Development Economic

Final Project Report

Submitted By
MAAZ BIN JAVED 01016 KHURRAM RIAZ 01028

SUBMITTED TO

MAAM MARYAM HASEEB ON MAY 06, 2011

IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF COURSE

Development Economic

DEPARTMENT OF MANAGEMENT SCIENCES IQRA UNIVERSITY ISLAMABAD, CAMPUS

Table of Contents
What is trade?................................................. 3 Types of trade:................................................ 4 The advantages of international trade for developing countries. 5 The Benefits of Free Trade for Developing Countries:........... 6 E-Trade Opportunities: Are Developing Countries Ready?......... 7 Problems faced by Developing Countries for trade:............. 10 How can trade policy help address the economic crisis? ...... 11 How the crisis affected trade? .............................. 12 Economic Crisis effects on Free Trade ....................... 12 Developing Nations in International Trade..................... 13 Past Trade Trends:............................................ 14 Trade Statistics of Pakistan:................................. 17 References:................................................... 21

What is trade?
In history there was trade of commodities that is called barter system in which we exchange commodities not currency. In commodities the exchange commodities have equal value or it is according to the both parties desire. But now there is no barter system and we use the money as a medium of exchange. Trade has got importance in todays world. Basically trade is buying and selling of the commodities

(goods). It is a basic economic concept in which it involves two or more parties participated in one person have the desire to get that commodity that is in the possession .In a barter system trade was quite difficult but now when we use the money as a mode of exchange which makes buying and selling is more easy and efficient. Trade is also called the performing a transaction of sell/purchase security in financial market like stock exchanges. By the time there is a lot of variation in the monetary values of a country import and export of goods of all kinds. When a country exports are less then imports, then it have friendly kind of balance of trade and if the imports are more and exports are less then it is not friendly. If one nation is good in the production of one commodity and they show efficient results then international trade will help them to do so. More Import and less export trade deficit and more export than the import it is the trade surplus. A lot of imports like agricultural raw material, consumer goods and services have the negative impact on the trade. Another factor that affects the country's balance of trade is the exchange rate of that country. Tariffs, import etc is the most common barriers of trade. Government imposed a tax on import goods is called

tariff. A certain quantity of imports and export of products is called quota.

Types of trade:
Trade the offers the business of owners workers a and large the exposure. In

developing countries Fair trade, ethical trade aim to boost economic condition public. Ethical trade refers to companies who show that they want to improve their relationships in trade activities. Retail trade is one type of trade in which retailers are business firms bound in providing between goods and services and to the consumers is the directly. fair trade Retailers have taken a greater variety of goods. An agreement the manufacturer retailers agreement at which products are sold on the agreed price by both parties. Free trade is also one of the categories of trade in which trade takes place without any time of government or other restrictions. There are no barriers such as quotas or tariffs in free trade. In this trade there are so such policies or rustications from the government side. Some of trade types are: Free trade: In free trade goods are without taxes, easily/free entry into the market, easily movement of labor and capital between the countries. Silent trade: It is also called Depot trade. In this type of trade people have different language could barter goods. Traders have no direct link in the exchange of good. The ecommerce/ electronic is a trade model that provide a chance to a firms to go on the internet and start their trade. Electronic trade: In all market major segments of the business electronic trade take place. In this type of trade, people use

the internet technology to operate there operations like to make a database of customer records. A stock exchange: share market provides faculties both the trader and stock broker. Only members have the permission for the exchange trade. Primary market offers the stocks and bonds to investor first time and then secondary market. Telecommunications has given a boost to the firms/businesses to trade on an international level

The benefits of foreign trade for developing countries

Growth and Development: Foreign trade is one of the dominant factors for the economic development of the developing county. Joseph Francois of Erasmus University says that, new trade relations would generate US$ 90 billion US $190 billion per year. Confidence developing business growth. Opening of Agriculture Market: Foreign trade and new trade agreement would take to the global market of agriculture. In many developing countries agriculture plays a vital part, and many countries only relay plays on a it very so free excess role to in the the agricultural market important and Energy: financial trade will crises agreement help to and may the economic the

recession in trade would have bad impact on the economy of the countries. and New that support the markets gain economic

reduction of poverty. Uruguay Round: After opening of the agriculture sector global trade will increase in developing industry countries. and Agricultural sector industry, manufacturing services

intensified. It also helps to develop new and efficient rules for international trading and agriculture.
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Opening

Markets

is

opening

opportunities:

When

developing

countries will open their market it will provide them huge opportunities for the economic growth. Developing countries have to take part in the business activities of the world economy. Consumer Benefits: With the free market policy the consumers have more choice to choose better products. They have more option and they will select which they think that better for them.

The Benefits of Free Trade for Developing Countries:

Free trade is the economic ban of practice import of in or which export different or other main

economies can import and export goods without any government intervention. benefits to Tariffs restriction come in government intervention. There are several countries because free trade; beneficiaries are those who are in the stage of developing. In Developing country there is living standard is low and they have less economic resources. Through free trade agreement developing countries can boost their economy.

Increased Resources Most of the nations have limited economic resources. Through free trade developing countries can increase their economic resources. resources. market of We Land Small have is land, the labor and capital In have in the less economic economic natural natural resource. they

developing

nations

resources Through Free trade agreements small nations gets the in surety that they can obtain the economic resources that are required for the production of consumer goods or services.

Quality of Life is improved People of a country can improve their standard of living by free trade. The commodity which is not available in the country they can import it easily, and that imported good might be cheaper for the country rather than to make it by their self because many developing countries dont have the ability or that kind of production process available which make that good for them. Developing countries most of the times import goods from their friendly neighbors. Better Foreign Relations Trade helps the countries to build better association with foreign nations. Developing nations have threats from their neighboring those countries, Free but association also with help developed to improve countries can help developing countries to get protection from threats. trade agreements security strength and the defense of the country. Production Efficiency Many Developing countries have the ability to manufactured

goods but they have lack of knowledge due to which they have less productivity. Free trade helps developing countries to improve they their productivity because This people thing from helps developing developing countries visit foreign countries for education from there lean business methods. counties to increase their productivity.

E-Trade Opportunities: Are Developing Countries Ready?

In developing economies like firms have three software major and market hardware opportunities Services sectors,

development. Domestic producers may also use the latest IT to foreign market.

Old business in new ways: E-com/ is the way of doing traditional business in a new

efficient way like using new technologies but it also make the opportunities for the new businesses. Due to change in the business practices the international trade is reshaping. E-trade their makes the in to opportunities international export-oriented for entrepreneurs It also because to make new new

position

trade. firms

makes using

opportunities

technology they can reduce their cost of supply and export distribution. It does not mean that exporters must be use electronic devices to conduct their international transactions and when any entrepreneur use it then public sectors, banks and other strategy makers have to support him or her. A staged approach The process for the firms to start E- Com consist of various stages. They should have to start it with some individuals; create a web so that all people can interact on it then it extent in so that electronic network practices (SMEs) to suppliers, not to in partners and others from outside the firm. In the short term developing to gear and up transition public economies sector need acquire this ideal level of e-competency and there is also no need e-trade competency development programs. Enterprises which are export oriented should ensure an e-competency level which will make e-presence in international trade and also starts the e-business system in the local economy or operations. The minimum level of ecompetency is insured by the International marketplace that is expected of an export-competitive firm. New business opportunities Services sectors, and software and hardware is are on the the major rise,
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categories of export. IT exporting opportunities that provide information communication technology

because

the

variation

in

the

business

practices.

Through

partnership with the foreign companys software and hardware exports are sectors of opportunity. Services Internet is one of the quality services now a day which allows people or service providers to go internationally and offer their products or services. There are also major new services because of technology like designing a website, online project handling and others. Now many companies do their business through internet and online promotion in gaining huge success on the internet. Many companies have this business they use the internet for the promotions of different companies. Software development In developing export countries they have firms a for the with security for purpose them. of

their

contract make

different

software These

developers/providers

which

solutions

providers make partnership with companies because most of the software developers are from outside industrial economies and they dont have brand reorganization need for the commercial purpose of their products on the international level. In developing economies IT consulting services are gaining huge popularity. Hardware markets The IT sector is one of the major industries of the world. Demand for new technology is growing In day by the day. world As new technologies came into market demand for the internet-based services and devices increase. 2005, import market for IT equipment was US$ 1 trillion.

Partner with multinationals ICT hardware market is growing all over the world and many multinational companies have acquired them so its better to make partnership with them as they are also looking for partners [Ref.No.1]

Problems faced by Developing Countries for trade:

Developing countries have the perception that they can benefits or aid from the developed countries for development projects. These problems include Developing counties relay only on basic primary goods of that country as their main exports. Like in Pakistan main focus on agriculture or some industries in Sialkot. Control on the price is another issue that they face for these goods and the price they pay for manufactured commodities are increasing everyday due to exchange rate fluctuation As exchange rate fluctuate on daily basis so long term planning is difficult task. Poor government policies, energy crises and law and order are also one of the problems for trade in developing countries. Primary goods price increases so that it causes the world price to fall. Trade barriers come in the path of developing countries that try to export primary as well as manufactured goods. Quotas and tariffs types of trade barriers.

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Basically quota is an export limit that a country can export a certain amount of commodity to other country and tariffs is the tax that government imposes on the exports.

Lack of enough capital is another issue that developing countries people on face which is required to who start have a new businesses and industries. There is less quantity of developing countries enough money/wealth to purchase commodities that are made at local level.

[Ref.No.2] How can trade policy help address the economic crisis?

First

government

should

take

steps

to

restore

confidence in the economy For the short be period of time is protectionist against the repose

should

avoided

that

economic

prospects. For the stability in the economic growth deliver the real opportunities. In protected and globally economy costly adjustments are required because protectionism delays the adjustments that are needed for the changing demands. For the Improvement open and in when the overall economy, will be market used in

should

be

resources

efficient manner then productivity will increase. [Ref.No.3]

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How the crisis affected trade?

Severe fall in global aggregate demand and its impact on commodity prices

Strain in global financial markets affecting credit flows and borrowing costs

Low-intensity protectionism in response to the crisis Uncertainty and speculation Inventory cycles

[Ref.No.4] Economic Crisis effects on Free Trade In 2008, global economic crisis starts from U.S.A with the crash of mortgage market that further spread around the world. It also affects other countries and has bad impact on all over the international economy, including global trade. From 1990s World Trade Organization has fast growth rate in free trade that enable exchange of goods and services across borders more freely. Global financial crisis has impacted global marketplace in many ways. Decline in Trade Due to international economic crisis the main fact is the reduction in trade activity among nations all over the world. A report by Federal Reserve Bank of Dallas in 2009 said that international trade decrease nearly 12 percent that year. Exports of leading economic powers of the world such as United States, declined by 13.6 percent, and developing nations have a smaller decline of about 7 percent.

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The report of Dallas Federal Reserve bank reveals that, in order to obtain credit for global transactions its more difficult now because of financial crises. Declining Export Revenues A nations export fewer goods mean that a nation has reduce its overall trade activities. In a report by Congressional Research Service (CRS), wrote on global economic recession and its effects, said that for the payment of foreign debt and buy import exports plays a vital role for the nations obtain. Devaluation of country currency occurs because of decline in export revenue, due to which interest rates for households raises, companies and government entities, according to CRS. [Reg.No.5]

Developing Nations in International Trade - List of Developing Countries in International Trade

The recent economic fashion shows that the foreign trade helps in the growth and development of the countries economy. For economic growth developing Free them countries market greatly have to go for and international countries growth. Now a days India and China Majority of the countries enjoyed rapid growth by decreasing trade barriers and accepting the new technological developments. So flexibility helps them to grow. Countries like Japan, France, Greece, Netherlands, Denmark, Norway, Italy, and Portugal have show such trends, after the World War II period. has trade. helped policies in their adoption, rapid

decrease in the concepts of trade barriers in some developing economic

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International trade helps economic growth and development of the country in a variety of ways. It makes the producers more efficient as they must compete with some of the best in the world. The open markets also provide excess to some of the best new innovative technologies, which enables countries to focus on certain industries, rather than producing all on their own. One of the main reasons behind the fall of Soviet Union was the failure to adopt advanced technology, in order to compete with the other world class producers.

Past Trade Trends:

In the past, the strategy followed by the dominant developing countries is substitution of imports with locally manufactured products behind protective barriers. This strategy helps to promote manufacturing activities of the local market and industry and deprived the imports of primary and manufactured products. During the early 1960s, countries like Korea, Singapore, and Taiwan joined hand with Hong Kong in following the outward oriented development products strategy and which encourages the locally in both manufactured exports against imports

primary as well manufactured products. This result shows a decrease in imports and increase exports. Other countries like Argentina, Brazil, and Mexico, recognized the importance of import substitution strategy However, and they start promoting manufacturing exports. this import substitution

strategy continued against locally manufactured products but not encourage as it was done in the past. On the other hand countries like India, Chile, and Uruguay continued to followed inward-oriented development strategy.

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The information shows that in the far eastern countries the rapid increase in both primary as well as manufactured exports and efficient use of resources lead to remarkable growth in the economy of these countries. The countries like Latin American, improve their manufactured exports but not able to substitute primary imports also followed increase in economic growth but Eventually those countries which continue to follow import substitution policies show low export rates, low investment opportunities, inefficient economic performance. When the oil prices start increasing most the oil importing countries are not able to continue their economic progress, and local to maintain their in past turn economic worsen growth they starts share , depending upon foreign aid and debt while protecting their markets which their export investment efficiency. The countries also followed the decline in their GNP growth rate and increase in the foreign debt rate. On the other hands countries with outward oriented development strategy, less depend upon foreign aid and debt, and use their investment funds efficiently and obtain high GNP and economic growth rates than the countries that followed inward oriented strategy. Countries with outward-oriented strategy have more flexible economy than the countries with inward oriented strategy. In the former case local firms are interacting with International markets so they have efficient knowledge and trends of the international markets and they are innovative which helps them to increase their exports where as in latter case the firms are only exposed to local markets so they dont have much exposure of the international trends so they are not able to increase their exports rate up to certain limit. The
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information also shows the economies with outward oriented strategy are able to bear the external economic shocks and recession as compared to the inward oriented economy.

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Trade Statistics of Pakistan:

Balance of trade is one of the most significant statistics of the country. Its the difference of between the country import and export. Imports are those goods which are coming in to the country from foreign countries on the other hand export are domestically goods out of which the produced are going to country

foreign both

countries. primary in import and the and

These goods consist of manufactured goods. The difference values of

export is called trade deficit (if imports are greater or trade imports exports) From the last 25 years Pakistan deficit trade abruptly maximum in is a trade Its is in The country. deficit increase 2008. than are exports) (if than less surplus

2005 and reached to its table shows the import and export of Pakistan.

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The above table reveals that the trade deficit in fluctuating between 1 to 3 billion from 1985 to 2004 but abruptly increase in 2005 and reached at 20 billion in 2008 and now its round about 16 billion . The experts says that this increase in trade deficit is because rise in oil prices. The below is the graphical representation of Pakistan imports and exports.

This is the line graph which represents the pattern of import and export of Pakistan.

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The trade deficit has bad effect on the economy which increase inflation payments problem which result in to get loans from external sources i.e. IMF. Pakistan should overcome its trade deficit by encouraging exports and deter imports. This can be done by improving the quality of locally manufactured products and efficient trade policies and interacting with International markets. This is the graph that shows the trend of trade deficit of Pakistan. [5]

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[Ref No.6]

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References:
(http://www.tradeforum.org/news/fullstory.php/aid/234/ETr ade_Opportunities:_Are_Developing_Countries_Ready_.html) (http://smallbusiness.chron.com/benefits-tradedeveloping-countries-3834.html)
(http://www.oecd.org/document/5/0, 3746, en_2649_37431_42218942_1_1_1_37431, 00.html)

http://www.un.org/en/development/desa/policy/publications /wevm/unitar_economiccrisis_tradeshocks.pdf http://www.ehow.com/list_6891878_effects-economic-crisistrade.html

http://www.pro-pakistan.com/2010/06/12/foreign-tradestatistics-2010/

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