An Assignment On

Importance of International Trade in Developing

Countries

Course Tittle: International Trade

Course Code: ECO-311

Date of submission : 10.04.2021

Submitted to Submitted by
Shabikunnahar Bonna Kamrul Mozahid
Lecturer ID: 17122409
Department of Economics
Session : 2016-2017

Department of Economics
Jatiya Kabi Kazi Nazrul Islam University,
Trishal, Mymensingh
 Preface:
The objective of this paper is to identify the importance of international trade in
developing countries. The situation access to International Trade, Economic
Development, foreign trade, developing countries, tariffs, incentives, export,
import. While the need for rapid expansion of the export earnings of developing
countries has been recognized for accelerating their rate of economic development, the
most decisive efforts made by these countries to boost their export trade meet with
hardly any success. Though advanced countries over the past decade have reduced
quantitative import restrictions, most West European countries have yet maintained a
certain hard core of restrictions. In fact some of the highest rates in the tariff schedule
of advanced countries apply to light manufactures such as woven fabrics, jute
footwear, textiles, etc. which are of particular importance to developing countries. As,
why International trade take an important part to increase economic growth in
developing countries. In this document we will discuss about the necessity of
international trade in developing country.

Keywords: International Trade, Economic Development, foreign trade,

Economic growth, GDP, Import, Export, Tariff etc.

 Introduction:
International trade plays a significant role in economic growth of a country and in modern
 economy both international trade and economic growth are the most popular concepts.The
term international trade is used to indicate the buying and selling of goods and services
between countries for satisfying the needs of its population. International trade enables the
countries to sell their domestically produced good and services to other countries. Economic
growth helps to increase the real per capital income of a population of the country which can
be sustained over a long period of time. International trade is defined as trade between two or
more partners from different countries in the exchange of goods and services. In order to
understand International trade, we need to first know and understand what trade is, which is the
buying and selling of products between different countries. International Trade simply is
globalization of the world and enables countries to obtain products and services from other
countries effortlessly and expediently. International trade has been in existence throughout
history and has an economic impact on the participating countries. Trade in most countries has a
share of the Gross Domestic Product (GDP). So, International trade between different countries
is an important factor in raising living standards, providing employment and enabling
consumers to enjoy a greater variety of goods. International trade has occurred since the
earliest civilizations began trading, but in recent years international trade has become
increasingly important with a larger share of GDP devoted to exports and imports. So,
participation in international trade provides a variety of benefits to the developing countries.
Equally important are the roles of the regional and international specialization. Regional
specialization means that various regions or areas in a country specialize themselves in the
production of different products. International specialization means that different countries of
the world specialize in producing different goods. Factors which determine regional
specialization are more or less the same as those which determine international specialization.
A country which produces surplus of a good, i.e. produces more than its requirements, will
export it to other countries in exchange for the surplus produces of those countries. The
economic significance and benefits of foreign trade also known as international trade to the
economies of developing countries cannot be over emphasized. Its role and contributions to the
gross domestic earnings, employment generation, economic development, and poverty
reduction in these underdeveloped countries .The main aim of this paper is to examine in-depth
the contributions and relationship between international trade and economic development of
developing countries. International trade in recent decades has considerable growth and it is
evident that most conducted traded in this area is associated with monetary and financial
system and many banks and financial institutions do financing the exchange of goods and
services(Levine & Renelt, 1992). Over the past years, it has been witness gradual development
of integrated global economic system and developing of science and technology in the various
areas has followed different conditions of business in these years(Sala-i-Martin & V Artadi,
2003).

So, the importance of international trade in developing countries has been widely studied and
also examines the role of international trade in the various issues.

 Literature Review:
Numerous research has been conducted to investigate the relationship and impact of foreign
trade on the economic growth and development of various countries of the world. Some of the
conclusions of these studies revealed a significant positive relationship exists between the export
and import activities of these countries on their GDP. In 2012, Kehindeet' al adopted a rank
correlational analysis to investigate the impact of international trade on economic growth among
developed countries. The result of this study revealed a positive relationship between
international trade and the GDP of these countries.

In a study conducted by Frimpong Magnus & Oteng-Abayie, where they analyzed the long-run
effects of Foreign Direct Investment and trade on Ghana's economic growth from 1970 to 2002,
it was observed that a long term relationship exists between the determinants of economic
growth and the growth in itself. Their result showed that there is a negative relationship between
economic growth and its determinant, while there is a positive relationship between economic
growth and Foreign Direct Investment (FDI).

International trade contains efficiency and welfare achievement to all countries regardless of
their initial conditions, technological capabilities, development level, and resources endowments
(Helpman, 1987).International trade affects the economic growth of nations via the attraction of
FDI. A study found that the main boulevards through which FDI impacts positively to economic
growth are access to international market, job creation, technology transfer, capital
accumulation, marketing and managerial practices(Lall, 2003).

In 2013, Awe through her research deduced that economic growth is achieved when the real per-
capital income of a country experienced a consistent increment over a long period. It is only
when this has happened that the FDI will be considered a major driver of the experienced
growth.

In the words of Thirlwa (2000), at least 60 countries in the world are tagged as developing
countries with over 50% of these being African countries with a population of less than
15million people. In the absence of exportation in these markets, the production of commodities
would not be productive as most of the goods and services produced will be wasted due to the
absence of storage and processing facilities in these regions.

Some researchers have argued that the economic characteristics of developing economies may
preclude their inclusion in any studies of the Linder phenomenon.

So, these are some given information about literature review. Few researchers give their
feedback about international trade in developing countries.

 Objective of the Study:

The principal aim of this study is to assess the contribution and significance of foreign trade to
the economic growth and development of developing countries. Given this, this paper will also
recommend macroeconomic policies that would further promote international trade in these
countries.

There are various objectives of report, so some important objectives are as follows:

1. To understand what was the strategy taken by the developing countries for international
trade.
2. To know the role of international trade for developing countries.
3. To obtain more knowledge about the policy of developing countries to control
international trade.
4. To find out the lackings of the developing countries to maintain international trade.
5. To gather knowledge about international trade how to helpful it is.

 Methodology:
We develop a model of endogenous growth in which the use of an expanding variety of
intermediates (which can be taken to be capital also) in manufacturing can enhance growth. In
the model trade can affect growth by impacting on the number of available varieties of
intermediates. Trade can reduce growth however if comparative advantage dictates that a country
specializes in the traditional manufacturing sector.

Sources of data:

The primary source: Primary data have been collected from different policy makers from
different research instituitions.

Secondary data: Secondary data is collected through.

Books, Journals, Newsletters, Research, Report, Budget of fiscal year etc.
Annual report of Gashful.
Bangladesh economics Review.
Websites.

The major portions of data source used in this report are from secondary sources. Finally, the
collected data are classified, tabulated, analyzed, interpreted and presented in the form of report
there after.

 Developing countries’ performance with respect to SDG 17.11:

The evaluation of progress towards SDG target 17.11, to significantly increase the exports of
developing countries, and to double the LDCs’ share of global exports by 2020, requires a choice
of a baseline year. According to the IAEG-SDGs (United Nations, 2019), the default baseline
year for each indicator should be 2015. However, some exceptions may be necessary to allow a
longer review of trends.
Five years is hardly enough time to double the LDCs’ share of global exports. Therefore, for
SDG 17.11.1, an earlier baseline year is arguably more appropriate. Yet, whatever the baseline is
for the past 20 years, developing countries’ share of global exports has not increased
significantly, nor has LDCs’ share doubled. However, at a country level, performances differ and
will vary depending on the chosen baseline year (see map 1). The baseline selected for MDGs,
for instance, was 1990 – ten years before their adoption in 2000.

Data for additional years are available also. Map 1 shows developing countries’
share of global trade goods exports as well as services exports by country.
Developing economies keeping pace with world
exports:
Over the last two decades, developing economies have recorded a notable increase in their share
of world trade. Though the value of exports of goods and services from developing countries has
increased notably since 2000, since 2012 this growth has no longer outpaced the developed
world. Developing countries’ share of global exports of goods and services has risen from 29.7
per cent in 2000 to 41.4 per cent in 2012 but has stagnated ever since. If the baseline selected is
2015, there would be a 0.47 percentage point decrease by 2019. From 2010, developing
economies’ share of global trade has increased by 1.68 percentage points and, from 2005, 6.19
percentage points.

As far as exports of goods is concerned, developing economies’ share in world exports of goods
has plateaued at just above 44 per cent since 2012 (see figure 3). In 2019, developing economies’
share of world services exports (US$6.1 trillion) was 30 per cent (US$1.83 trillion). The highest
share of world services exports was recorded by developing Asia at more than 24 per cent. The
top three services exporters are China (4.6 per cent), India (3.4 per cent) and Singapore (3.5 per
cent). They account for more than 40 per cent of developing economies’ services exports.

LDCs are a small player in world trade with a 0.91 per cent share in 2019. The 2030 Agenda sets
a target to double LDCs’ share in global exports by 2020. LDCs’ share of global exports of
goods and services was 0.92 per cent in 2010, slightly above the 2019 level. Taking 2005 as the
base, their share in global trade increased by 0.23 percentage points from 0.68 per cent to 0.91 in
2019. LDCs have a long way to go before doubling their share.

In 2019, the value of merchandise exports from LDCs was US$180.9 billion, accounting for
about one per cent of world exports. Their share in world merchandise exports almost doubled
from 0.54 per cent in 2000 (US$35 billion) to over one per cent in 2011-2013 (see figure 4).
Since then, this trend has reversed slightly, and it seems unlikely that LDCs will achieve the
target in 2020.
 The importance of
international trade
respective to developing
countries:
International trade between different
countries is an important factor in raising
living standards, providing employment
and enabling consumers to enjoy a
greater variety of goods.
International trade has occurred since the
earliest civilisations began trading, but in
recent years international trade has
become increasingly important with a
larger share of GDP devoted to exports
and imports.
World Bank stats show how world
exports as a % of GDP have increased
from 12% in 1960 to around 30% in
2015.
With an increased importance of trade,
there have also been growing concerns
about the potential negative effects of
trade – in particular, the unbalanced
benefits with some losing out, despite
overall net gains.
 Make use of abundant
raw materials:
Some countries are naturally abundant in
raw materials – oil (Qatar), metals, fish
(Iceland), Congo (diamonds) Butter
(New Zealand). Without trade, these
countries would not benefit from the
natural endowments of raw materials.
A theoretical model for this was
developed by Eli Heckscher and Bertil
Ohlin. Known as the Heckscher–Ohlin
model (H–O model) it states countries
will specialise in producing and exports
goods which use abundant local factor
endowments. Countries will import those
goods, where resources are scarce.
 Comparative advantage:
The theory of comparative advantage states that
countries should specialise in those goods where
they have a relatively lower opportunity cost.
Even if one country can produce two goods at a
lower absolute cost – doesn’t mean they should
produce everything. India, with lower labour
costs, may have a comparative advantage in
labour-intensive production (e.g. call centres,
clothing manufacture). Therefore, it would be
efficient for India to export these services and
goods. While an economy like the UK may have
a comparative advantage in education and video
game production. Trade allows countries to
specialize. More details on how comparative
advantage can increase economic welfare. The
theory of comparative advantage has limitations,
but it explains at least some aspects of
international trade.
 Greater choice for
consumers:
New trade theory places less emphasis on
comparative advantage and relative input
costs. New trade theory states that in the real
world, a driving factor behind the trade is
giving consumers greater choice of
differentiated products. We import BMW
cars from Germany, not because they are the
cheapest but because of the quality and
brand image. Regarding music and film,
trade enables the widest choice of music and
film to appeal to different tastes. When the
Beatles went on tour to the US in the 1960s,
it was exporting British music – relative
labor costs were unimportant.
Perhaps the best example is with goods like
clothing. Some clothing (e.g. value clothes
from Primark – price is very important and
they are likely to be imported from low-
labor cost countries like Bangladesh.
However, we also import fashion labels
Gucci (Italy) Chanel (France). Here
consumers are benefitting from choice,
rather than the lowest price. Economists
argue that international trade often fits the
model of monopolistic competition. In this
model, the important aspect is brand
differentiation. For many goods, we want to
buy goods with strong brands and
reputations. e.g. popularity of Coca-Cola,
Nike, Addidas, McDonalds e.t.c.
 Specialization and economies
of scale – greater efficiency:
Another aspect of new trade theory is that it
doesn’t really matter what countries
specialize in, the important thing is to pursue
specialization and this enables companies to
benefit from economies of scale which
outweigh most other factors. Sometimes,
countries may specialize in particular
industries for no over-riding reason – it may
just be a historical accident. But, that
specialization enables improved efficiency.
For high value-added products,
multinationals often split the production
process into a global production system. For
example, Apple designs their computers in
the US but contract the production to Asian
factories. Trade enables a product to have
multiple country sources. With car
production, the productive process is often
even more global with engines, tyres, design
and marketing all potentially coming from
different countries.
  Service sector trade:
Trade tends to conjure images of physical
goods import bananas, export cars. But,
increasingly the service sector economy
means more trade is of invisibles – services,
such as insurance, IT services and banking.
Even in making this website, I sometimes
outsource IT services to developers in other
countries. It may be for jobs as small as $50.
Furthermore, I may export a revision guide
for £7.49 to countries all around the world.
A global economy with modern
communications enables many micro trades,
which wouldn’t have been as possible in a
We can see the data about the recent
pre-internet age.
development in the developing countries in
the bellows section
 Global growth and
economic development:
International trade has been an important
factor in promoting economic growth. This
growth has led to a reduction in absolute
poverty levels – especially in south east Asia
which has seen high rates of growth since
the 1980s.
 Over the last 30 years an enormous
transformation has taken place in
Bangladesh economy. Traditionally
Bangladesh has been an agriculture-based
economy. However, in the last couple of
decades Bangladesh has stepped into
industrialized economy and liberalizes trade
with export-oriented industry (Faruque
2009). Massive overpopulation, widespread
The economic effects and contributions of poverty, unstable political condition,
international trade to the economies of immense bureaucratic corruption, inefficient
developing nations cannot be state-owned enterprises, mismanaged port
overemphasized and based on this; there is a facilities, inefficient use of energy
dire need for the government and resources, and insufficient power supplies
policymakers of these nations to are some of the major obstacles fueling the
strategically formulate macroeconomic economic growth of Bangladesh. Despite
policies that would promote international these hurdles, the country has abundant
trade in their region. cheap work force, simple technology
support by the industry and delicate policy
support by the government which began
attracting foreign investors in the 1980s
There are much development in the (Shawon 2011).
developing countries from international
trade.

Importance of international trade of

developing countries like Bangladesh:
 and raw and processed natural resources to
labor-intensive manufactured goods
(including clothing, footwear, and textiles),
but the country, unlike neighboring India,
could not catch up with the exporters of
skill-intensive products. While India is
becoming an important international player
in the field of software and applications
development, Bangladesh lags far behind,
Bangladesh propelled its trade liberalization despite the government's efforts to
program in the mid-eighties (1980s) through promotethis.
a radical economic reformation from a
highly restricted and inward-oriented nature
of trade regime to an open economy. Since  Impact of International Trade
then Bangladesh had passed through three on Economic Growth in
phases of liberalization policy. The first
phase of reform covered the period between
Bangladesh:
1981/82 to 1985/86 with the introduction of
New Industrial Policy (NIP). The NIP-82
object was to encourage private sector
industrialization in the country. The second
phase was initiated in 1986 with the Revised
Industrial Policy (RIP) covering the period
between 1986/87 to 1990/1991. It is
important to note that over the past 15 years,
earnings from RMG export have increased
by more than 8 times with an exceptional
growth rate of 16.5% per annum (Mamun
2010).

During the last decade, Bangladeshi exports

shifted from the sale of agricultural products
Export of national economic growth of a
country.The GDP and GDP growth rates of
The term export refers to the sending of Bangladesh from 2008-2017 are presented
goods or services produced in one country here.
to another country to satisfy their needs. It
indicates the goods and services produced
in one country and purchased by citizens
of another country for satisfying their
desires. The sender of goods or services is
known as exporter and receiver of goods or
services is known as importer.Export
occurs when a product or services is
produced domestically and sold to a
foreign country.The total export of goods
and services by Bangladesh from 2008-
2017 is presented here.

Import
The term import refers to the purchasing
of goods or services another country to
satisfy requirement of the people. It
indicates the goods and services produced
in foreign country and purchased by
citizens of home country for satisfying
their desires.Imports of goods or services
consist of all goods or services rendered
by non-residents to residents.The receiver
of goods or services is known as
importerand the sender of goods or
services is known as exporter. Import
occurs when a product or services is
produced in foreign country and
purchased by home country. The total
import of goods and services by
Bangladesh from 2008-2017 is presented
here.

GDP
Gross Domestic Product (GDP) refers to
the monetary measure of the market value
of all goods and services produced in a
country within a definite period of time.
Nowadays,GDP is considered as the
world's most powerful statistical indicator
So, as we can see from above data, it is clear that international trade make a positive role to
develop the economy of developing countries like Bangladesh.

LIMITATIONS OF THE STUDY

The study has been conducted subject to certain limitations. In addition to the
above, our sample branch does not provide all sophisticated information. Another
important reason is as follows:

lack of proper communication in the earlier stage.

.lacks of information is prevailed in this report.
The success rate of this study may be limited due to lake of our experience in
collecting data.
In spite of these limitations, I have tried my best.
The primary data are limited. Internationally there are lacking of data about
international trade in developing countries.

I can try to find out from these data to determine the development of counties.
Finally, the accuracy of the analysis heavily relied on the data provided by websites and journal
in the world.

Conclusion:
For the betterment of any country, international trade is essential as a country can’t be always up
to date in every sector of production of goods and services efficiently and effectively that is why
international trade occurs between two countries to overcome this handicap. This paper
concludes that international trade has the potential of driving the needed macroeconomic goals
and long-term development of the economies of developing nations. Also, developing countries
should adopt a flexible exchange rate that fosters international trade. Expansionary monetary and
fiscal policies should equally be adopted by these countries as well as encouraging small and
medium scale enterprises in their regions. Part of tools that can drive this includes availability of
single digits interest collateral-free loans to SME’s especially those in strategic sectors such as
Agriculture. Availability of grants, aids, technical training, etc as international trading activities
can contribute significantly to reduce the high unemployment rate, vicious poverty cycle,
increased living standards, increased per capita income, etc in these nations. Furthermore, this
paper recommends that an import-substituting strategy should equally be reviewed and
implemented by these nations. This can be augmented by increased imposition of a high-income
duties on commodities imported into the country that are produced in the country.

--------------------------------------------------End-------------------------------------------------------------
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