INTERNATIONAL TRADE

2International Trade

INTERNATIONAL TRADE

The development of international trade is a crucial aspect in any country, and the open sector is critical to the functioning of any economy. However, some countries face problems in their quest to gain a foothold in the international sector. Some of these problems are structural and others are a matter of policy (Narlikar and Vickers, 2009). The first and the primary concern for most developing nations is the price volatility of the commodity market. They are particularly prone because they mainly export raw and semi- processed goods with little or no value addition (Narlikar and Vickers, 2009).

Developing countries have seen a rapid deterioration in their terms of trade (Narlikar, 2009). According to the author, this situation could be as a result of increases in productivity whereby in developing countries they do not pass on to the workers, and that results in a fall in commodity prices. Moreover, given the developing nation’s trade has a lower income elasticity of demand as compared to manufactured products than developed countries sell. The reality for developing countries is that they face extreme fluctuations in the prices of their exports and that could hamper their development as shown in the diagram below;

INTERNATIONAL TRADE

DO and SO represent the equilibrium conditions in the market that correspond to a clearing price PO. If the demand shifted to D1 or supply shifted from SO to S1, the price would fall to P1. Further, if the demand as well as supply both shifted at the same time, the price would drop even more to P2. Apart from the price instability, less developed countries often struggle with quality issues as well as the problem of lack of traceability of their products.

References

Narlikar, A. (2003). International trade and developing countries: London: Routledge.

Narlikar, A. (2009). Bargaining with the strong Singapore World Scientific

Narlikar, A. and Vickers, B,. (2009). Leadership and change in the multilateral trading system. Dordrecht, the Netherlands: Martinus Nijhoff.