Reasons why most developing countries have not realized the full benefits from international trade

  • Impact of economic integration – Loss of tax revenue to governments initially in form of import duties.
  • The infant industry argument – dumping of foreign goods tends to reduce the industrial development potential in the country of destination.
  • Similarity of products – reduces comparative advantage as specialization chances are minimal and less rewarding in foreign exchange.
  • Existence of trade restrictions – perhaps the most prevalent aspect of international trade; such restrictions take different forms eg. tariffs and quotas, which restrict the free flow of goods and services in the global market.
  • Differences in the levels of economic development – to survive and cut oneself an international competitive trade image/performance, a country needs to have a high productive capacity (with high product quality standards) based on advanced and appropriate state of technology ( eg exports should be processed and done to meet international specifications). This is what is lacking in most developing countries, such that we have trade between unequals.
  • Minimal trade promotions – most developing countries have yet or have established less impacting export promotions in the global market; effective institutions have not been established abroad to make it known what is available in the export mix of developing countries etc.
  • Political atmosphere – the political atmosphere in most developing countries is that of instability, which discourages productive investment; both existing and potential investors have become extra cautious and most often exercise a less than maximum portfolio selection. To invest in an export oriented venture requires large capital provision and this is what insecurity is discouraging in most developing countries

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