Despite the general agreement among economists on the benefits of moving to free

Question

Despite the general agreement among economists on the benefits of moving to free trade, observers have noted that some developing countries may have “special” problems with regard to trade – the problems of export instability and a potential long-run deterioration of the terms of trade. Indicate the alleged nature of the problems and discuss potential causes for the problems. Then summarize and assess possible policies that could be utilized to deal with the problems. Finally, do you think that these countries should “turn inward” (i.e., become less open to trade) because of these problems? Briefly explain.

Explanation / Answer

Unstable export markets

In several developing nations exports are comprised of primary items (agricultural products, raw materials and fuels) . Thus, if there is a poor harvest or decrease in demand for nation’s specialised item, it can considerably reduce revenues from export and  hamper domestic income and damage employment levels.

worsening terms of trade

Developing nations say that their commodity terms of trade has reduced , implying that prices of their exports relative to their imports have fallen. Observers claim that the export prices of primary items of developing nations determined in competitive market, whereas the monopoly of manufacturers in the industrial nations results in high prices.

Also, worsening terms of trade has been used to justify refusal of several developing nations from to attend in trade-liberalisation negotiations

The WTO’s Trade Facilitation Agreement is an essential step in reducing trade costs, more so for developing countries.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.