LESSON 9: TRADE AND DEVELOPMENT
Key Concepts
In this lesson we will focus on summarising what you need to know about:
International trade and world markets: commodities traded, terms of trade
Types of trading relationships including free trade, trade barriers, subsidies and fair trade.
The concept of globalisation and its impact on development.
Export-led development
Terminology
Trade: The exchange of goods, services, capital, labour and information between
two parties.
Barter: To exchange goods for other goods, rather than selling them for money.
International trade: The exchange of goods, services, capital, labour and information between
countries.
Balance of Trade: The relationship between the value of a country’s exports and its imports.
Market: The place where goods and services are bought and sold.
Commodities: The items (goods and services) that countries trade. Anything sold in large
quantities.
Free Trade: Trade that occurs without any restrictions.
Tariffs: A type of tax placed on imported goods, which makes these goods more
expensive than the local product.
Customs: Taxes paid on importing and/or exporting goods.
Quota: A limit to the amount of imported goods that may enter a country during a
fixed period of time.
Subsidy: A form of financial assistance paid by government to an industry or
economic sector.
Fair trade: Trade that supports farmers in developing countries by paying fair prices
and encouraging social and environmental development in their
communities.
Globalisation: A process that leads to an integrated global economy and society.
Multinational A company that owns or controls production facilities in more than one
Corporation (MNC): country.
Outsourcing: Having components made or assembled in a country other than where the
headquarters of a company is based.
Sweatshops: Workshop or factory where people work long hours in poor conditions for low
pay, often making illegal or counterfeit goods.
Export- led An economic strategy used by developing nations to “catch up” to developed
development: nations through increasing wealth by increasing exports.
X-planation
Trade
Trade can be described as the transfer of ownership of goods and services from one person or entity
to another. In its simplest form trade is a process where people or entities barter – one side provides
goods or services, while the other side pays with money, goods or services.
International Trade
International Trade involves the movement of goods and services across borders between countries.
Trade between two countries is called bilateral trade, while trade between more than two countries is
referred to as multinational trade.
Commodities
Commodities are items that countries trade. They can either be raw materials or finished products
LEDC’s export mainly raw materials and unfinished goods, so their share of global trade is very small.
LEDCs also earn less for their exports than MEDCs, because processed commodities fetch higher
prices than raw materials do.
Terms of Trade
Terms of trade is a term used by economists to describe the relationship between the prices a country
sells its exports for and the prices it pays for its imports. It makes economic sense to try and get more
for what you sell, and pay less for what you buy.
Balance of Trade
The balance of trade is another important term to understand. It is the relationship between the value
of a country’s exports and it imports. It can either be positive or negative.
NEGATIVE BALANCE OF TRADE = imports are greater than exports
POSITIVE BALANCE OF TRADE = exports are greater than imports
Trade Relationships
Trade
Relationships
Trade
Free Trade Fair Trade
Barriers
Free Trade
Is trade that occurs without any restrictions. When there is free trade, nations open their borders to
one another, and goods and services move freely between them. There are no tariffs or customs
duties that might increase the process. Free trade is meant to benefit all trading partners.
Trade Barriers
This occurs in order to protect local manufacturers; governments might introduce measures to make
imported goods more expensive. These include:
Import tariffs and taxes (taxes placed on imported goods making them more expensive
than local goods)
Subsidies for local industries (a subsidy is financial assistance paid to a business to help
support that business, to create employment, stimulate business and reduce imports)
Quotas (limits that governments set to the amount of imported goods that can enter a country
within a particular time frame)
Trade barriers are also used in order to protect jobs in a country, protect local products from foreign
competition and to encourage local industries.
Fair Trade
Trade that supports farmers in developing countries by paying fair prices, workers enjoy better
working conditions and are not exploited. This type of trade is closely linked to sustainable
development. Fair trade organisations also improve infrastructure and social development (education
and training) in developing countries.
“Goods marked with this Fair Trade logo guarantee disadvantaged farmers in the developing world
get a better deal”
Globalisation
Globalisation is a process whereby the increased flow of goods, services, capital, technology, ideas,
information and people between countries leads to an integrated global economy and society.
Globalisation has resulted in some brands spreading across the globe.
Globalisation & Development
Globalisation impacts development in seven different ways:
Communication
Global
Trade
Governance
Globalisation
impacts
development in
seven different
ways:
Migration Open Borders
Ecnomic Multinational
Growth Corporations
1. Trade - it is now easier to trade and exchange goods.
2. Communication - countries are better linked therefore can share knowledge.
3. Global Governance - international community is trying to regulate global economic activities
and minimise environmental damage.
4. Open Borders - borders are becoming less important as freer movement of people, goods
and ideas occurs.
5. Multinational Corporations - control world resources and operate globally.
6. Economic Growth - stimulated production, trade and economic growth.
7. Migration - more people move within their countries and across borders.
Export-Led Development
Export-led development is an economic strategy used by developing nations to “catch-up” to
developed nations. Their aim is to increase wealth (development) by increasing exports through:
Investing in industry, manufacturing and education in order to create specialised export
products, and then
Re-investing the money earned in social and physical structure
Countries such as Honk Kong, Singapore, Taiwan and South Korea have become more developed by
using this approach.
X-ample Questions
Question 1
1.1 What is free trade?
1.2 What are trade barriers? Why are trade barriers necessary for protecting employment?
1.3 What do you understand by the term “exploitation”?
1.4 In what ways do subsidies, benefit activities or industries?
1.5 Provide one South African example of company that benefit from subsidies. How does it benefit?
1.6 What is fair trade and how does it benefit the people in the production line?
Question 2
Refer to the table below showing some of South Africa’s trading partners and answer the questions
that follow:
EXPORTS(% of total exports) IMPORTS(% of total imports)
CHINA 11% 14%
UNITED KINGDOM 5% 4%
SAUDI ARABIA - 4%
2.1 According to the information which country is South Africa’s largest international trading
partner?
2.2 Suggest a commodity South Africa would export to China.
2.3 Name the most likely commodity South Africa would import from Saudi Arabia.
2.4 If the Chinese economy was to experience difficulties and enter recession, predict how this
would affect development in South Africa.
2.5 Is South Africa’s balance of trade with these countries positive or negative?
2.5.1 China
2.5.2 United Kingdom
2.6 China has developed rapidly following an export-led model of development. Explain what this
means, as well as critically examining advantages and disadvantages of this path.
Question 3
Tata is a large motor vehicle manufacturer with its head office in India. The company expanded its
truck assembly chain by opening a factory in Rosslyn near Pretoria in July 2011.
3.1 Name a product manufactured by the Tata Company.
3.2 In which country did the Tata Company originate?
3.3 How can the Tata Company benefit by opening a branch in South Africa?
3.4 Explain why Tata may be regarded as a multinational corporation.
3.5 List some benefits for South Africa of having multinational corporations like Tata opening
factories in the country.
3.6 Suggest reasons why some people are opposed to the presence of MNCs in South Africa.
Question 4
The value of imports and exports for selected countries 2010.
Imports Exports Imports Export Imports Export
Group A $US $US Group B $US s $US Group C $US s $US
billion Billion billion Billion billion Billion
USA 1939,00 1289,00 New 30,24 33,24 Mauritius 3,94 2,04
Zealand
China 1327,00 1581,00 Banglades 21,34 16,24 Armenia 2,99 0,85
h
Germany 1099,00 1303,00 Croatia 20,93 11,51 Lesotho 1,77 0,99
Japan 639,10 756,20 Jordan 12,97 7,33 Belize 0,74 0,40
France 590,20 517,30 Republic of 3,61 9,20 Burundi 0,34 0,07
Congo
4.1 Which country in the table earned the most from exports?
4.2 Which country earned the least from exports?
4.3 Which country in the table spent the most on imports?
4.4 How many countries earned more from exports than they spent on imports?
4.5.1 Use an atlas to locate all these countries on a world map. How many of the countries
shown are landlocked (completely surrounded by land, having no access to an
ocean)?
4.5.2 From the countries shown in the table, would it be fair to say that landlocked countries
have lower volumes of trade than countries with access to an ocean?
4.6 Using trade as the only criterion choose the most developed country from each group shown
on the table.
X-ercise Questions
Question 1
(Adapted from Gr 11 Exemplar 2013, DBE, Paper 1, Question 3.6)
Refer to the cartoon in FIGURE 1 showing trade and answer the questions that follow.
FIGURE 1: TRADE
1.1 Is the man with the cigar promoting free trade? (1 x 2) (2)
1.2 Give ONE reason for your answer to QUESTION 1.1. (1 x 2) (2)
1.3 Who in the cartoon represents the following:
(a) More economically developed countries (1 x 2) (2)
(b) Less economically developed countries (1 x 2) (2)
1.4 Give TWO regulations used to prevent free trade. (2 x 2) (4)
1.5 Explain why free trade is to the advantage of less economically
developed countries. (3 x 2) (6)
Solutions to X-ercise Questions
Question 1
(Adapted from Gr 11 Exemplar 2013, DBE, Paper 1, Question 3.6)
1.1 No (2) 1x2 (2)
1.2 A condition is attached to his assistance (2) 1x2 (2)
1.3 MEDC - Man with cigar/fat man/well-dressed man (2)
LEDC – Thin man/poorly dressed man/man with dog (2) 2x2 (4)
1.4 Tariffs (2)
Import licenses (2)
Export licenses (2)
Import quotas (2)
Subsidies (2)
Local content requirements (2)
Embargoes (2)
Trade restrictions (2)
1.5 Trade of goods without taxes (including tariffs) or other trade barriers (e.g. quotas on imports
or subsidies for producers) (2)
Trade in services without taxes or other trade barriers (2)
The absence of trade-distorting policies (such as taxes, subsidies, regulations, or laws) that
give some firms an advantage over others (2)
Free access to markets (2)
Free access to market information (2)
Inability of firms to distort markets through government-imposed monopoly power (2)
