Research paper on importants of international trade in developing countries

The Importance of International

Trade in Developing Countries

International trade is crucial for the growth and development of developing countries. It presents

opportunities for economic diversification and integration into the global economy, which can lead to
poverty

reduction and overall improvementin the standard ofliving for their citizens.

Benefits of International Trade for

Developing Countries

Increased Foreign

Exchange

By exporting goods, developing

countries earn foreign exchange

that can be used to finance

imports and development

projects in other sectors.

Technology Transfer

International trade allows

developing countries access to

new technologies that can help

them improve their efficiency

and productivity in various

sectors.

Job Creation

Export-oriented industries can

create job opportunities for the

local workforce, leading to

stability.
Challenges Faced by Developing Countries

in International Trade

"The challenges that developing countries face include inadequate infrastructure, lack of access to
markets

and credit, lack oftechnical knowledge and capacity, and vulnerability to external shocks."
-WTO
Ways to Improve International Trade for

Developing Countries

Trade Agreements

Developing countries can engage

in regional and bilateral trade

agreements to gain access to

larger markets and increase trade

efficiency.

Empowering Women

By empowering women

entrepreneurs and workers,

developing countries can increase

their competitiveness in the

international market.

Improved Infrastructure

Investments in infrastructure can

greatly increase trade efficiency

by reducing transport and

logistics costs.

The Role of International Organisations in

Promoting Trade for Developing Countries

TheWorld TradeOrganisation (WTO) provides technical assistance,training, and capacity-building

programs for developing countries.

The International TradeCentre (ITC) offers enterprise development and marketlinkages for businesses in

developing countries.

TheUnited Nations Conference on Trade and Development(UNCTAD) conducts research and analysis on

international trade and development, advocating for the interests of developing countries in trade
negotiations.
Success Stories of Developing Countries

Through International Trade

Exchange earnings.

Vietnam's Rise as a

Key Exporter

Vietnam's economic growth is

largely attributed to its

export-oriented strategy,

which enabled itto become a

major global exporter in the

textile and agriculture

industries.

Rwanda's Coffee

Industry

Rwanda's coffee industry,

supported by the government

and international aid, has

made significant progress in

quality and production,

creating a sustainable source

ofincome for the country.

Kenyan Horticulture

Kenya's horticulture sector

has experienced significant

growth by capitalising on the

demand for high-quality

produce in European markets,

leading to increased job

opportunities and foreign

The Role of Trade in Economic Development -

1. The Static Effect of Trade on Economic Development:

International trade enables an LDC to get beyond its PPC and improve its welfare. It can

consume more than what it is capable of producing through specialisation and exchange. An

LDC can improve its well-being by specialising in and exporting the relatively less expensive

domestic goods and importing goods which are relatively more expensive. Even if a

country’s production does not change at all, there are still gains from exchange if there is a

difference between internal relative prices in autarky and those which can be obtained

internationally.

In addition, the characteristics of the imported goods either in terms of quantity for customers

or productivity in the case of capital and intermediate imports, may improve the economy ‘s

ability to meet consumer desires for better quality goods or larger volume of goods made

available by improved technology. Imports may also help remove bottlenecks and enable the

economy to operate closer to its PPC—that is to say, more efficiency on a consistent basis.

i. Employment Generation:

Due to specialisation there is a relative expansion of the sectors using relatively more

intensively an LDCs abundant factor—which is labour. For most LDCs, specialisation

according to comparative advantage helps to expand labour-intensive production instead of

more modern, capital-intensive production.

This means expanding traditional agriculture, primary products, and labour-intensive light

manufactures. International trade thus stimulates employment and puts upward pressure on

wages as has been suggested by the Heckscher-Ohlin (H-O) theorem. However, most LDCs

are labour-surplus countries. So, an increased demand for labour is unlikely to raise the wage

rate much.

ii. Export Instability:

Moreover, the relative growth in the production of traditional goods may not be desirable if

such growth is at the expense of modern manufacturing. Due to low income and price
elasticities of demand for such goods and the instability of supply of agricultural and primary

products due to natural (weather) conditions, greater specialisation in these goods can result

in a greater instability of income even in the short run.

iii. Adverse Terms of Trade:

In addition, since an LDC is a small country (in the sense that it cannot exert any influence on

the prices of its exports and imports), expansion of export supply may lead to undesired terms

of trade movements that will-reduce the static gains from trade. This may lead to a

distribution of gains from trade in favour of the industrially developed countries.

iv. Greater Dependency:

Finally, expanding production of basic labour-intensive goods and relying on the

industrialised countries for technology and skill-intensive manufactures and capital goods

often leads to excessive economic dependency. It also links the economic health of the

developing country to that of the industrialised country

(i) Optimal use of natural resources:

International trade helps each country to make optimum use of its natural resources. Each

country can concentrate on production of those goods for which its resources are best suited.

Wastage of resources is avoided.

(ii) Availability of all types of goods:

It enables a country to obtain goods which it cannot produce or which it is not producing due

to higher costs, by importing from other countries at lower costs.

(iii) Specialisation: Foreign trade leads to specialisation and encourages production of different goods in
different

countries. Goods can be produced at a comparatively low cost due to advantages of division

of labour.

(iv) Advantages of large-scale production:

Due to international trade, goods are produced not only for home consumption but for export

to other countries also. Nations of the world can dispose of goods which they have in surplus

in the international markets. This leads to production at large scale and the advantages of

large scale production can be obtained by all the countries of the world.