To enhance learning and to encourage fluency in current events, students are exp
To enhance learning and to encourage fluency in current events, students are expected to read about current events in business and to contribute pertinent international news articles and summaries.
During Week 7, you should seek about material that is pertinent to our eText Chapter 7: Trade Policies for the Developing Nations
Articles are to be selected from the business press. Suggested sources are listed on the weekly Required Current Events Readings page. The article should be no more than 3 months old.
Article selection must be made CAREFULLY – the topic of the article you select must tie with our assigned weekly chapter/topic.
The summary of the article should not go beyond one paragraph (about 5 sentences.) The article summary must be in your own words, not duplicated from the article.
Please also provide an opinion of the article or discuss what makes it important or interesting.
A cover page for this assignment is not necessary, but you must include a cited link in APA format to the article.
CHAPTER 7:
Developing Nation trade Characteristics
If we examine the characteristics of developing nation trade, we find that developing nations are highly dependent on advanced nations. A majority of developing nations’ exports goes to the advanced nations, and most developing nations’ imports originate in advanced nations. Trade among developing nations is relatively minor, although it has increased in recent years. Another characteristic is the composition of developing nations’ exports, with its
emphasis on primary products (agricultural goods, raw materials, and fuels). Of the manu factured goods that are exported by developing nations, many (such as textiles) are labor intensive and include only modest amounts of technology in their production. In the past three decades, the dominance of primary products in developing nation trade
has lessened. Many developing nations have been able to increase their exports of manufac tured goods and services relative to primary products: These nations include China, India, Mexico, South Korea, Hong Kong, Bangladesh, Sri Lanka, Turkey, Morocco, Indonesia, Vietnam, and so on. Nations that have integrated into the world’s industrial markets have realized significant poverty reduction. How have developing nations been able to move into exports of manufactured
products? Investments in both people and factories have played a role. The average educa tional levels and capital stock per worker have risen sharply throughout the developing world. Also, improvements in transport and communications, in conjunction with developing nation reforms, allowed the production chain to be broken into components, with developing nations playing a key role in global production sharing. Also, the liberal ization of trade barriers in developing nations after the mid1980s increased their competitiveness. This increase was especially true for manufactured goods and processed primary products. Developing nations are gaining ground in highertechnology exports. Nevertheless, they have been frustrated about modest success in exporting these goods to advanced nations.
tensions between Developing Nations and advanced Nations
Despite the trade frustrations of developing nations, most scholars and policymakers today agree that the best strategy for a poor country to develop is to take advantage of interna tional trade. In the past two decades, many developing nations saw the wisdom of this strategy and opened their markets to international trade and foreign investment. Ironically, despite scholars’ support for this change, the advanced world has sometimes maintained its own barriers to imports from these developing nations. Why is this so? Think of the world economy as a ladder. On the bottom rungs are developing nations
that produce mainly textiles and other lowtech goods. Toward the top are the United States, Japan, and the other advanced nations that manufacture sophisticated software, electronics, and pharmaceuticals. Up and down the middle rungs are all the other nations, producing everything from memory chips, to autos, to steel. From this perspective, economic develop ment is simple: Everyone attempts to climb to the next rung. This process works well if the topmost nations can create new industries and products, adding another rung to the ladder—older industries can move overseas while new jobs are generated at home. But if innovation stalls at the highest rung, then Americans must compete with lowerwage workers in developing nations.
Unstable export Markets One characteristic of some developing nations is that their exports are concentrated in only one or a few primary products. For example, about 90 percent of Saudi Arabia’s export rev enues come from oil exports, 80 percent of Burundi’s export revenues come from coffee exports, and 60 percent of Zambia’s export revenues come from copper exports. A poor harvest or a decrease in market demand for that product can significantly reduce export revenues and seriously disrupt domestic income and employment levels. Economists maintain that a key factor underlying the instability of primaryproduct
prices and producer revenues is the low price elasticity of the demand and supply schedules for products such as tin, copper, and coffee.1 Recall that the price elasticity of demand (supply) refers to the percentage change in quantity demanded (supplied) resulting from a 1 percent change in price. To the extent that demand and supply schedules are relatively inelastic, suggesting that the percentage change in price exceeds the percentage change in quantity, a small shift in either schedule can induce a large change in price and revenues. Figure 7.1 illustrates the supply and demand schedules for coffee, pertaining to the
market as a whole. Assume that these schedules are highly inelastic. The market is in equi librium at point A, where the market supply schedule 0
0 S intersects the market demand schedule D . The revenues of coffee producers total $22.5 million, determined by multi
plying the equilibrium price ($4.50) times the quantity of pounds sold (5 million). Referring to Figure 7.1(a), suppose that decreasing foreign incomes cause the market demand curve for coffee to decrease to D 1. With the supply of coffee being inelastic, the
decrease in demand causes a substantial decline in market price, from $4.50 to $2.00 per pound. The revenue of coffee producers falls to $8 million. Part of this decrease represents a fall in producer profit. We conclude that coffee prices and earnings can be highly volatile when market supply is inelastic.
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