CSS Special 2023 Solved Essays | Developing Countries Must be able to Reap the Benefits of International Trade
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Outline
1- Introduction
- ✓ International trade lays out the bulk of opportunities for developing countries to harness full-scale financial gains, but external and internal factors jeopardize the growth of their economies in the global marketplace. However, by pursuing the liberalization of markets, regional economic integration, and global trade agreements, developing countries could reap the maximum benefits of international trade.
2- International Trade and its Contribution to the global economy
- ✓ Economic interaction by exchange of goods or services between international entities.
- ✓ Key dimensions include globalization, bilateral and multilateral trade agreements, cross-border e-commerce, capital flows, comparative advantage, etc.
- ✓Share of international trade in the world economy is measured as the percentage of global gross domestic product.
3- Current status of international trade in developing countries
- ✓ Significant rise in exports and imports and overall trading indicators amid financial fluctuations, geo-political tensions, and climate crisis.
- Case in point: In 2022, developing economies’ share in world exports has risen to about 42 per cent, compared to 37 per cent in 2010 –UNCTAD
4- Why do developing countries lag behind in benefitting from international trade?
- ✓ External factors
- Prevailing trade restrictions, tariffs and non-tariff barriers by developed countries
- Shifting global economic trends due to geo-political conflicts
- ✓ Internal factors
- Inadequate access to capital to compete in the global marketplace
- Insufficient technological advancements, rampant political instability, and narrow human capital
5- How could developing countries reap the maximum benefits of international trade?
- ✓ By diversifying export and import base as per need of market demand
- Case in point: Malaysia has become one of the world’s largest palm oil producers due to trade diversification.
- ✓ By encouraging liberalization of markets and free market trade
- Case in point: China and India become leading economies due to trade liberalization and market-oriented reforms.
- ✓ By strengthening legal and institutional framework to enhance FDI
- Case in point: Germany stands as the third largest export nation globally due to a strong institutional framework.
- ✓ By promoting regional economic integration to approach larger markets
- Case in point: SAARC, EU, EEC, ASEAN, etc., promoting regional economic integration.
- ✓ By engaging in international partnerships and global trade agreements
- Case in point: Belt and Road Initiative (BRI) with an investment of more than 1 trillion dollars and 150 countries under one platform.
- ✓ By establishing special economic zones to promote export-oriented industries
- Case in point: Bangladesh becoming a regional economic hub with 88 special economic zones.
- ✓ By devising short-term and long-term economic growth policies
- Case in point: Sri Lankan economic crisis in 2022 due to lack of comprehensive economic policies.
6- Case Studies
- ✓ BRICS economies
- ✓ United Arab Emirates
7- Critical analysis
8- Conclusion
Essay
International trade dates back to the time of Kingdoms and Empires in the World and has dramatically transformed its contours after the Industrial Revolution. Nonetheless, the core basis of international trade, like efficient allocation of resources, diversification of goods and services, and the generation of maximum revenues, hold equal grounds for developed and developing countries even in the contemporary World. Although international trade lays out the bulk of socioeconomic opportunities for both developing and developed countries alike, developing countries have lagged in escalating their due share of growth and productivity in global trade to harness full-scale financial gains because of external and internal factors, jeopardizing the growth of their economies in the global marketplace. However, by pursuing the liberalization of markets, regional economic integration, and global trade agreements, developing countries could reap the benefits of international trade. Moreover, diversification of the export and import base would generate maximum profits for them. Likewise, strengthening institutional framework and empowering technological advancements is a crucial step to procuring capital and foreign direct investment in developing countries. For example, India, Turkiye, and South Korea are becoming leading players in the global market with an aggravated proportion of international trade. Thus, developing countries are in dire need of overcoming the challenges attached to international trade while striving to attain a dominant position in the global market. This essay elaborates on how developing countries could bring the maximum benefits out of the global marketplace to stabilize their economy by increasing exports and attracting FDI.
To begin with, it is pertinent to understand the term international trade. International Trade refers to the exchange of goods, capital, and services between countries across their international borders. It is a vast phenomenon of financial activity of a country that represents a big share of its gross domestic product. Moreover, the prime reason for any country to engage in international trade is because there is a need or want of goods or services that a single country could not fulfil on its own. Furthermore, the significance of international trade stands in equal ratio for economies of developed as well as developing countries.
International Trade is a complex process that differs from domestic trade and incorporates many factors amplifying its magnitude. Undeniably, international trade has expanded its volume in the global economy by leaps and bounds in past decades. Multiple components like globalization, bilateral and multilateral trade agreements, cross-border e-commerce, capital flows, and comparative advantage have significantly contributed towards empowering the horizon of international trade in the global arena. In a similar domain, there are a number of international organizations that are working towards making the international trade process smoother, such as the World Trade Organization (WTO) and the European Union (EU).
International Trade plays a vital role in the global economy and is influenced by various economic, technological, political, and social factors. The share of international trade in the world economy is measured as a percentage of global gross domestic product (GDP). According to the World Trade Organization (WTO), the international trade-to-GDP ratio stands at 56.53 per cent of global GDP in 2021. It shows that international trade not only fosters the economic growth of the country but also advances the development and productivity of the global economy at large.
Read More
| 1- | Developing countries must be able to reap the benefits of international trade. by Ayesha Irfan |
| 2- | Developing countries must be able to reap the benefits of international trade. by Zoya Taj |
In recent times, international trade has been flourishing in various countries of the World, making a sizeable economic share. Especially in developing countries, international trade has elevated significantly, as is evident from the increased export and import volumes. According to the United Nations Conference on Trade and Development (UNCTAD), the share of economies developing countries in World exports rose to about 42 per cent in 2022 as compared to 37 per cent in 2010. Moreover, international trade has remained growing in the recent past, irrespective of turbulent conditions like financial fluctuations, geo-political tensions, and climate crisis. Undoubtedly, the COVID-19 pandemic has engulfed and decreased international trade in 2020, but post-pandemic trade flows show positive indicators with sharp recovery.
Having discussed the components and significance of international trade, it is imperative to dive deep into the reasoning behind the slowed pace of developing countries in international trade. There are various external and internal factors that are responsible for the stunted growth of developing economies in the international arena.
Among the external factors impacting international trade of developing countries, the most significant one is prevailing trade restrictions, tariff and non-tariff barriers by developed countries. Moreover, trade barriers can be physical or induced by governments and include elements such as border blockades, demonstrations, quotas, embargoes, and subsidies. According to the international trade barrier index 2023, India and Russia deployed the most trade barriers restricting trade and imposing other economic and social costs. The overall effect of trade barriers can obstruct free trade, favour rich countries, and limit the choice of products. Thus, trade barriers negatively impact developing countries in numerous ways.
Another contributing factor in a similar domain is shifting global economic trends due to geo-political conflicts. Geo-political tensions coupled with economic sanctions disrupt international trade and discourage FDI in developing countries. According to the World Trade Organization (WTO), the global economic outlook has worsened since the start of the Russia–Ukraine War on February 24, 2022, with trade growth projected to fall from 4.7% to less than 3.4%. Furthermore, shifting global economic dynamics, such as changes in consumer preferences, global supply chains, and trade agreements, also impact the competitiveness of developing countries.
While considering the internal impacts, inadequate access to capital and lack of financial resources greatly restrict developing countries to compete in the global marketplace. Additionally, countries with unstable economies suffer from the burden of significant foreign debt, leading to debt servicing obligations that divert financial resources away from investments in the development sector. For instance, Argentina is the biggest debtor to the IMF, with an outstanding debt of about 46 billion dollars in 2023. Moreover, the country has been a closed market to international trade due to weak economic conditions. Thus, the suffering economy of a developing country is the biggest obstacle in the way of its international trade.
Similarly, other internal factors, such as insufficient technological advancement, rampant political instability, and narrow human capital, limit the role of developing countries in international trade. Also, inadequate infrastructure, lack of capacity building, and dependence on single commodity exports reduce the abilities of such countries to participate in international trade. According to the Asian Development Bank, Central Asia is poorly integrated into global value chains due to issues such as cross-border transport, customs procedures, and inefficient coordination among countries. In this way, all the above factors impact the economic growth, competitiveness, and development opportunities of a country.
For developing countries to enhance their cooperation, productivity, and due share in the global economy, it is necessary to address the shortcomings in the process of international trade. Following are some suggested ways forward, as discussed further, to amplify the proportion of international trade by developing countries.
First, developing countries must diversify their export and import base according to the demand of the international market. Relying on a single commodity or few products could make a developing country more vulnerable to market fluctuations. However, an increased range of diversified products could enhance the stability and resilience of a developing country in the global market. For instance, Malaysia has broadened its agricultural industry in recent times away from mainly rubber to become one of the World’s biggest palm oil producers. It is a glaring example for developing countries to foster export diversification.
Second, developing countries must encourage liberalization of markets and free market trade at large. Developing countries could cooperate in multiple ways by reducing trade barriers and tariffs. By doing so, it would be easy for developing countries to access international markets. Furthermore, free market trade uplifts the economic indicators of a country that helps to attain foreign direct investment (FDI). For example, China and India are currently on the list of leading economies of the World as both countries embraced trade liberalization and other market-oriented reforms. Thus, trade liberalization is a crucial step for developing countries to expand their international trade.
Third, developing countries must strengthen the legal and institutional framework as it makes the process of international trade smoother by boosting the confidence of foreign investors and trading partners. It holds the position of a pre-requisite step for developing countries to continue international trade in a structured and organized manner. For instance, Germany has one of the best institutional frameworks in the World that shapes its overall socioeconomic activities, and it stands as the third-largest export nation globally. Thus, utilizing international standards and international legal instruments by developing countries creates an enabling environment for international trade.
Fourth, developing countries must promote regional economic integration to multiply international trade volumes by approaching larger markets within the region. Developing countries could take advantage of regional trade agreements and other regional economic activities and boost their economic indicators. Numerous regional organizations in the World, such as SAARC, EU, ASEAN, EEC, etc., have been working to shape the global economic landscape and turn developing countries into global economic hubs. In this way, developing countries could collaborate and deal with incoming challenges collectively.
Fifth, developing countries must engage in international partnerships and global trade agreements to broaden the horizon of international trade. International forums and partnerships can provide support, technical assistance, and financial resources for developing countries to harness the benefits of international trade. Moreover, multilateral trade agreements provide tons of opportunities for developing countries to associate with other countries and attain mutual benefits. For instance, the Belt Road Initiative (BRI) is a striking example in this domain, with an investment of more than 1 trillion dollars and around 150 countries under one platform.
Sixth, developing countries must establish special economic zones to promote export-oriented industries, meanwhile grabbing finances and capital in the country by FDI. Special economic zones are an important source of economic diversification, transfer of knowledge and technology, and skill development. Furthermore, it provides a conducive environment for foreign direct investment that uplifts the entire trade sector of a country. In recent times, Bangladesh has emerged as the regional economic hub with more than 88 special economic zones, of which 59 are state-owned and 29 are privately owned across the country, as per data from the Bangladesh Economic Zones Authority (BEZA).
Last but not least, developing countries must devise short-term and long-term economic growth policies for the stability of their economies. Additionally, well-planned economies of developing countries could dominate international trade with better trade policies and efficient use of available resources. One of the core reasons for the collapse of the economy of Sri Lanka in June 2022 was the lack of a comprehensive plan to keep the country’s economy functional after the COVID-19 Pandemic, which resulted in bankruptcy. Thus, developing countries must focus on establishing trade policies that stimulate sustainable economic growth and enhance productivity, competitiveness, and inclusivity at the global level.
Here are some case studies of developing countries which have been emerging as global economic players of today’s era with huge volumes of international trade. The first case study is about the BRICS economies, consisting of Brazil, Russia, India, China, and South Africa, challenging the traditional dominance of Western economies and signalling a shifting balance of power in the global economic order. According to World Factbook, BRICS account for about 43 per cent of the World’s population and contribute over 31 per cent to the World’s Gross Domestic Product (GDP). Their collective influence has reshaped international trade, finance, and investment by offering alternative avenues for development and serving as important contributors to the world economy.
Additionally, BRICS contribute about 16 per cent to the World’s trade, as per data from the BRICS information portal. In conclusion, BRICS members not only contribute towards global trade but also enjoy the privilege of enhanced trade and investment due to cooperation and collaboration.
A second case study is about the United Arab Emirates and its trajectory from an oil-dependent economy to the most diversified economy in the Gulf Cooperation Council (GCC). Moreover, UAE’s openness to international business and strategic location as a gateway to the region create business opportunities and make the country an attractive market for U.S. exporters. According to the United Arab Emirates Ministry of Economy, UAE’s goods and services trade with the World totalled USD 1.273 trillion, with a surplus of USD 233 billion in 2022. Likewise, UAE also ranks first in the Middle East and Africa in goods and service exports and imports, maintaining its position as the leading export and import market in the region. Significantly, Dubai has been emerging as a global business growth hub by offering unlimited business opportunities with a large and diverse workforce. Additionally, the UAE has been leveraging its development potential, strategic location, and pioneering economic role in the region since the launch of the Belt and Road Initiative (BRI) to be an active participant in it. To conclude, all such developments in UAE point towards the integration of the country into the global market.
After considering the dynamics and significance of international trade, it has become crucial for developing countries to transform their conventional trade practices into innovative and modern trade practices. International trade is a powerful driver for the economic growth of a developing country and provides ample opportunities to engage in global value chains. With the pursuit of globalization, it has become accessible for developing countries to cater to larger markets. Many developing countries are linked in global partnerships to broaden their customer base, increase their revenue streams, and expand access to resources. Yet, for a developing country to dominate and sustain its international trade volume, it is essential to incorporate new business ventures, diversify its import and export base, encourage trade liberalization, and engage in global partnerships.
To cap it all, international trade offers the bulk of opportunities for developing countries to enhance their economic growth as well as reach the global marketplace. Besides the competitiveness of the market, international trade improves resource allocation and increases the operating efficiency of domestic firms. Sadly, developing countries have not been able to harness the benefits of international trade to its full potential. There is a dire need for developing countries to address the pitfalls and shortcomings in the way of international trade. To ensure that developing countries genuinely benefit from international trade, a balanced and strategic approach is required. It involves advocating for fair trade practices, reducing trade barriers, and addressing power imbalances. Moreover, by devising comprehensive policies, it would be attainable for developing countries to reap the benefits of international trade and ensure long-term sustainability.
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