal and less rewarding in foreign exchange.
- Existence of trade restrictions – perhaps the most prevalent aspect of international trade; such restrictions take different forms e.g. tariffs and quotas, which restrict the free flow of goods and services in the global market.
- Differences in the levels of economic development – to survive and cut oneself an international competitive trade image/performance, a country needs to have a high productive capacity (with high product quality standards) based on advanced and appropriate state of technology (e.g. exports should be processed and done to meet international specifications).
This is what is lacking in most developing countries, such that we have trade between unequals. - Minimal trade promotions – most developing countries have yet or have established less impacting export promotions in the global market; effective institutions have not been established abroad to make it known what is available in the export mix of developing countries etc.
- Political atmosphere – the political atmosphere in most developing countries is that of instability, which discourages productive investment; both existing and potential investors have become extra cautious and most often exercise a less than maximum portfolio selection. To invest in an export oriented venture requires large capital provision and this is what insecurity is discouraging in most developing countries.