Disparities and Change
Discuss the different ways in which disparities can be reduced with an emphasis on trade and market access, debt relief, aid and remittances.
Trade
The exchange of goods and/or services. The exchange maybe for other goods and/or services but is normally for money.
Protectionism
Attempts to protect domestic markets by making foreign goods less competitive. This is most commonly done through tariffs and quotas placed on foreign goods and subsidies given to domestic goods.
Benefits
Free Trade
When trade is totally free and fair - there are no protectionist policies in place. It is the aim of the WTO to promote free trade around the world.
Benefits
Remittances
Money that is sent back to family and friends from economic migrants, usually living abroad.
Advantages
Evaluate the effectiveness of strategies designed to reduce disparities.
Trade
Advantages
Aid
Advantages
Trade
The exchange of goods and/or services. The exchange maybe for other goods and/or services but is normally for money.
Protectionism
Attempts to protect domestic markets by making foreign goods less competitive. This is most commonly done through tariffs and quotas placed on foreign goods and subsidies given to domestic goods.
Benefits
- TNCs may take over local producers e.g. Walmart moving into El Salvador and taking over local supermarkets
- Workers are often exploited by TNCs and paid low wages for long hours
- Countries may become dependent on foreign countries imports e.g. Europe relies on Russian gas
- Countries may become reliant on foreign workers e.g. UAE rely on European, South Asian and Filipino workers
- Producing locally should reduce transport costs and certainly reduce air miles
- Local companies will use more appropriate technology and take greater care of the environment
- The most skilled jobs will be taken by foreign workers and may lead to unemployment
- Much of the profits will go overseas e.g. economic leakage e.g. Hiper Piaz profits go back to Walmart in US
- TNCS often don’t care about the environment of other countries and may cause pollution e.g. Union Carbide in Bhopal, India
- Fast food franchises like Starbucks and Burger King may cause local traditional restaurants to close
- Fast food restaurants may worsen people’s diets
- TNCs may close factories during economic recessions leading to unemployment
- Countries may be forced to change policies to suit TNCs e.g. lower taxes.
Free Trade
When trade is totally free and fair - there are no protectionist policies in place. It is the aim of the WTO to promote free trade around the world.
Benefits
- Gives local companies a chance to become global companies (TNC) e.g. Pollo Campero
- Countries who participate in free trade grow faster
- Protectionism makes products more expensive and may stop normal citizens from buying them e.g. cars in El Salvador are very expensive because of import duties
- Local companies can create pollution just as much as TNCs and may not have the money to clean up accidents e.g. BP created a huge spill but had the finances to clean up
- Mexico has increased its exports since joining NAFTA
- Trading can improve relationships between countries
- Countries with trading relationships are less likely to go to war
- Jobs are created for local workers
- Workers may improve skill and education level
- Infrastructure like roads and ports are improved for the whole country
- Laws can be put in place to protect worker rights
- More money can be made by selling to external markets rather than just domestic market
- Residents have access to greater variety of products
- Companies will become more competitive and should actually lower prices
- It is hard for countries to be self-sufficient because they may lack fertile soils or fossil fuels - they need to trade to survive and grow
Remittances
Money that is sent back to family and friends from economic migrants, usually living abroad.
Advantages
- Reduces unemployment
- Reduces pressure on schools and hospitals (if migrants take children)
- Reduces pressure on infrastructure (houses, water , electricity, transport)
- Remittances go directly to friends and family so enter economy at local level
- Migrants can return with new skills (language, ICT)
- Improved relations with countries (Barack Obama recently visited El Salvador)
- Remittances fall during economic downturn. This is probably the time remittances are most needed
- It can create dependency i.e. a family relying on one or two members living abroad
- Creates family division and family pressure/conflict
- Increased dependency ratio in losing country, placing pressure on government
- Brain drain. Usually the youngest, most educated and skilled choose to leave.
- Reduces incentive of government to invest in education and job provision
- Migrants are open to extortion (family members maybe threatened for money or migrants might lose money on exchange rates/transfer fees)
Evaluate the effectiveness of strategies designed to reduce disparities.
Trade
Advantages
- Increased trade can create domestic jobs which increase tax revenue and reduce welfare costs.
- A free trade economy may attract foreign direct investment (FDI) which can create new jobs, improve infrastructure, etc.
- Trade ensures that countries don't become dependent on other countries or tied to other countries policies.
- Trade is a long-term solution that creates jobs, income, investment and training for the foreseeable future where aid tends to be short term fixes.
- Trade allows countries to compete on an equal footing with other countries around the world. Instead of being dependent on others, they are actually contributing to the global market. This increases countries and individuals self-esteem.
- It allows countries to buy and access products that they don't have themselves or are unable to produce themselves.
- Trade can improve relations between foreign powers.
- Many countries have protectionist policies which make it hard to compete.
- Many LEDCs trade in low value primary products which may cause them to build up a large trade deficit.
- Some countries lack raw materials so find it hard to trade without importing large quantities of raw materials.
- Emerging markets may be flooded with cheap foreign imports, destroying local businesses.
- TNCs can move into new emerging markets and exploit resources and workers.
- TNCs can destroy local culture by flooding the market with foreign products e.g. Starbucks and McDonald's
- During periods of economic downturn TNCs will leave foreign countries first often creating unemployment and leaving shortages of products.
- If the balance of trade (imports and exports) is uneven then a large deficit may develop. Also countries may be effectively blackmailed when the exchange is uneven e.g. Russia can blackmail the Ukraine over the supply of gas.
- Trade can cause environmental damage e.g. deforestation and carbon emissions from transportation can cause pollution
Aid
Advantages
- After a natural disaster, food and medical aid can be vital in saving lives and cannot always be provided by the affected government.
- Aid can help build expensive infrastructure products that wouldn't normally be built e.g. new roads, ports, irrigation projects or HEP stations.
- Can help build schools and hospitals that improve the health and education of local populations.
- Many aid agencies employ local workers to carry out projects. This not only creates employment but teaches local new skills. This is especially true of bottom-up aid where locals are fully involved and make all key decisions.
- Many charities provide education about hygiene, diet and health. These schemes are not creating dependency, because they are not necessarily giving money, but do improve the well-being of societies.
- Countries can become dependent on money given by foreign donors instead of developing their own economy to become independent.
- Aid money does not always reach the neediest and instead is taken by corrupt officials. Some aid like medicine can also get help up by bureaucracy and actually be out of date by the time it reaches the intended recipients. Kleptocratic (corrupt) governments may also take money for themselves and not give it to the people that need it.
- Tied aid can force countries to carry out policies that are not necessarily beneficial to the country. Also many of the contracts might go to companies from donor countries, so the receiving country is not receiving the full benefit in terms of jobs, training and income. The IMF had structural adjustment programs which forced countries to make harmful economic changes in order to get loans.
- Food aid or worse food dumping, can force local food production to collapse. Often food is dumped when it is not needed. This undercuts the local food market and takes local farmers out of business.
- Aid may stop because of political changes in donor country or receiving country or because of economic downturns. However, the UK has protected its development budget in the current economic downturn
- Aid might fund inappropriate and/or harmful technologies that cannot be sustained after aid has been removed e.g. Nuclear power. Other projects like roads and dams can cause large scale environmental problems.
- Aid sometimes takes the forms of loans which can lead to high levels of debt. Many African countries borrowed large amounts of money off the IMF and World Bank and now have huge debt problems.