To What Extent is International Trade an ‘Engine of Economic Development'? A look at China, Pakistan, & Sub-Saharan Africa

To What Extent is International Trade an Engine of Economic Development'

? A look at China, Pakistan, & Sub-Saharan Africa

To What Extent is International Trade an Engine of Economic Development'? A look at China, Pakistan, & Sub-Saharan Africa.

There is much evidence to support the argument that trade is an 'engine of economic development'. However, one can easily miss the negative externalities that occur from trade. The objective for this paper is to find out the extent to which international trade is an 'engine of economic development'. The paper will aim to define the pros and cons of managing trade. Indicators such as employment and gross domestic product will be used. This is to help observe growth. Growth contributes to the increase in GDP. When industries are doing better, more jobs are created. This is because when foreign capital is invested, more employment opportunities are created. This could be further investigated by analysing data relevant to education, such as literacy rates. Conclusions can also be made from per capita levels and poverty rates. Finding out how much of the population is below the poverty line will help indicate how well the country is doing, and the overall satisfaction of the population. All these tools are useful for investigating growth. Growth leads to economic development in the long-run. With economic development, a country attains higher standards of living. Industries are more sophisticated and the nation is in a more stable position than before.

Countries that have a competitive economy continuously seek ways to improve their current situation. Goods that are expensive in one country can be cheaper elsewhere. This would mean that a country can seeks goods from any less developed country to be received as imports. The importing country has high demand for a certain good, simply because there's not enough resources available to satisfy production. This leaves the less developed country with the opportunity to export abundant goods to places with high demand. Telecommunications is cheaper to acquire in India compared to North America. Labourers are willing to be paid less in India. India has a comparative advantage in telecommunications. This is an example of where trade can be beneficial for the exporting nation. More jobs are created through foreign capital ventures, which would eventually contribute towards GDP growth. This would also raise the per capita level since the income per person increases.

There are situations where trading conditions can face scrutiny. Since jobs are being shipped for cheaper wages, workers in developed nations find themselves in a competitive environment. There is not only a devaluation in labour, but also a lack of jobs available. Companies are able to find cheap labour elsewhere, which urged them to move. Jobs are outsourced to another country. Pakistan is known for producing soccer balls through major sporting companies like Nike. The company finds cheap labour to gain substantial profits. Compared to the standards in North America, the labourers in Pakistan have poor working conditions and very low pay. As this may be a humanitarian issue in a developed nation, Pakistan welcomes the new labour opportunities. There is not enough job exposure in less developed nations, which directly contributes towards poverty. The low class workers are given a new way of life and more opportunities to work. In the rural regions of Pakistan, not only are there high unemployment rates, there is also a lack of capital. This creates opportunity for corporations to place factories and employ labour. The comparative advantage lies in labour, since an abundance is available. Companies have more flexibility when employing labour.

Capital is typically transferred from foreign countries in to lesser developed nations. This could be in the form of factories and/or machinery. There are many potential outcomes from this. Countries are introduced to new forms of technology and alternative methods of production. Lesser developed nations usually aren't exposed to such a capital intensive environment. Less developed countries find themselves embracing the new industry methods. New forms of capital are welcomed in developing nations. Domestic jobs are dependant on production. Less developed countries want foreign investment to stimulate growth. If any of these corporations were to withdraw, both jobs and capital exposure will be lost. Growth will slow down. When growth slows down, economical development seems unlikely.

Countries such as India and China have a great system for exportation. Manufactured goods are produced at a much lesser cost and sold to the rest of the world at a competitive price. Companies like Wal-Mart are able to have goods made in China, then shipped to the United States. This system has brought an immense accumulation of GDP growth for both countries, and has lowered unemployment rates. China's unemployment rate has seen an obvious decrease over the years. Accoring to statistics from Index Mundi, in 2004 the unemployment rate was above 10%. The latest data for 2009 shows a rate of 4%. India has seen a more gradual pattern in the decline for unemployment. In 2004 the rate stood at 9%, and by 2009 it declined to 7%. This decline in unemployment is a part of growth that is occurring consistently. More jobs are available. This is a good indication that companies are doing better. When companies are doing better, related industries are flourishing. As the industry progresses, national growth accumulates. This leads to further economic development.

China's Nominal GDP increases in value as time progresses. Statistics from IIASA show that in terms of real GDP growth, there has been much volatility before the year 2000. When China decided to be more involved in trade, there was major improvement in growth. Trade plays a heavy role because of jobs being created in specific industries. These jobs are allocated towards the goods and services that bring GDP growth. China's involvement in trade has a positive impact on GDP. After the millennium, we notice a major increase in both imports and exports. China sets an example in creating growth through trade. There is correlation between the country's heavy engagement towards trading and the frequent rise in GDP. This correlation can be noticed from the increase in transit between imports and exports after the year 2000. This growth has been directly contributing towards development. The long-run initiative of development has helped raise standards for the nation.

China has seen tremendous improvement in GDP. With that, the country has also seen large reductions in population under the poverty line. The population under the poverty line was 30% in 1978, now the statistic has been reduced to 8%. As time progressed, much higher proportion of the population has been able to afford a decent living. Many new jobs have been created through trade, this led to better opportunities for citizens . As more manufacturing plants open, we find greater employment options. This consistent growth helps the country's expansion in to further development.

There are cases when trade has not been successful in establishing this development. Many countries in the African continent are an example of this. Many of the lesser developed countries have high poverty levels combined with a corrupt democratic system. This causes a lack of confidence in investors, growth is slowed down. Thus economic development is held back. Less developed countries do not achieve their long term goals.

Pakistan's agro-food industry is in a poor position. There are widened concerns across borders about food safety, plant and animal health. This is the cause of poor trade relations, where other countries don't want imports that are of poor quality. Trade requires empathy towards the interests of other nations. Otherwise, countries won't engage in trade because of the lack of trust. Political corruption that exists in the Pakistani government gets in the way of sound, ethical trading decisions. This proves a very valuable point. Trade alone cannot act as an engine for all countries. Other factors have to be controlled as well. In Pakistan's case, its required that the country maintains better quality standards in all of its exports. To create awareness about ethics in trading relations and politics. This will help brand a better image for Pakistan. These initiatives will produce better trading results. Investors will invest capital, which will create new employment opportunities. Since more jobs will open up, GDP will rise. This would indicate growth in the economy. Growth will consistently contribute towards economic development.

Sub-Saharan region of Africa is known to export minerals. As trade increases, there is discouraged investment due to market imperfections. The market is highly volatile. The lack of investment leads to a decline in output growth. There are also concerns if the region is capable of creating long-term growth. Without growth, development won't occur. This will keep the region in the same or worse position in the long-run. The Sub-Saharan trade also has concerns for a lack of transparency and poor policy-making. This causes efficiency to decline, since trading decisions take too long to implement. Experts have mentioned there should be a pro-active approach for transparency in the system. Meaning, regulators are not hiding information. Investors will gain confidence, which will further development in foreign capital. When there is more capital, more factories and machinery will be available. These assets require maintenance through skilled workers. When more labour is required, demand for jobs is higher. More workers are trained. This causes growth in GDP, which leads to growth in the economy. With growth, the country can envision economical development. This will lead to better stability at the macro-economic level.

There isn't any indication that trade, on its own, can be an engine to drive economic development. There are many other factors that need to be considered along with trade. Pakistan needs a better system for food and health inspection. The Sub-Saharan African region requires further stability through creating better policies and promoting transparency. Every country has unique flaws. These flaws need to be fixed in a way that can benefit trade. Once these flaws are fixed, patience and consistency is required for better results. Through consistent growth, development is possible.

China has proven itself to be successful in economic development, which was achieved through growth. This growth was channelled through trade. Along with these benefits came negative externalities. Problems that are costly to the community. The factories built by overseas companies help make China one of the most polluted countries in the world. 16 out of the 20 most polluted cities in the world are found in China. The negative effects on the quality of water, air and land leads to an unhealthy atmosphere for most Chinese people. Thus driving down the average life expectancy for the community. These consequences require a cost-benefit analysis. Comparing negative externalities of pollution to the benefits from trade. Trade has also removed many jobs from certain countries. Many blue collared workers have seen their jobs shipped overseas. A country like Pakistan is not going to find similar results from trade like China did. Research will be needed to find other routes towards economic development. There is no reason to find trade to be the sole cause for economic development. The extent to which this is true is clear when studying the negative impacts. Policies need to be developed to uniquely suit the needs for each country, while maintaining a balance from other sources of economic growth.

Written by Basim Mirza

Sources Used

Index Mundi, Unemployment

[Available Online: http://www.indexmundi.com/china/unemployment_rate.html]

IIASA, Essential Data: China

[Available Online: http://www.iiasa.ac.at/Research/SRD/data/fig_gdp_1.htm]

National Bureau of Statistics (China), Poverty Statistics in China

[http://www.nscb.gov.ph/poverty/conference/papers/

4_poverty statistics in china.pdf]

Abdullahi, A. D., Suradi, S. (2009). Macroeconomic Volatility, Trade and Financial Liberization in Africa.World Development, 37(10), 1623-1636.

Masakure, O., Henson, S., Cranfield, J. (2009). Standards and export performance in developing countries: Evidence from Pakistan. Journal of Trade and Economic Development, 18(3), 396-397.

Asia News, China: "the factory of the world" is the most polluted country.

[Available Online: http://www.asianews.it/index.php?l=en&art=3568]

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