Shifts of the Developing Countries from Exports of Primary Products to Exports of Manufactures - Research Paper Example

? In the past half century, the developing countries have experienced major compositional shifts from exports of primary products (including agricultural and raw materials) to exports of manufactures. How might you explain this in terms of broad historical developments during this period? Table of Contents Introduction 3 Historical developments: Compositional shift of exports in the developing countries 3 Initial phase of exports by developing countries 3 Changing trend of compositional exports of the developing countries 4 Impact: compositional shift in exports of the developing countries 6 Conclusion 7 References 8 Introduction The compositional shift in the exports of the developing countries occurred from the early part of the twentieth century to the early part of the twenty-first century. Over the past half century the shift in the export strategies of the developing countries have been noticeable. The shift in the composition of exports is mainly attributed to the developments and modification of the world’s production procedures. The dependence on land and food of the developing countries were gradually replaced by the advent of new technologies that redefined the production of industries in the economy (Dijck and Linnemann, 1987, p.39). Gradually, the trend of exports of the developing economies shifted from the primary products and agriculture based items to industrial goods produced with the use of advanced technologies. Historical developments: Compositional shift of exports in the developing countries A look at the historical developments of the developing countries reveals that the developing countries in the early part of the twentieth century consisting of China, India, etc. were dependent on land and agriculture. The land was the major source of income and value of land was very high to the state. The transitional of the stages of the development of the economies and the compositional shift in the exports of the countries over the last fifty years have been described below. Initial phase of exports by developing countries The economies of the developing countries in the initial phase of the historical development were highly dependent on agriculture. It would be correct to mention that developing countries before half a century were agriculture based economies. The land was the major source of livelihood and the income of the state and the people were highly dependent on agricultural produce of the land. The developing nations at that point of time used to produce high quantities of rice, wheat, pulses and other agricultural crops. The enhanced activities on farming and the activities of farmers all over the nation formed a considerable part of the gross domestic product. In international trade, the countries had primary products and raw materials, agricultural products available in large quantities for export. The foreign exchange earnings occurred majorly through the exports of primary goods, raw materials and agricultural goods produced by the countries. The singly dominant item in the developing economies at early stages of history was food products. This trend of exports underwent a radical change in the compositional shift as the developing countries started to open up their economies in the age of liberalization. Changing trend of compositional exports of the developing countries The composition of exports of the developing countries underwent radical shift in the last half a century as the developing countries like India and China opened up their economies in the era of globalization. The advent of new technological developments brought about changes in the production process and the composition of the products produced by the economies. The developing countries in the last fifty years underwent economic reforms and adopted policies on liberalization. This was done by attracting foreign investments in the developing countries. Investments on development of infrastructure for supporting the growth of industries were the focus areas in the later stages of historical development. This created a stage of increased competition with lesser protection towards the domestic industries (Wignaraja, 2003, p.25). The increase in competition led to the improvement of technologies and other resources used in the production process thereby paving the path for industrial development. The developing countries like China and India achieved rapid growths in their economic development due to their economic policies on industrial development and service sector. This led to the increase in the production of manufactured goods and technology based services of the developing countries. The economic growth rates of the developing countries were indicated by the increasing gross domestic products as result of increased manufacturing activities of the industrial sector. The increase in total factor productivity over the period of historical development indicated that more number of people in the population participated in the industrial manufacturing process. Thus, with the increase in the manufactured outputs the importance of agriculture diminished over the years. The high dependence on agricultural goods and crops in the early years was replaced by the growing needs of the industrially manufactured goods. As a result of the availability of the high number of industrially manufactured items, the developing countries started to bring a compositional shift in their exports towards the export of manufactured goods within the country. The exports of the manufactured goods helped the developing countries to earn a high amount of foreign exchange as compared to the agricultural goods (Rivera-Batiz and  Oliva, 2003, p.67). Moreover, the use of the advanced technologies in the industrial production units increased the level of production volume with lesser number of manpower resources engaged. The increased efficiency in production of manufactured items in the industries raised the level of consumption in the economy. With the spread of globalization and a change in the compositional shift in the exports towards the manufactured goods, the developing countries could exercise a wide range of options of importing foreign items as per the demand of the developing economies. The exports of manufactured items provided a higher bargaining power to the developing countries in the scenario of international trade. The use of synthetic and other polymers reduced the usage of primary raw materials. The portability and the cost effective advantages of the synthetic production replaced the use of raw materials such as jute, etc. The steady use of synthetic and other chemical polymers in the process of industrial production led to the increase in exports of the industrially manufacture items. The manufactured items had consumers all over the world and that helped increase the inventory turnover of the industries (Yang, 1994, p.35). The manufactured items that are majorly exported by the developing countries in the recent stages of the historical development includes automobile and cars, electronic and electrical devices, software and hardware products, consumer durables, commercial foods items and beverages, industrial equipments, etc. The exports of the manufactured items helped to spread the domestic products in the global markets. Impact: compositional shift in exports of the developing countries The increase in the exports of manufactured items in the economy of the developing countries led to the increased activities and expansion of the industries in the overseas markets. The opportunities for high level of production along with provision of adequate business infrastructure led to the formation and spread of the multi national companies in the developing countries. The increase in strategic alliance and joint venture between the domestic and international enterprises led to sharing of resources and thereby producing a highly efficient output of industrially manufactured products. These manufactured items were supported by world class technologies and were customized to the international market demands. The developing countries could attain a position of comparative advantage by export of these industrially manufactured items. Apart from these, the developing countries like China developed their indigenous technologies to manufacture electronic items that could be sold in the world market at cheaper rates. The export of the technologically advanced products were of high demand as these were cost efficient and offered high performance results. The compositional shift in the exports of the developing countries from the agricultural products to the industrially manufactured goods helped to earn high amount of foreign exchanges for the economy (Morton and Tulloch, 2012, p.45). The increase in the position of the foreign exchange reserves helped in the appreciation of currencies for the developing countries. The increase in currency strength in turn helped the developing countries to pay less for the imports and thereby helped them to attain an increase in the net position of the overall balance of payments. Conclusion The developing countries underwent a compositional shift in export of items during the period of last half a century. In the early stages of the development in the twentieth century, the developing countries were agriculture based economies depending solely on the agricultural produce and the food items. Farming was the major occupation of the economy. With the spread of globalization in the world economy, the developing economies underwent economic reforms and opened up their economies to foreign investments. The increase in foreign direct investments in the developing countries led to the overall development of manufactured goods in terms of volume and quality. This was achieved by leveraging on the technological developments at international as well as national levels. The increase in availability of manufactured goods with the developing countries led to the exports of the manufactured items. The manufactured items like automobile and cars, software and hardware products, electronic and electrical goods, consumer durable, industrially processed food and beverage were exported to earn high amount of foreign exchange reserves. The rise in the exports of manufactured items replaced the dominance of agricultural produce as exports. The shift in composition of exports of the developed countries could largely be attributed to the change in the process of production and implementation of technological advancements in the developed countries. The shift in the composition of exports of the developing countries over the years have put them in a dominant position in the world trade affairs and helped them to increase their net overall position of balance of trade. References Dijck, P. V. and Linnemann, H. 1987. Export-oriented Industrialization in Developing Countries. NUS Press: Singapore. Morton, K. and Tulloch, P. 2012. Trade and Developing Countries. Routledge: UK. Rivera-Batiz, L. A. and  Oliva, M. A. 2003. International trade: theory, strategies, and evidence. Oxford University Press; Great Britain. Wignaraja, G. 2003. Competitiveness Strategy in Developing Countries. Routledge: USA. Yang, S. C. 1994. Manufactured exports of East Asian industrializing economies: possible regional cooperation. M.E. Sharpe: USA. Read More