To what extent does trade help reduce development disparities? The Republic of Malawi in the southeast of Africa is a landlocked country in which 85% of the people are employed in agriculture. About 90% of all farmers are smallholder farmers that suffer from low income and underdeveloped techniques. This is just one example of underdeveloped countries all over the world. The question is simple: How can these LEDCs develop? One approach of reducing development disparities is the mean of trade – the business of buying and selling commodities either within a country or between several countries.
Several countries have already initiated techniques to help LEDCs develop. China for examples encourages Chinese firmst to invest in poorer nations and opens ist own markets to imports from underdeveloped countries. This global foreign investment is a great opportunity to create development opportunities for LEDCs, especially because China itself has just had an extreme financial rise so that it is able to help others now. However, critics may think that China – by opening up its markets – rather sees its own benefit, as it secures raw materials and markets for Chinese manufactured goods.
Furthermore, China gets richer and its global importance raises drastically. Experts expect it to overtake Japan’s economy soon. Very different to this rather unfair approach of reducing development disparities due to trade is established by the FAIRTRADE foundation. This development organisation helps countries in the developing world to improve several different aspects such as sustainable prices for products that never fall under the market price, decent working conditions or fair terms of trade.
To achieve this, specific FAIRTRADE certification and product labelling was developed called the FAIRTRADE mark – an independet consumer label. Things like the FAIRTRADE minimum price, which means that a buyer has to pay a certain price that is fair to the producer or FAIRTRADE premium, which means that the money payed on top of the minimum prize is spent on social, environmental and economic development projects. Neither pretending to help nor really trying hard to boost LEDC’s economy, he three nations USA, Canada and Mexico agreed on the „North American Free Trade Agreement which was set up in January 1994. The „Theory of Comparative Advantage“ shows the intention of this association of nations: As they were all economically challenged by western Europe and Asia and as the completion of internal market of the EU harmed their economy, it is obvious that with an elimination of trade barriers due to the NAFTA, these countries would all benefit from it in their economic situation.
The aim the NAFTA is to eliminate trade barriers, promote economic competition, increase investment opportunities and improve cooperation between the USA, Canada and Mexico. Acualizing these aims will have several impacts on the world’s economy. One example therefore ist he potential wage and benefir reduction in the US due to Mexico’s membership. Also, Mexico would have to adopt higher foreign standards and poor Mexican farmers have now to compete with large-scale, high-tech US- or Canadian farmers. These are just some examples of the impact that the free trade treaty has on its members.
Although the idea of free trade troughout nations seems auspicious, it clearly has its weaknesses as well. Concluding, the NAFTA has a good approach which however is not helping LEDCs develop further and rather makes it difficult for – in this case – Mexico to keep up with its partner-trading-nations USA and Canada. Governments from developed countries try to make LEDCs help themselves by researching and setting up various organisations in order to make trade easier. One example of this so-called „top-down approach“ is provided for farmers in Malawi.
The aim of government-led projects is to allow african farmers being self-sufficient and develop their own business with enough income. A peanut farmer in Malawi is now – due to the support of the British government – able to sell his peanuts to big oversea markets. As it is difficult for little farmers to access those big markets, buying centres were build by the foreign government in order to allow the farmers easier access. Some farmers then use their income to open bank accounts, start new businesses and put their children through secondary school.
In this process, they break out of the „vicious circle“ of poverty. Critics still see problems in this government-led approach as farmers are not concious about being helped to a great extent. In the project of for example Malawi, the British government gets highly involved in the economy of a country which often is seen from a negative angle by the population as they would like to manage their economic structures on their own. However, this „bottom-up“ approach to less economically developed countries by its own population is standing in great contrast to the government-led approach.
As certain people of the country would have to mobilise its people and due to lack of financial support, often resignation by the population limits the development of a country. Several very different approaches towards reducing development disparities were made by governments and foundations. These can be easily contrasted: They are either initiated by a country or nation so as to extract the countries benefits out of trade or in order to help and support another country in its development by providing aid for it – this government-lead approach is called „top-down“.
The contrast to this approach is called „bottom-up“ and is lead by a countries‘ own population which is a rather difficult process. Generally, trade is a very good way of linking a nation’s economy, as mostly contracts between countries are established so that both parties benefit from the business. This means that LEDCs can develop and change their status to MEDCs. However, as it is in the nature of the human species to always be best and leading, LEDCs must be very cautious not to get exploitet by economically powerful nations such as China.
