Tuesday, December 4, 2012

International Trade - a failed engine of growth for India and Africa

This is a question that was asked in a competitive exam here in India, and I am attempting the answer in 5 minutes flat. So do pardon analytical/grammatical inconsistencies.

International trade, as it exists today, can be said to have failed in acting as a so called engine of growth in countries like India or the African nations i.e. third world countries. This is because:

1. These countries are rich in natural resources. Thus their exports largely consists of minerals, metals and raw material. In turn their imports consist of technological goods, capital goods and machinery. This induces a technological dependence on developed nations, thus hampering the growth of a knowledge intensive economy in these countries.

2. The manufacturing technology these countries possess is no match for the technical advances of OECD or the developed nations.In the era of free trade, this situation thus puts these countries at an inherent disadvantage and makes it harder for their firms and manufacturing units to survive in the international arena.

3. Post-WTO, it is not even possible for such countries to protect state or domestic industries for fear of being branded a protectionist and subsequent boycott.

4. These countries, many a times, have to take loans from international financial institutions to meet trade related obligations, whose conditions are stringent and places further economic burden on these nations.

5. Many of these countries are agrarian in nature with very less manufacturing capacity. This means their trade balance is generally negative, resulting in large accumulated deficit over years, putting them at a disadvantage in terms of development.

6. Finally, development and economic growth depend largely on changing progressive societal values in these countries. Free trade and globalization have not resulted in social mobilization in many countries. Until such mobilization takes place, no growth can be truly achieved.

Thus, it can be said that International trade, as it exists, has not really acted as an engine of growth in these countries.

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