Aid, Trade and Development - Worksheet - Trade Policy [ Biz/ed Virtual Developing Country ]

Introduction

At the start of the 21st century trade does not seem to be helping some of the world's poorest countries to escape from poverty. International trade has encouraged specialisation of labour and production which has kept many countries as producers of primary products and prevented them from diversifying their economies. Although trade has helped to reduce malnutrition and poverty in South-East Asia, it has done little to help most of sub-Saharan Africa. While the advocates of free trade see it as the engine of growth, there is a considerable body of opinion which considers that trade liberalisation and the rules of international trade are having a detrimental impact on many of the world's poor. Interest has grown in ethical or fair trade whereby producers in developing countries are guaranteed a price for their produce that gives them a decent return.

Aid, too, can in principle enhance countries' competitiveness and provide growth, by using development assistance to improve infrastructure and develop human capital through public health or educational spending.

Step 1

1. Explain what is meant by the liberalisation of trade. You may find the issues raised in the trade tour helpful for this.

2. Explain what is meant by the terms of trade, how are they affected by elasticities? You may find the theories section in the trade tour helpful for this.

3. Explain what is meant by Official Development Assistance. You may find the theories section in the aid tour helpful for this.

4. Explain what is meant by Fairtrade. You may find the Fairtrade section in Current Topics helpful for this.

Step 2

1. Using the data in the resources section produce bar graphs showing the Current Account on the Balance of Payments for Zambia since 1990 with and without current transfers of Official Development Assistance (ODA).

2. What conclusions can you draw from this?

Step 3

Work through the COMESA section on the Trade tour and then explain how Zambia's economy has been affected by:

1. Changes in its terms of trade.

2. Agricultural support schemes in developed countries.

3. Reduction in its own external tariff barriers.

Step 4

Work through the COMESA section on the Trade tour.

1. Identify three arguments in favour of protectionism for developing countries like Zambia.

Step 5

Work through the theories section on the Aid Tour.

1. Identify three reasons why overseas development assistance has not been effective in promoting economic development in Zambia.

Step 6

Both trade and aid might in principle contribute to economic growth and development, but they need not do so in the same way or to the same extent. While it is argued that trade can never help a developing country as much as the same amount of aid, as aid to Africa has grown, the continent has actually become poorer rather than better off.

Consider the following question and prepare a list of bullet points for arguments for each side.

'Should the developed world focus on enabling trade or donating aid as a way to help the developing world?'

What would be a balanced conclusion to this debate?