Required Reading There is a complex relation between trade and development in low-income countries. Naim argues that, throughout the 1990s, the hopes for better economic future of the Latin America were inspired by the Free Trade Area of the Americas, but at present there is a strong anti-American sentiment and thus the extent of trade with the USA has decreased (89-90). The author claims that poor educational systems and low technology make the Latin America unable to compete on the international market (92). As a result of its unfavorable position in modern hyper-competitive economy, the Latin America today suffers from slow economic growth and unemployment. Knudson points out that international companies like Starbucks claim to follow fair trade principles, whereby the supply chain is decreased to the minimum to raise the income of farmers in developing countries (94). Thus, liberalization of coffee trade in Ethiopia is presented to have a positive impact on social justice. However, there are still problems with low wages of workers and ecology of Ethiopia. Therefore, in the long run, the impact of trade on the economic development on poor countries can be ambiguous. Gavin observes that Sub-Saharan Africa is now experiencing a youth bulge that has reshaped the demographics of the region (29). He emphasizes that failure to integrate the youth into the society can lead to the rise of civil conflicts and warfare, which will have a negative impact on trade and thus on the economic development as such (30).
There are conflicting views on the relation between trade and economic development, particularly in poor countries. Bardhan argues that opening of trade has a substantial positive effect on the quality of political institutions by decreasing corruption levels and nudging countries to institutional reforms (16). Also, there is evidence that trade-driven competition helps to decentralize corporate hierarchies (17). However, the empirical analysis of Abdulai and Ramcke suggests that the positive effect of trade on sustainable development is only limited to high-income countries, while it is detrimental to the development of low-income countries due to high turning point costs, associated with energy consumption and ecology (15). These findings resonate with the observation of Knudson that trade liberalization entails major impairments in ecology and thus can badly affect sustainable growth.
There is no consensus on the nature and extent of the impact of trade on economic development. While it is often theorized that trade liberalization can strengthen government institutions and lead to political reforms, empirical research suggests that the negative effects of trade can outweigh its benefits for low-income countries with unstable institutions. Therefore, trade can have different implications based on the pattern of market competition and the political situation in the country.
- Abdulai, Awudu, and Linda Ramcke. The impact of trade and economic growth on the environment: revisiting the cross-country evidence. Kiel Working Paper No. 1491. March 2009. Web. 23 Feb. 2015. https://www.ifw-members.ifw-kiel.de
- Bardhan, Pranab. Institutions, trade and development. Berkeley. Web. 23 Feb. 2015. http://eml.berkeley.edu
- Gavin, Michelle. Africa’s restless youth. Article 7, 29-34. Print.
- Knudson, Tom. Promises and poverty. Article 21, 93-98. Print.
- Naim, Moises. The lost continent. Article 20, 89-92. Print.