Trade - Worksheet - Trade Policy [ Biz/ed Virtual Developing Country ]

Introduction

After Independence the Government of Kenneth Kaunda adopted an inward oriented strategy of import substitution and self sufficiency. In 1991 when Frederick Chiluba came to power a more outward oriented approach was followed that looked to liberalise trade and encourage inward foreign direct investment.

Step 1

1. Explain what is meant by an outward oriented and an inward oriented trade policy. Write down the characteristics of each trade policy. You may find the section on Zambia's trade policy on the trade tour and the glossary helpful for this.

2. For each policy prepare write a brief paragraph supporting an inward oriented approach and an outward oriented approach.

Step 2

The General Agreement of Tariffs and Trade (GATT) and the World Trade Organisation (WTO) have contributed to the freeing up of world trade. Their actions have resulted in the lowering of the level of protectionist barriers to trade in agricultural goods.

1. Why have the More Developed Countries been reluctant to lower the levels of protection on agricultural goods?

2. Visit the data on trade in the resources section and using a spreadsheet plot the amount of revenue earned from taxes on international trade. Describe any trends in the data that you find.

3. Why do you think that governments of countries such as Zambia might be reluctant to reduce the level of tariffs on imports?

4. Does the data support the idea that Zambia has reduced the level of protectionism in line with the requirements of the WTO and GATT? If not, why do you think it doesn't?

5. Plot the taxes on international trade as a % of GDP. Do these give a better picture of the protectionist policies of Zambia?

Step 3

1. Explain what is meant by a balance of payments deficit. You may find the theory section on interpreting the balance of payments or the glossary useful for this.

2. Using the balance of payments accounts found in the resources section complete the following table:

  1990 1991 1992 1993 1994 1995
Balance of trade            
Invisible balance            
Balance of Payments on current account            


Read the theory section balance of payments policies in the Trade Tour . There are two areas of policy that a country like Zambia can follow if it wants to reduce its balance of payments deficit:

  • improve the current account balance by promoting export expansion or limiting imports or both
  • improve the capital account balance by encouraging capital inflows

3. For each of these two areas of policy give three measures that might reduce a balance of payments deficit.

4. For each measure outlined give one problem that might arise from its implementation.

Step 4

1. What do you understand by the term net foreign investment?

2. Using the data from the resources section and a spreadsheet plot the data for net foreign direct investment.

3. What does it mean if the level of net foreign investment is negative?

4. Describe the changes that have occurred in net foreign investment between 1970 and 1997. (Refer in detail to the data)

5. How would you expect the net foreign investment to affect the rate of economic growth of the country?

6. Can you find any evidence to support this relationship?


The main source of foreign investment is investment carried out by multinational enterprises.

7. Give four potential advantages to the economy of Zambia associated with multinational enterprises locating in the country.

8. Give four potential disadvantages to the economy of Zambia associated with multinational enterprises locating in the country.