Developing Countries And Trade

Developing countries and trade:reducing their competitiveness in other countries, this
Introduction:is a disadvantage to the industrial sector.
International trade is an important source of foreignSome of these inputs include oil and oil products that
income in almost all developing economies, theselead to an increase in the cost of production if their
countries are referred to as developing due to theirprices are increased by oil exporting countries; the
low GDP level and they are faced with high levels ofcost of production caused by high input prices is
poverty and unemployment, according to Davidtherefore a major disadvantage toward the
Ricardo and Adam smith international trade plays adevelopment of the industrial sector in developing
crucial role in the development of an economy, thecountries. However there is need for the industrial
Mercantile theory of development states that tradesector to adopt other alternatives as sources of
led to the wealth of nation.energy and also substitute imported inputs with locally
This paper discus the various problems that theproduced products.
developing countries face in international trade andTechnology:
their effect on the agricultural, industrial and serviceDeveloping countries fail to make a break through in
sectors. Some of these problems are external whilescience and technology, they do not undertake
others are internal problem. Some external problemssufficient research for technological progress, for this
include competition in the global market, tariffs andreason their products do not meet the quality of the
other trade barriers, required quality standards. Someproducts in the international products, developing
internal problems include high cost of production,countries are highly advanced in technology and will
tariffs of inputs andproduce high quality products that are very
Problems faced by developing countries:competitive in the market, for this reason therefore
There are various problems that developing countriesthe products produced in the industrial sector does
face in international trade which will be discussed; thisnot meet the standard set by internal traders.
paper also provides possible solutions to theseTherefore it is evident that developing countries face
problems of trade. Some of the problems includechallenges in the production of goods where they are
trade barriers, unfavorable terms of trade, highrequired to produce high quality goods but they are
quality standards,unable to met these standards due to the lack of
Agricultural sector:technology and machinery that aid in improving the
A large portion of GDP in developing countriesquality of the good they produce.
depend on agriculture, agriculture helps in providingQuotas and tariffs:
food to the population, providing employment andDeveloping countries will have infant industries that
surplus is exported to other countries. Foreign incomethey protect by means of tariffs and quotas;
highly depends on agricultural products exported andhowever trade partners will be against this move and
also tourism, however agriculture plays an importantwill result into an imposition on more tariffs on goods
role in these countries in providing employment andimported from such a country, this therefore leads to
food, there are various problems that theseproblems in the international market.
developing countries face in this sector and theyTariffs and quotas imposed on the imports by
include:developing countries also pose a major problem to
Trade barriers:the industries, this is because the cost of production
High tariffs are imposed on imports in internationalrises far beyond the equilibrium global market prices,
trade; tariffs are a source of revenue to thethe developing countries impose these tariffs to earn
government but at the same time they restrict therevenue from imports but at the same time the
level of imports in a country, the agricultural sector inindustries face problems.
developing countries are faced with this problemTariffs imposed on their exported products is also a
because their good become more expensive in themajor disadvantage to the developing countries, their
internal market due to imposed tariffs.products become very expensive in the international
The tariffs will reduce the amount demanded due tomarket due to these tariffs leading to reduced
the increase in price, therefore the agricultural sectordemand for these products, this is a problem that
is faced with the problem of declined demand forcan only be resolved through formation of trading
their products, and for this reason therefore theblocks.
surplus amounts produced is not exported.Competition:
Bans and quotas are also trade barriers that causeThese developing countries aim at producing good
problems in internal trade, in the case of quota thefor exports but they are faced with stiff competition
developing countries are only required to export afrom other countries producing the same good, high
certain quantity to country, this is a major draw backcompetition leads to a reduction in the global market
to the agricultural sector in the developing countries.prices posing a threat to the industrial sectors in
High input costs:developing countries, high competition in the global
Most developing countries import inputs such asmarket therefore leads to reduced earnings from
fertilizer, pesticides and oil, their cost in the internalexports by developing countries.
market are usually high and some producers cannotHigh competition also occurs as a result of trading
afford these costs, for this reason therefore thepartners producing the same goods they import from
cost of producing the agricultural products is usuallythe developing countries, these products are
very high making the final price for these products tosubstitutes to the products imported and in order to
be high.reduce the level of imports they subsidize the
Therefore the high cost of inputs will lead to anproduction and at the same time impose tariffs on
increase in the cost of production, the final price ofimports and therefore the developing countries loose
the agricultural products is usually very high andthe international markets they earlier acquired.
therefore less competitive in the internal market, forLack of product diversity:
this reason therefore the agricultural products areThe industrial sector is also faced with the problem
usually less demanded in the internal market due toof the lack of diversity in the industrial products they
competition from more efficient producers.export. This lead to increased competition which
Oil is also a major input in production in each andwould have not been present if the countries
every sector in an economy, the developingproduced many different goods for exports, for this
countries in most cases will import oil from developedreason therefore there is a need to diversify on the
countries where prices fluctuate frequently, and theproducts produced by the industrial sector.
cost of oil will lead to an increase in the cost ofMost developing countries will have industries that do
production of these products leading to lessnot completely convert raw materials into finished
competitive prices in the internal market.products, this leads to the disadvantage that the
Subsidies:industry receive less for exports than when it would
Many countries subsidize their agricultural sector inhave converted the products to their final stage, this
order for them to produce more, this has posed ahappens however due to lack of machines and capital
major problem to the developing countries thatto undertake processing, therefore it is important
cannot afford to subsidize its agricultural sector,that the industrial sector produces fully processed
subsidizing of agricultural production in developedproducts for exports.
countries result into a reduction in the cost ofBureaucracies;
production and therefore the country demand lessBureaucracies in internal trade also affect the
imports.industrial sector where developed countries set
Subsidies therefore will create problems to theconditions regarding trade, they require developed
agricultural sector in the developing countries; this iscountries that export products in their country to
because the developing countries produce more atimport their products, for example a country that
low prices that are more competitive in this market.exports coffee to a developed country is required to
Technology and mechanization:import inputs such as fertilizers and pesticiedes from
Developing countries import technology andthe same country leading to problems in the industrial
machinery from the developed countries, thesesector.
machines help in increasing production and alsoBureaucracies also distort the free market in
bringing down the cost of production, however dueinternational trade by setting the prices for products
to the high cost of these machines the developedfrom developing countries, therefore they determine
countries prefer to use labor intensive methods ofboth the input prices and the export prices in
production due to high initial cost and alsodeveloping countries, this is major problem in the
maintenance costs.development of the industrial sector in developing
The lack to use modern machines and technology incountries and this is what is referred to as
production lead to low levels of exports and also highneocolonialism.
costs of production, for this reason therefore theLoans and grants from developing countries also lead
developed countries remain with the problem ofto problems in international markets, developing
underproduction and also low exports.countries may be offered a grant or a loan but with
The lack of machines that help in turning the rawstrings attached or conditions attached, they may
materials from the agricultural sectors into finishedrequire the developing country to purchase certain
products lead to increased disadvantages to theproducts from them or even other conditions that
developing countries, most developing countriesmay hinder efficient exchange of goods in the
export raw materials whose prices in the internationalinternational market, the developed country do this
market is low, developing countries should thereforefor their own benefits and the developing remain
start exporting finished products from the agriculturalpoor due to these problems faced in trade.
sector rather than export raw material.Service sector:
Some developing countries use genetically modifiedTrade involves trade in both goods and services,
plants for production, these products are moreservices include the trade in services provided by
productive where the time taken to grow and alsocountries to other countries, these services in trade
the production levels. This is a challenge to thecan for example be viewed as outsourcing services,
developing countries to adopt modern technology tomost companies in developed countries outsource in
increase production and also reduce costs ofdeveloping countries due to low wage rates
production.demanded, for this reason therefore there is an
Lack of product diversity:exchange of services for income.
Developing countries export approximately the sameThis sector has developed as a result of improved
product to the internal market, this leads to increasedcommunication network all over the world allowing
competition and the developed countries have powerpeople to get employed by companies abroad,
over them on deciding from which country to importhowever the lack of proper communication networks
from, and further the developed countries will setin developing countries creates a major problem to
prices due to high competition in the global market.this sector and there is less income sourced through
Product diversification means that the developingthese methods.
countries should not produce the same goods forTherefore one of the problems is lack of support
exports; they should try and diversify the productsinfrastructure such as communication networks and
they exports in order to reduce competition andalso electricity supply in remote regions of developing
therefore increase the foreign income received. Thiscountries. this hinders the development of this sector
should involve the introduction of new products to beresulting to reduced income from this sector.
produced in the agricultural sector that are to meetThe other problem is the high income taxes imposed
the demand for consumers abroad.on this type of sourcing, most countries will demand
Unfavorable terms of trade:revenue from firms in this sector which makes it
Terms of trade will also be a major problem to thedifficult for the sector to develop, as a result this
agricultural sector, developing countries exports aresector remains underdeveloped to its full potential
mostly agricultural products and they will importdue to high tax imposed on income.
machinery and oil from developed countries, thisDespite the high foreign income potential in this
poses a major problem in the terms of trade and thissector the developing countries have not focused on
finally results to trade balances because the importsits development, according to the various trade
have more value than the exports they produce.theories the free movemtn of goods and services
Lack of proper bargaining power by the developingbetween countries will result to equalization of factor
countries lead to them experience a problem inincomes, however this is not the case and the
setting prices, the developed countries will give theirdeveloping countries still remain low income countries
decisions on the price they are willing to pay for thewhere labor is cheap and capital is far much
products and because the supply in the global marketexpensive.
for these products is high the developing countriesThere are inputs for this sector such as computers
have little control over the export prices and theand other machines that are imported from
problem of terms of trade arises making importsdeveloping countries, they are very expensive and
expensive than the exports.developing countries will impose taxes on these
Debts and balance of trade:products making them very expensive, the high cost
Due to the problem of balance of trade and terms ofof inputs results into high cost of production and
trade the developing countries are faced with thetherefore they are less competitive in the global
problem of debts, developing countries face balancesmarket.
in trade adding to the problem of high debt levels toBureaucratic organizations also affect nthe service
finance debts, for this reason therefore thesector in developing countries, certain conditions put
developing countries may restrict imports in order toin place by developed countries hinder the proper
reduce the level of debts and therefore less inputsrunning of the service sector, conditions are put in
to the industries and agricultural sectors, for thisplace by these bureaucracies that affect the service
reason therefore the country will not be in a positionsector where the developing country must adhere to
to increase production to offset the debts earlierin order to participate.
incurred.Possible solutions:
Quality and standards:The industrial sector and agricultural sector should
Developed countries and developing countries tradfeadopt modern technology to help increase production
partners set high standards for products exported,and also increase efficiency, when this is done the
this lead to frequent ban on products produced insectors will experience scale economies and also a
developing countries, A good example is the ban onreduction in the costs of production, technology
fish imported from east Africa during Idian Aminshould be adopted in the agricultural sector where
reign, the reason was because the dictator had allmachines should be introduced to perform various
the disabled people thrown into lake Victoria andtasks increasing efficiency, the other option is to
therefore it was unhealthy to import fish from theintroduce genetically modified plants and seeds that
lake.are more productive, when this occurs the final
From the above example it is clear that developingproduct prices will be very competitive in the global
countries will ban imports due to various reasons, inmarket.
the example it was evident that most fish exportedThe other possible solution is through formation of
from east Africa was tilapia, tilapia fish is a glazer andtrading blocks with trading partners, this will lead to
fed on sea weed and not meat, however due to theopening up of trade and formation of free trade
act of the dictator fish imports were banned forareas, and this will lead to increased specialization
health reasons.among countries that will aid in formation of free
Other products have also been faced with the sametrade areas, specialization will result into reduced
problem, example beef from developing countriesglobal market prices of products resulting into
where a certain disease outbreak may result into aimproved standards of living among countries.
total ban in the exports of these products evenReduced tariffs on industrial inputs will also result into
after health checks on the slaughtered animals. This isan added advantage into the industrial and agricultural
a major draw back to the agricultural sector.sector, this will make the inputs more affordable and
Processing and transportation:therefore the cost of production will be reduced
Most of the agricultural products require that theysignificantly resulting into more competitive prices in
are processed before being consumed, most ofthe international markets.
these products are perishable and require to enterConclusion:
the market within the shortest time possible, thisFrom the above discussion it is clear that both the
requires that the developed country to device waysagricultural and industrial sector face major problems
by which this is possible but due to security reasonsin international trade, some of the highlighted
some products get stale before they enter theproblems in this paper include trade barriers, lack of
market. For this reason therefore there is a need toproduct diversity, quality and standards, high costs of
process these products before they are transported.inputs, terms of trade, lack of technological
The other problem is that some products requireadvancement and competition from other countries.
refrigeration example flowers, vegetables and fishThe service sector also faces various problems in
and due to lack of capital to purchase and maintaintrade, outsourcing involves providing services to
these machines, for this reason therefore theoversea companies which in turn pay for the services
products are not of quality on entering the market.provided, however lack of support infrastructure
Poor transport and communication network inresults into reduced income levels in this sector which
developing countries also hinders the movement ofremains less developed yet the high potential for
good, for this reason the surplus products producedforeign income
in developed countries does not find its way into theThese problems can however be resolved through
market resulting into less products being exported,formation of trading blocks that will help achieve free
for this reason therefore the developing countrytrade among countries; this will ensure that goods
government has a role to play in ensuring supportiveand services exported are competitive in the market.
infrastructure exist which will aid in transportation ofOther solutions include subsidizing and protection of
goods to the market.infant industries which will help products to b e more
Bureaucracy in international trade:competitive in the international market.
Most developing countries are faced with theOther challenges faced by these developing countries
problem of bureaucratic policies formed by developedinclude the bureaucratic policies put in place by
countries, a country may export a certain product todeveloped countries, developing countries are
a developing country but it is required to import arequired to follow conditions put in place by these
certain product from the developing country, thesecopuhntries for it to continue trading with the
are bureaucracies that lead to trade diversion wheredeveloped countries, this is a major problem that
developing countries may be forced to import goodshould be eliminated to allow proper runni9ng of a
from a high cost country because it exports thefree market in international trade, however this
products to that country.requires the developed countries to seize giving
These bureaucratic policies harm the developingconditions to the developing countries to enable them
country agriculture sector whereby they are requiredto develop.
to import a product from a country where it exportsDeveloping countries governments should also come
to its product failure to which they are denied accessup with policy measure that help in providing support
to the market. These bureaucratic organization alsoinfrastructure such as road networks and also
set the prices they buy the imports from thecommunication networks, this will help improve
developing countries, this is amjaor draw back to theinternal problems faced by these sectors. Further
agricultural sector in the developing country becauseimprovements in policies should be aimed at reducing
developed countries will set prices for the goodscosts of inputs through zero tariffs on industrial and
imported from these countries and also set theagricultural inputs imported.
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