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 Onika Jahan Akondi
Lecturer ID:17122418
Department of Economics Session : 2016-2017

Department of Economics
Jatiya Kabi Kazi Nazrul Islam University
Trishal, Mymensingh-2220
Abstract:
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 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 allows
countries, states, brands, and businesses to buy and sell in foreign markets. This
trade diversifies the products and services that domestic customers can receive.
It offers the potential for development and expansion, but without the risks of
internal research and development. 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). The main aim of this paper is to
examine in-depth the contributions and relationship between international
trade and economic development of developing countries. I

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
Several studies address the impact of international trade on economic growth of a
country. The findings of these studies indicate that international trade i.e. exports
and imports has a statistically significant positive impact on economic growth
(GDP) of a country. Some of these studies that have addressed the issue of
causality between international trade and economic growth as follows:

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).

Researchers investigated the causal links between trade, economic growth and
inward foreign direct investment (FDI) in China at the aggregate level and the
study found bidirectional causality between economic growth, FDI and
exports(Shan & Sun, 1998).A study on the long run effect of FDI and trade on
economic growth in Ghana for the period 1970 and 2002.The researchers
discovered a long-run relationship between determinants of economic growth
and economic growth itself in their model and the findings of that study
indicated a negative and positive growth impact of trade and FDI
respectively(Frimpong Magnus & Oteng- Abayie).

A study that examined the impact of export composition on economic growth,

indicated that not all exports contribute equally to economic growth. Many
developing countries depend on exports of primary products, which are subject
to excessive price fluctuations and this category of exports had negligible impact
on economic growth, while manufactured exports had a positive and significant
effect on economic growth(Kim & Lin, 2009).

A study found that government earn revenue through international trade

activities. International trade, as a major factor of openness, has made an
increasingly significant impact to economic growth (Sun & Heshmati, 2010).
Objective of the Study:
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.

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.

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.
Impact of International
Trade on Economic Growth
in Bangladesh:
Export
The term export refers to the sending
of goods or services produced in one
country 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 purchasedby
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 of national economic
growth of a country.The GDP and
GDP growth rates of Bangladesh
from 2008-2017 are presented here.
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.
Importance of international
trade of developing
countries like Bangladesh:
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
poverty, unstable political condition,
immense bureaucratic corruption,
inefficient state-owned enterprises,
mismanaged port facilities, inefficient
use of energy resources, and
insufficient power supplies are some
of the major obstacles fueling the
economic growth of Bangladesh.
Despite these hurdles, the country
has abundant cheap work force,
simple technology support by the
industry and delicate policy support
by the government which began
attracting foreign investors in the
1980s (Shawon 2011).
 Bangladesh propelled its trade liberalization program in the mid-eighties (1980s)
through a radical economic reformation from a highly restricted and inward-
oriented nature of trade regime to an open economy. Since then Bangladesh had
passed through three phases of liberalization policy. The first phase of reform
covered the period between 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 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, despite the
government's efforts to promotethis.

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.
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. Bangladesh and other developing
countries are also associated with international trade i.e. export and import.
Economic growth of Bangladesh was measured by the GDP of Bangladesh.
International trade (export and import) has a significant positive impact on
economic growth (GDP) in Bangladesh and international trade is positively
correlated with economic growth (GDP) in Bangladesh. For the development of
Bangladesh, government should formulate export leading fiscal and monetary
policies to increase its exports as well as rates of GDP growth. Hence, with the
empirical evidence and analysis the study tries to reveal the overall impact of
international trade (export and import) on economic growth (GDP) of any
country.
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