Trade and Development

By | 22 May 2013

International trade and world markets:

Commodities traded:

Commodity market refers to physical or virtual transactions of buying and selling involving raw or primary commodities.

A soft commodity generally refers to commodities harvested as products like wheat, coffee, cocoa, sugar, corn, wheat, soybean and fruit traded in the commodity market.

Hard commodities usually refer to commodities that are extracted such as (gold, rubber, oil).

While commodities may be grouped for regulation purposes etc., in large classes such as energy, agricultural including livestock, precious metals, industrial metals, other commodity markets, these are broken down into about a hundred primary commodities (soybean oil, recycled steel).

Investors access about 50 major commodity markets worldwide uses growing numbers of exchanges with virtual transactions increasingly replacing physical trades.


Terms of trade:

In international economics and international trade, terms of trade or TOT is (Price of exportable goods)/(Price of importable goods).

In layman’s terms it means what quantity of imports can be purchased through the sale of a fixed quantity of exports.

An improvement in a nation’s terms of trade (the increase of the ratio) is good for that country in the sense that it can buy more imports for any given level of exports.

The terms of trade is influenced by the exchange rate because a rise in the value of a country’s currency lowers the domestic prices for its imports but does not directly affect the commodities it produces (i.e. its exports).



get your own [ for free ]

Types of trading relationships, including:

Free trade

Free trade is a policy by which a government does not discriminate against imports or interfere with exports by applying tariffs (to imports) or subsidies (to exports) or quotas.

According to the law of comparative advantage, the policy permits trading partners mutual gains from trade of goods and services.

Under a free trade policy, prices emerge from the equilibration of supply and demand, and are the sole determinant of resource allocation.

‘Free’ trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from those that would emerge under deregulation. These governed prices are the result of government intervention in the market through price adjustments or supply restrictions, including protectionist policies. Such government interventions can increase as well as decrease the cost of goods and services to both consumers and producers.

Since the mid-20th century, nations have increasingly reduced tariff barriers and currency restrictions on international trade. Other barriers, however, that may be equally effective in hindering trade include import quotas, taxes, and diverse means of subsidizing domestic industries. Interventions include subsidies, taxes and tariffs, non-tariff barriers, such as regulatory legislation and import quotas, and even inter-government managed trade agreements such as the North American Free Trade Agreement (NAFTA) and Central America Free Trade Agreement (CAFTA) (contrary to their formal titles) and any governmental market intervention resulting in artificial prices


Trade barriers

Trade barriers are government-induced restrictions on international trade.

Most trade barriers work on the same principle: the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results.

Economists generally agree that trade barriers are detrimental and decrease overall economic efficiency, this can be explained by the theory of comparative advantage. In theory, free trade involves the removal of all such barriers, except perhaps those considered necessary for health or national security. In practice, however, even those countries promoting free trade heavily subsidize certain industries, such as agriculture and steel.

Trade barriers are often criticized for the effect they have on the developing world.

Because rich-country players call most of the shots and set trade policies, goods such as crops that developing countries are best at producing still face high barriers. Trade barriers such as taxes on food imports or subsidies for farmers in developed economies lead to overproduction and dumping on world markets, thus lowering prices and hurting poor-country farmers.

Tariffs also tend to be anti-poor, with low rates for raw commodities and high rates for labour-intensive processed goods. The Commitment to Development Index measures the effect that rich country trade policies actually have on the developing world.

Another negative aspect of trade barriers is that it would cause a limited choice of products and would therefore force customers to pay higher prices and accept inferior quality.



A subsidy is a grant or other financial assistance given by one party for the support or development of another.

Subsidy has been used by economists with different meanings and connotations in different contexts.

The most common definition of a subsidy refers to a payment made by the government to a producer.

Subsidies can be:
direct – cash grants, interest-free loans, or
indirect – tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebates. This form of support can be legal, illegal, ethical or unethical.

Subsidies are used for a variety of purposes, including employment, production and exports.

Subsidies are often regarded as a form of protectionism or trade barrier by making domestic goods and services artificially competitive against imports. Subsidies may distort markets, and can impose large economic costs.

Financial assistance in the form of a subsidy may come from one’s government, but the term subsidy may also refer to assistance granted by others, such as individuals or non-governmental institutions.


Fair trade

Fair trade is an organized social movement that aims to help producers in developing countries to make better trading conditions and promote sustainability.

It advocates the payment of a higher price to exporters as well as higher social and environmental standards.

It focuses in particular on exports from developing countries to developed countries, most notably handicrafts, coffee, cocoa, sugar, tea, bananas, honey, cotton, wine, fresh fruit, chocolate, flowers, and gold.

There are several recognized Fairtrade certifiers:
Fairtrade International (formerly called FLO/Fairtrade Labelling Organizations International), IMO and Eco-Social
Fair Trade USA (

Fairtrade branding has extended beyond food and fibre, a development that has been particularly vibrant in the UK where there are 500 Fairtrade Towns, 118 Fairtrade universities, over 6,000 Fairtrade churches, and over 4,000 UK schools registered in the Fairtrade Schools Scheme.

Although no universally accepted definition of ‘fair trade’ exists,  fair trade is a trading partnership, based on dialogue, transparency, and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the South. Fair trade organizations, backed by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade.


The concept of globalisation and its impact on development:

Globalisation: What does it really mean?

An Overview of Globalisation

Pros and Cons of Globalisation

Globalisation-good or bad?

Globalisation and the Environment

BBC Hard Talk – Discussion on effect of globalisation on developing nations (try remain calm while watching this)

Documentary on Globalisation and International Business

Export-led development

Export-led development, development that focuses on attracting and nurturing export industries.


  1. Poverty and Deforestation: Consequences of Export-led Development: A Philippines Case Study
  2. China’s export-led growth model
  3. The China Bubble: An Export-Led Development Model
  4. Is Asia’s export-led model a goner?
  5. Is Chile’s Economy too Reliant on Copper Exports?