International Trade and Development - Essay Example

 Introduction According to the theories of international trade and economics, growth in international trade tends to have a positive impact on the economy of a country. Generally, if a country’s economy grows most businesses increases in terms of their capacity and/or volume (Reuvid and Sherlock, 2011:23). Additionally, more business people find it encouraging to start other businesses since the prevailing economic conditions allows them to do so. It is agreeable that for an economy to grow there must be some positive changes in the side of factors favouring economic growth. When a country’s economy grows beyond the usual level it appears that, there are consequences that come along with this growth especially on the side of its international trade composition (United States General Accounting Office, 2003:42). This paper will seek to examine the consequences of economic growth of an economy on its international trade composition. It will also discuss how the conclusions may vary if the economy is either a “small” country or a “large” country. Consequences on the international trade composition In the year 1776, economist Smith deduced that when a country’s economic status changes for the best, chances are that its international trading composition will also transform. However, noting that this may happen in different ways is substantial since a country’s economic growth affects its international trade composition in various ways (United States General Accounting Office, 2003:49). On one end, when a nation’s economy grows, it indicates that it may be in a better position to manufacture or rather produce goods of many different types and qualities on its own. This means that, the said country may deem reluctant in importing products from other countries since it has the ability to produce the same products on its home market (Rivera-Batiz and Oliva, 2003:41). As such, its international trade composition alters towards the compressing side as the country’s importation services decline (Feenstra, 2004:51). In man cases, this is what most countries seek to do given that they dwell in the believe that internally produced goods help boost the country’s economy which in turn helps reduce the country’s dependence on other countries. Agreeably, the aforementioned strategy is crucial in some ways whereas in others it may deteriorate the economy’s strength (Rivera-Batiz and Oliva, 2003:49). As described, growth in a country’s economy has the consequence of reducing imports, which is a sentimental aspect of the international trade composition. Decline in importation resolves to indicate that the country is spending too much time trying to grow its internal economy that enables it to be virtually self-sufficient. Nevertheless, understanding that growth in a country’s internal economy affects the international trade composition in a negative manner is crucial (Reuvid and Sherlock, 2011:30). Market players are only able to facilitate trade within and around the country’s internal market. According to the international trade theory commonly used during the classic period, international trade is a composition of activities believed to have a positive change towards a country’s economic growth (Feenstra, 2004:58). As time went by, things started changing until a time when economic analysts started viewing growth in internal economy of a country as dependent on many factors including but not limited to international trade (United States General Accounting Office, 2003:58). Severally, IDA (the International Development Association) resolves to encourage African countries to increase their internal production efforts in order to reduce their eccentric dependence on already manufactured products from the West and East. What this organization seeks to make known to these countries is that international trade is good but it can only be healthy if none of the countries is oppressing the others in terms of extracting exorbitant tariffs on both imported and exported products (Rivera-Batiz and Oliva, 2003:57). Studies show that international trade happens to be one of the best ways in which countries are able to transfer and acquire sophisticated yet advanced technological knowhow. Diffusion of technology plays a very pragmatic role in the development of a country’s economy and has a consistent effect on the international trade composition (Reuvid and Sherlock, 2011:35). The existing studies show that when a country’s economy grows, business participants tent to look more into the service industry and the manufacturing or machinery sector (Kerr and Gaisford, 2008:55). This poses a serious challenge on the investigation of total and/or trade services despite being identical items in the study of the consequences attached to economic growth of a country and its international trade composition (Feenstra, 2004:67). When one country transfers technological knowledge and expertise to another country at a given time, it reaches a point where the country on the receiving end will not require the technological expertise being brought in by the transferring country (United States General Accounting Office, 2003:65). This happens mainly because, as the countries continue to exchange or rather diffuse technology and machinery, the country on the receiving end ends up grasping all the knowledge needed to operate these machines which lenders the transferring country unwanted. When this happens, it points out that such a country is at this point able to stand on its own and manufacture its own products with the required technology and machinery. As a result, the countries reach a point where their trading ties loosen making the international trade composition weak (Rivera-Batiz and Oliva, 2003:65). Significantly, the growth of a country’s economy also has some specific changes that determine whether the international trade composition is rational or simply deteriorating. Just as stated, exports tend to have a positive change in all developed countries whereas imports posit a negative change in the developing countries’ economic growth (Reuvid and Sherlock, 2011:43). Following the past trends in international trade, the interaction shared between and among economic growth, international trade composition, and trade performance bears discriminative aspects particularly to those countries whose economies are still developing. Nonetheless, research findings ascertain that an increase in a country’s exportation efforts tends to increase that nation’s economic growth (Feenstra, 2004:76). Micro studies often describe the growth of a country’s economy as growing if it is setting pace for domestic expansion with its Gross Domestic Product increasing year after another. Growth in a country’s economy results to intensified approaches in the international trade composition, which is an arena that requires frequent diffusion of technology. When there are increased economic activities between and among countries specifically dealing with a particular type of product that happens to require a similar development or manufacturing formula, it becomes easier to increase activities within this arena (United States General Accounting Office, 2003:70). This is so because as these activities intensify, the parties involved must interact and interchange technological knowhow, which creates an opportunity for frequent interactions (Feenstra, 2004:73). Growth in a country’s economy also facilitates its overseas trading abilities and efforts since it is in a better position to produce more for export. Pertinently, when a country resolves to get the relevant technology and machinery to produce and manufacture different types of products just as it desires, it becomes more aggressive and tolerant in the international trading sector (Rivera-Batiz and Oliva, 2003:70). This mobilizes its ability to produce surplus items, which in turn gives it the ability to engage in international trade. Consequently, the country is able to intensify its international trade composition due to the presence of surplus production. With reference to this description, surplus produce comes from economic growth hence the country goes ahead to engage international trade (Reuvid and Sherlock, 2011:56). A bilateral trade data released by one of the best trading companies in the UK pointed out that economic growth result from intensification of trading activities within and outside a country’s boundaries. A clear indication of this spectrum appears in description provided herein by the simple strategies of international trade where a country must increase its both manufacturing and trading efforts in order to acquire the levels required to deal internationally through exportation and other related activities (United States General Accounting Office, 2003:74). Therefore, the consequences of economic growth on international growth composition are many but the most likely discussed ones revolve around technological diffusion, exportation, and importation activities (Rivera-Batiz and Oliva, 2003:77). Variation according to the size of the country Overly, if the economy is a ‘small’ country, the international trade composition is unlikely to yield positive effects on the country’s economic growth and vice versa. This happens mainly due to the idea that when the country is a small economy, developed economies tend to take advantage of the situation and exploit their potential hence be unable to compete in the international trading arena making its composition weak and oblique (Reuvid and Sherlock, 2011:61). Since international trade composes of many economic activities, which include but not limited to financial services, information processing, computing, and management consultancy, knowledge intensification is very vital. Ultimately, as production or processing activities become more complex, control, coordination, and operations within firms become highly significant (Rivera-Batiz and Oliva, 2003:87). This in turn leads to an increase in the scales of production of many manufactured goods, which thereafter changes the composition of international trade. Nevertheless, if this happens in a small economy country, chances are that intermediate inputs and services will lose their grip in the international market simply because they are may be inadequate yet the market is large. Largely, econometrics argue that in a small economy country, the most prominent sectors such as telecommunications, transport, and finance tend to uphold the largest share if trading activities within the country (United States General Accounting Office, 2003:81). Thus, the effects will vary in such a way that if the growth has a positive impact in the international trade composition, then the economy is likely to form an efficient transformation of crucial things like investments, savings, and resource deployment (Rivera-Batiz and Oliva, 2003:97). A small economy country has a marginal base, which makes it easier and strategic for the country to grow faster since it only requires little regulation in order to ensure prosperity. If the economy is large, then the country is likely to suffer especially if it is within the developing countries list. Exports and imports make the approach towards detailing the growth of an economy in a country effective. However, if the country focuses more on importing rather than exporting and happens to be in the developing countries inventory, it must have difficulties in maintaining a positive change especially if regulation of the finance, telecommunications, and transport sectors is detrimental (Feenstra, 2004:84). Reduced or no restrictions on trade has a relieving consequence on goods as it reduces the height of Gross Domestic Product that is equivalent to gain in welfare (Kerr and Gaisford, 2008:72). On the other side, when a country puts restrictions on its trading goods, loss of morale by business people involved tend to have negative impact on the level of the country’s real GDP (Reuvid and Sherlock, 2011:80). What happens is that these restrictions result to a reduction in the level of real Gross Domestic Product that, as described, is equivalent to a whole welfare lost. The implications of economic growth on international trade are variable in most cases they tend to push the activities involved in the cross border trading towards the positive side. However, bearing in mind that these consequences may be inversely suggestive is vital. Cases of tax evasion and increases in prices of foreign products are rampant especially if the market is free and the principles of trade fall under specific trade union (United States General Accounting Office, 2003:86). The conclusions discussed may also vary otherwise if the economy is large but lacks the principles of international trading. Firstly, the conclusions may result to give an inward growth in the international trade composition within a large economy especially if the wedge between foreign and domestic prices of services is costly (Rivera-Batiz and Oliva, 2003:102). There could also be cases of inefficiency if the economy is a small country given that such economies tend to produce very little, which makes it harder for any country in this situation to trade effectively in the international trading arena. Further, liberalization of goods without liberalization of services poses a serious hurdle towards production and/or manufacturing within both large and small economic countries (Rivera-Batiz and Oliva, 2003:110). The role played by these definite strategies helps maintain a growth in the international trade composition. This appears so because when either a small or large economy country improves its productivity, it becomes possible for some sectors that include service distribution within the country to yield large inflow in Foreign Domestic Investment since liberalization fosters these developments (Reuvid and Sherlock, 2011:99). Hence, indicating that the conclusions drawn from the consequences of an economic growth of a country in its international trade composition may vary from one state to another due to the provided reasons (Kerr and Gaisford, 2008:80). 1. International trade criticism Agreeably, these claims are true on one side and succinctly dredged on the other. For quiet a long time, developing countries have continued to depend highly on the developed countries for almost everything including the smallest and least products that they can manage to produce on their own (Zhang, 2008:45). This has caused jitters among many economic specialists who claim that this situation only manipulates the power of the developing economies by making their ability weak and unable to withstand any kind of pressure without support from those developed economies. The trading relationships shared between developing and developed economies continue to yield or mount pressure on the eligibility of production among these nations (Karagiannis and Witter, 2004:36). Currently, experts are starting to term these relationships as a source of “anti-development” for the developing countries. This has resulted from such aspects like continued dependency on imports, limited technological diffusion, and inadequate infrastructure. Due to the knowledge that there will always be a supplier of certain products in the developing countries, most of these economies have become reluctant in advancing technologically which makes them slaves of the developed countries (Van-Den-Berg and Lewer, 2007:60). As described by many econometrics, developed economies consider utilization of their resources that include labour, capital, and technology that is why they are in a position to sustain their populations and at the same time provide for others through exportation (Zhang, 2008:50). This on the other side makes it hard for the developing countries to make maximum use of their resources since they can depend on their developed counterparts. Consequently, economies in the least developed countries otherwise referred to as developing countries fail to maximize on the use of their resources (Baer, 2003:80). To some extent, these international relations critics are justified to refer to the business interrelations between developed and developing countries as a source of anti development due to the point that there is lack of autonomy on one end. Developed countries make developing countries’ economies grow weaker every time they fail to encourage them make maximum use of their gifted natural resources (Becker and Blaas, 2007:53). Since the developed economies are able to apply their technological knowhow, capital, and labour resources effectively, they produce large quantities of products, which they then sell them to their less developed counterparts (Karagiannis and Witter, 2004:47). For a fact, this aspect facilitates the existence of people living in less developed economies since they are able to access certain goods and services that their economies do not produce or offer. However much this facet may seem caring and consistent, prospects into this matter suggest that developed countries facilitate the growth of weaker economies and increased on the side of developing economies (Becker and Blaas, 2007:62). Failure to promote domestic tourism and transportation services, which happens to be very crucial factors facilitating the growth of an economy by the developed economies, makes the developing economies fail to support themselves economically. Upon analyzing the current accounts of many developing countries, results show that the cost of manufacturing certain products in developing countries is expensive than in developed countries (Zhang, 2008:57). In fact, in developed countries, manufacturing, processing, and production activities are faster, cheaper, and lead to quality items. This is different when it comes to the developing countries where labour availability is high but the quality of the products manufactured is questionable (Kerr and Gaisford, 2008:94). This result to reduced or minimal exports whereas the products used within the internal markets are of low standards. Documented evidence maintains that when the World War II ended, both developed and developing countries came together with the aim of changing or rather coming up with reasonable yet considerable means of trading internationally (Karagiannis and Witter, 2004:55). They transformed the existing policies and drafted certain stipulations that allowed trade between the two masses. This initiative saw developed countries reduce tariffs on certain products but they all happened to be the products that they served their best interests. Given that these discriminatory stipulations are deceitful on their application, the international trade relations between the developed and developing countries have always been sour with a number of econometrics referring to them as agents of anti-development (Van-Den-Berg and Lewer, 2007:68). Believably, these relations shared by these two masses only resolve to perpetuate the dependent status and weak state of developing countries economies. This follows the idea that low tariffs on the products from developing economies that are of interest to the developed only increases growth of the very products that the developed nations has interests in and lowers growth on those that deem less interesting to them (Becker and Blaas, 2007:68). Particularly, this revolves around the multifaceted conclusion that critics of international trade the relationships between developed and developing countries make that dissect that the former only seeks to make the latter more dependent and weak. Since the developing economies are unable to obtain market for those products deemed to be of less importance to the developed countries, they are unable to increase their manufacturing capacity (Zhang, 2008:66). Relatively, the need to substitute imports with locally manufactured goods has been a gradually fading strategy for the developing nations. As time goes by, economies of the developing countries find it hard to substitute imports with locally manufactured products mainly because of the difficulties involved in manufacturing the intended products. In order to attain the ability to produce goods locally, there must be intensive technological base, adequate labour, and availability of capital (Karagiannis and Witter, 2004:61). Thus, if a country lacks these essential factors of production, it becomes hard for it to manufacture products locally that can help substitute imports. This kind of tendency makes the international trading relations between these two masses appear manipulative such that the developed countries’ economy exerts a heavy toll on that of the developing ones without paying any reasonable attention (Becker and Blaas, 2007:74). Currently, the available information describes the relationship between developed and developing countries in terms of international trading as oblique. The developed countries tend to make this relationship to be a source of anti-development through things such as making it hard for the developing countries to withstand the international market and trading pressures (Zhang, 2008:70). The pressures in turn scare investors from developing economies fail to take part in the international trade where they export products to other developed economies, an aspect that leaves them with only one thing, import (Kerr and Gaisford, 2008:98). Continued importation of products to the developing economies makes it hard for those developing economies to come up with their own ways of manufacturing, processing, or producing products (Becker and Blaas, 2007:74). As such, one can argue that developed economies only seek to perpetuate dependence of developing economies since they do participate in making the trading policies balance. Arguably, developed economies make developing economies maintain their dependence on the former and this makes the international trading relationship between them sound questionable through failure to elevate poverty. In order for both masses to have a sound international trading relationship, they must engage in making efforts aimed at reducing poverty levels and making trading abilities considerable (Van-Den-Berg and Lewer, 2007:79). Failure to supply adequate food to the people living in developing economies makes it hard for these economies to manage to trade internationally as whatever they get goes straight into providing some food supplies. This situation results to decreased trading activities between these masses hence left with no choice but to increase their dependence on the developed economies to provide for most of the products that they cannot manufacture, process, or produce within their home markets (Becker and Blaas, 2007:80). Agreeable It is agreeable that the critics of international trade are justifiable to claim that the developed economies international trading activities only perpetuate developing economies dependence and weak economic status (Baer, 2003:89). This is so because, lack of education, increased population growth, and falling savings make it difficult for any of the developing economies to stop depending highly on developed economies for any reasons. Particularly, problems that face developing economies are many and as many financial analysts point out, their dependence on developed economies will still continue to rise as time passes by hence the international trading relations will continue to sound bleak (Zhang, 2008:78). Since developed economies only seek to get the kind of products that they do not have from the developing economies, their international trading relationship blackens from time to time given that the developed economies siphon all what they require from the developing economies leaving them without the necessary resources to sustain their growth (Karagiannis and Witter, 2004:64). In addition to that, international trading experts can still claim that the interactions between developed and developing economies are bleak and only perpetuate the latter’s weakness and dependence on the former due to the imbalance created by trading activities between the two masses (Becker and Blaas, 2007:95). Truthfully, developing economies only engage in international trading activities with the developed economies mainly because they lack other opportunities and require what the developed economies offer in the market. This shows that their trading services are mandatory since if they could stop them, only the developing economies would suffer. Since the developed economies understand this situation, they tend to foster anti-development policies making the developing economies dependence on them increase (Kerr and Gaisford, 2008:104). These deploring trading interactions are the ones that make critics of this subject find them bleak and fostering weak economy and continuous dependence. Disagreement Without a doubt, the effects of increased dependence and perpetuated weak internal economic growth in developing economies results from their inability to make maximum utilization of the so many natural resources that they have. Generally, developing economies have many natural resources including copper, diamonds, oil, timber, groundnuts, iron ore, and rubber among others (Zhang, 2008:80). These natural resources can make an economy become independent but because the developing economies do not have the technological knowhow or machinery to extract them, they resolve to seek help from the developed countries. In their end, the developed economies take advantage of the situation and extract the resources and take them back to their mother economies where they manufacture the end item them bring it back to the developing economies as an exported product (Van-Den-Berg and Lewer, 2007:83). With this respect, critics of the international trading relationships between the developed and developing economies have no justification whatsoever to refer to these interactions as anti-developmental (Baer, 2003:97). In fact, they should look deeper and overlook the issue of dependence as a way to help the developing economies since they are unable to produce certain products on their own. A closer research into the topic suggest that failure to enforce trade ties between these masses could be devastative given that the developing economies depend on most of the imported products from the developed economies (Karagiannis and Witter, 2004:72). Thus, this description regards the critics’ stance as obsolete and has no base of argument. Nonetheless, prospects show that the slowing population growth, transforming economic development, and improving standards of education, living, and infrastructure are a result of the international trading relations shared between developed and developing economies (Kerr and Gaisford, 2008:112). Conclusion Substantially, technology and strategic management play a crucial role in realizing the goals of development in economy. With regard to the diminishing abilities of the developing economies to cater for their manufacturing, processing, and production services fully, it is disagreeable that developed economies only seek to perpetuate their dependence on them (Becker and Blaas, 2007:101). Moreover, it is also disagreeable that developed economies make developing economies weak through the aspect of anti-development protégé. Crucially, the growth that developing economies are enjoying as of today has resulted from their international trading activities with the developed economies (Zhang, 2008:96). This paper has examined the consequences of economic growth of an economy on its international trade composition and discussed how the conclusions may vary if the economy is either a “small” country or a “large” country. It has also criticized the international claims that developed economies’ trading ties with the developing economies perpetuate dependence and weakness on the side of the developing economies. 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