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Explain the international economic problems related to international trade operations

      

Explain the international economic problems related to international trade operations.

  

Answers

Abdullahi

1. The movement of capital from the rich to the poor countries has led to a lop-sided pattern of development. Foreign investments have resulted in the production of primary products for export at the expense of domestic production. The export sector is primarily a capital-intensive fixed-coefficient sector which has failed to absorb sufficient labor force unlike the domestic sector. On the other hand, foreign owned plantations and mines have exploited native labor by paying low wages through monopsonistic buying. However, there is no empirical evidence to prove that the development of the export sector has been at the expense of the domestic sector.

2. The operation of the international demonstration effect through foreign trade has adversely affected the propensity to save and capital formation in LDCs. However, this view may not be correct as in the majority of LDCs, the urban sector is small and in so far as they import food articles and primary products, the demonstration effect is weak. By adopting the western consumption standards tends to influence the subsistence sector favorably. In fact, by imitating the consumption and investment patterns of the advanced countries, LDCs have been able to accelerate the pace of economic progress.

3. There has been a secular deterioration in the terms of trade of the underdeveloped countries. According to Prebisch, “over the last seventy years, the LDCs have suffered with fatal effects of a continuous weakening in their capacity to import. It has led to the weakening of the capacity of their existing primary-producing industries to support their growing population, kit has resulted in a failure to transmit to them the benefits of technical progress, it has made individual country’s independent efforts to raise productivity of its primary -producing industry result in the deterioration of their terms of trade, unemployment, and BOP disequilibrium; it has finally lowered their rates of capital formation and thus economic growth”. Hence the secular deterioration in TOT means that there has been an international transfer of income from the poor to the rich countries and that gains from international trade have gone more to DCs at the expense of LDCs. However, this view is criticized in that it is based on obsolete data.


Dullayo answered the question on August 10, 2018 at 04:38

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