Trade Tour - Lusaka Railway [ Biz/ed Virtual Developing Country ]


Lusaka Railway

An Introduction to International Trade

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Trading enables us to enjoy a wider variety of goods and services than we otherwise would. Countries specialise in the production of goods and services where they hold some advantage- what economists call an absolute or comparative advantage. By specialising and trading surpluses with other countries, in theory the world gains.

Impact of Copper Production
Copper Production

The economy of Zambia has always been reliant on the production and trade in copper. As a British colony its purpose was to provide copper for the markets of industrialising United Kingdom and the rest of Europe. Today like many Less Developed Countries (LDCs) it exports predominantly primary commodities and imports manufactured goods. Under the government of Kenneth Kaunda the country adopted an inward oriented trade policy aiming for self-sufficiency in agricultural goods and important substitution.

Since Frederick Chiluba has been in power the government has followed a more outward oriented trade policy liberalising trade and removing exchange controls and allowing the exchange rate to be determined freely by market forces. However this leaves the economy susceptible to the effects of uncontrolled capital flows. Foreign investors may grow concerned about the current account deficit or an overvalued exchange rate, or capital inflows may be interrupted by extraneous events. Interest rates then rise leading to a slowdown in the economy.

Like many LDCs the balance of trade and the balance of payments of Zambia have regularly been in deficit and as a consequence the Central Bank of Zambia has on behalf of the government, had to borrow from the International Monetary Fund and other multilateral agencies. The intention of liberalising trade and freeing the exchange rate was to attempt to deal with its balance of payments deficits. How successful has this outward oriented approach been to Zambia's trading position?

As with many countries, in an attempt to develop trade, it has formed a number of trading agreements between neighbouring countries. One of these, COMESA based in Lusaka, is a trading bloc that has as its goal being a common market.

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Related Glossary Items:
Inward Oriented Development
Outward Oriented Development
Comparative Advantage
Absolute Advantage
Exchange Control
Primary Products
Balance of Payments
IMF

Related Issues:
Zambia's Exports and Imports
Zambia's Balance of Payments Situation

Related Theories:
The Benefits of Trade
The Principle of Absolute and Comparative Advantage
Introduction to Exchange Rates