ECONOMICS

Role of Trade in Economic Development

Role of Trade in Economic Development

Increase trade (exports) expansion of production and employments

There is a massive role of Exports in the expansion of Production and Employments. Many countries are prospering with the increased exports. When countries are having a high export rate they seem to be producing more as well as there is an increase in the foreign exchange.

With increase in Foreign Exchange, countries look to produce more as their products are in high demand globally. The increased exports not only result in a higher Gross Domestic Product but the employment rate also increases. In order to meet the growing standard of production, there is a surge in the employment. Countries with higher exports not only enjoy a higher Gross Domestic Product but also the employment rate increases which enhances the economy immensely.

Developing Countries are BOP constrained

The problem of Balance of Payments, in developing countries is attributed to a variety of factors. First of all Central banks do not encourage holding currencies of developing countries as reserves. The reason for this habit is that the government and private banks do not convert these currencies into gold and into other international reserve assets (Grullon, 2011).

Only convertible foreign currencies are converted into foreign exchange reserves. Developing countries have been guilty of excessive borrowing to finance their current account deficit. Since their export is very low, it's not in the best of their interests to borrow at a rapid pace. They need to increase their exports for meeting the discrepancy. The internal constraints often do not allow the developing countries to make efficient utilization of the borrowed money (Cimoli & Porciel, 2011).

Trade contribute to decreasing TOT in developing country

There has been a massive influence of foreign trade on export and import prices. The export and import prices are considered important determinants of prosperity for an economy (Reinsdorf, 2009). With the increase in foreign trade, the terms of trade or the difference between Gross Domestic Income and Gross Domestic Product gets highlighted easily. If a country is having an increased foreign trade, there would be huge decline in the ratio of import and export prices (Anon, 2012).

Primary Sector in context of Developed countries

The primary sector of an economy is the sector that makes direct use of natural resources. Agriculture, Fishing, extraction of oil and gas are typical examples of primary sector ...