Problems of Developing Countries in International Trade

3533 words 15 pages
Problems of Developing Countries in International Trade

Developing countries and trade
Introduction:
International trade is an important source of foreign income in almost all developing economies, these countries are referred to as developing due to their low GDP level and they are faced with high levels of poverty and unemployment, according to David Ricardo and Adam smith international trade plays a crucial role in the development of an economy, the Mercantile theory of development states that trade led to the wealth of nation.
This paper discus the various problems that the developing countries face in international trade and their effect on the agricultural, industrial and service sectors. Some of these problems are external while
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Product diversification means that the developing countries should not produce the same goods for exports; they should try and diversify the products they exports in order to reduce competition and therefore increase the foreign income received. This should involve the introduction of new products to be produced in the agricultural sector that are to meet the demand for consumers abroad. Unfavorable terms of trade:
Terms of trade will also be a major problem to the agricultural sector, developing countries exports are mostly agricultural products and they will import machinery and oil from developed countries, this poses a major problem in the terms of trade and this finally results to trade balances because the imports have more value than the exports they produce.
Lack of proper bargaining power by the developing countries lead to them experience a problem in setting prices, the developed countries will give their decisions on the price they are willing to pay for the products and because the supply in the global market for these products is high the developing countries have little control over the export prices and the problem of terms of trade arises making imports expensive than the exports. Debts and balance

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