INVESTMENT,

INTERNATIONAL TRADE
& DEVELOPMENT
INVESTMENT
• Developing countries, emerging economies and countries in transition
have come increasingly to see FDI as a source of economic
development and modernisation, income growth and employment
• Countries have liberalised their FDI regimes and pursued other
policies to attract investment
• Many developing countries depend on continuous net inflow of
foreign financial resources namely in the form of:
(1)private finance and investment which consists of (a) investment by
multinational companies and (b) foreign portfolio investment in
stocks, bonds or notes in credit and equity market by private
institutions (banks, mutual funds, corporations)
(2)foreign aid: consists of (1) individual national governments and
multinational donor agencies and (2) private NGOs working directly
with developing nations at the local level
FOREIGN DIRECT INVESTMENT
(FDI)
• FDIs are normally by MNC. It is defined as a corporation or
enterprise that conducts and controls productive activities in
more than one countries
• Some FDI trends:
60% of the FDI from MNC goes to many Asian countries
whereas Africa received less than 3% of these FDIs. MNC
tend to place their investment in countries where they can
maximize their investment, high return on capital and
safe/secure investments.
Naturally, Asian countries being politically stable, higher
middle-income population and higher educated population
were the main investment destinations among the MNCs
FDI AND DEVELOPMENT
PROs
•FDIs is able to fill the gaps between the domestically available
supplies of savings, foreign exchange, government revenue and
human capital skills.
•Taxing MNC’s profits and participating financially in their
local operations will help government mobilize public
financial resources for development projects
•A gap in management expertise, entrepreneurship,
technology and skills can be filled by MNC’s local operations.
These needed knowledge and skills can be transferred to local
population by means of training program and the learning
process
FDI AND DEVELOPMENT
CONs
•Although MNCs provide capital, they may lower domestic savings and
investment rates which stifles competition, and inhibit the expansion of
indigenous firms
•BOP current account may deteriorate as a result of substantial importation
of intermediate products and capital goods and the capital account may
worsen because of the overseas repatriations of profits, interest, royalties,
management fees and others
•MNCs contribution on corporate taxes is considered less than it should be
as a result of liberal tax concessions and disguised public subsidies
provided by the host government
•The management, entrepreneurial skills, ideas, technology, and
overseas contacts provided by MNCs may have little impact on
developing local sources of these scarce skills
FOREIGN AID: DEBATE ON THE
DEVELOPMENT ASSISTANCE
• Other sources of foreign exchange for developing countries
bilateral and multilateral development assistance and private
(unofficial) assistance provided by the NGOs.
• By definition, foreign aid is a flow of any capital to
developing nations that meets 2 criteria namely (1) its
objective should be noncommercial from the point of view
for the donor (2) it should be characterized by
concessional terms (interest rate and repayment period for
borrowed capital should be softer than commercial terms
• The volume of resources committed by multilateral
organisations significantly increased over the last decade;
from USD 109 billion in 2008 to USD 162 billion in
2016 (+49%).
Figure: Multilateral development partners are increasing their support to fragile
contexts

Source: OECD (2017)

 THE ROLE OF NGOS IN
INTERNATIONAL AID
• The NGOs is the fastest growing and most significant forces in the field of development
assistance to the developing countries.

• NGOs work with and on behalf of local grassroots people’s organizations in developing
countries that represent specific local and international interest groups with concerns as diverse
as providing emergency relief, protecting child health, promoting women’s rights, alleviating
poverty, protecting the environment, increasing food production and providing rural credit to
small farmers and local businesses.

• The value of NGOs is twofold namely

(1)less constrained by political imperatives, able to work much effectively at local levels with
the people that they are trying to assist than massive bilateral and multilateral aid
programs

(2)by working with local people’s organizations, NGOs are able to avoid the suspicion and
cynicism on the part of the mostly poor people that they serve

• The most prominent NGOs nowadays involve in the activity of rural microcredit where the
organizations providing small loans will transform the living standard of the poorest poor.
 THE EARLY DAYS OF TRADE
• Trade is the exchange of goods and services between nations
• Old Silk Road – 3rd Century BC: China used its military power
to maintain the Silk Road for its value for trade.
PATTERN OF TRADE
• 21st century has marked increased volume of trade
between nations due to trade agreements and
technological advancements
• Developed countries focus on high-tech goods,
developing countries raw goods/ primary commodities
and textiles
• After WW2, South Asia and Latin America practice
import substitution, while East Asia’s approach was
export oriented industrialised goods
 GENERAL AGREEMENT ON WORLD TRADE
TARIFFS &TRADE (GATT) ORGANISATION (WTO)
• After WW2, desire for peace and • Created 1 January 1995
security • WTO deals with trade in goods,
• Global rules for trade was created services and intellectual property
under GATT (1948) • Created new procedures for
• Dealt with mainly trade in goods settlement of disputes

• GATT led to high growth rates in • WTO's membership expanded to 164

international commerce until 1994 members, represents over 98% of
international trade
 REASONS FOR
INTERNATIONAL TRADE
• Sell something we don’t need or have made for trade and buy something that we
need (comparative advantage / specialisation)
• Trade creates jobs, attracts investment, attracts new technology and materials,
and offers a country a wider choice in products and services
• Range of choice provides more competition in the marketplace (product
differentiation)
• Economies of scale – efficient production that lowers cost
• Result – competitive pricing, technological advances, improved services –
including the education and training of LDCs employees
ISSUES/CONSIDERATIONS IN
TRADE
• In large country like Australia or USA there is
free trade of goods and services.
• Within the European Union, there is now free
trade among the member countries of the Union.
• In other regions of the world = fewer e.g of free
trade although the North American Free Trade
Agreement (NAFTA) and the MERCOSUR Free
Trade Area in Latin America are committed to
gradually establishing free trade within their
respective areas.

07/08/23
 07/08/23

Typically, there are restrictions on trade between

countries.
Various taxes (duties) are imposed on imports or
exports – can be lump sum or ad valorem.
Sometimes licenses are granted to export or import
particular goods. Law may also ban some exports or
imports.
Different taxes or regulations distort the working of
free market and nullify the law of comparative
advantage.
 INTRA-REGIONAL TRADE
• Share of Asian (including Japan) trade in total exports and imports of the Asian
countries has increased greatly in the last 2 decades.
• Why has the share of intra-Asian trade in total Asian trade increased so
much over time?
4 basic reasons why this has occurred.
1. Growth in income and geographic proximity within the region have stimulated
trade. Trade is more likely to take place between countries which are close
together.
2. Rapid growth in different kinds of regional cooperation arrangements that
have facilitated trade.
3. Other factors e.g exchange rates, technological developments in
telecommunications and lower transportation costs helped stimulate trade.
4. Incomes have grown and developing Asia has begun to produce more
manufactured goods, their trading patterns has begun to resemble that of
OECD countries. They are now trading more in industrial products where there
is a higher degree of product differentiation. 07/08/23
 TRADE AGREEMENTS
• There have been a number of bilateral free trade agreements (FTAs)
signed between Asian nations & the industrial countries within Asia.
• Agreements between 2 parties spell out tariff reduction that are mutually
agreed upon by both parties.
• Not looked upon as being beneficial to the world trading system since
they create an overlapping system of trade preferences & agreements that
is difficult to understand & could create a new pattern of distortion.

07/08/23
REGIONAL TRADE
AGREEMENTS
REGIONAL TRADE - DECLARATION ON
SOUTH ASIAN ASSOCIATION FOR
REGIONAL COOPERATION (SAARC)

• Established in 1985
• Membership of 8 states: Afghanistan, Bangladesh, Bhutan, India, Maldives,
Nepal, Pakistan, and Sri Lanka.
• SAARC promote the welfare of the peoples of South Asia, strengthen
collective self-reliance, promote active collaboration and mutual assistance in
various fields, and cooperate with international and regional organizations.
• Issues: trade, human trafficking, terrorism, poverty alleviation, economic
cooperation, disaster management
REGIONAL TRADE AGREEMENTS
USA INTERNATIONAL TRADE TRENDS
(2017)
 ADVANTAGES
Meeting our Needs
• Allows LDCs to have access to many goods that we are unable to produce
ourselves (machines, equiptment, motor vehicles….)
• Trading Partners get something they need by trading something that they
do not need
Job Creation
• Foreign businesses buy LDCs products and services, which leads to more
jobs for LDCs
• Exports are critical to the LDCs economy
• One out of three LDCs jobs depends on exports
Attracting Investment
• Investment follows trade
• Many foreign companies, when demand is proven through trade, will
invest in an office, factory or distribution warehouse in LDC to simplify
their trade and reduce costs
• This investment creates other jobs in construction, sales and office
management
ADVANTAGES
New Technology and Material
• Development of new technology promotes competitiveness and profitability
• Newly developed technology sold through patents to foreign companies –
collecting annual fees, royalty percentage or a one-time payment, outlined very
specifically in a contract
• E.g. Reliability Software, Asset performance Management Software – Capital
Intensive Industries – metals, mining, steel, utilities, power generation, oil and
gas
• Sell software maintenance and support, and services (professional ,
implementation, technical services)
Diverse Products and Services
• Foreign trade opens up the world as a market, delivering a wide range of foods,
high fashions, and new inventions to the LDCs market
• Foreign travel, banking, consultation and other services are also available to the
LDCs consumer
• Businesses must consider that their competition for similar products and
services is no longer just in the same city but anywhere in the world.
DISADVANTAGES
Support of Non-Democratic Systems
• Great hardship on people who have no choice but to grow a
profitable cash crop (e.g. coffee beans)
• Local farmers wishes to grow food for their families are ignored
• Developing nations are forced to compete in the same market as
stronger nations.
Cultural Identity Issues
• Culture is “exported” with the products sold internationally
• Symbols of American culture include products like Coca-Cola,
McDonald’s and Nike.
DISADVANTAGES
Social Welfare Issues
• Maintaining safety standards, minimum wages, worker’s compensation, and
health benefits cost a country businesses and taxpayers a great deal of money.
• Countries that do not maintain these high standards can make products less
expensive.
• Cheaper labour in developing countries cause low skilled jobs transfer to other
countries and this creates unemployment in the more developed countries
Environmental Issues
• Developed countries has highly regulated environmental protection laws.
• Many businesses may chose to do business elsewhere if the pollution controls,
recycling laws and emission controls are not too stringent or expensive for them
to meet.
DISADVANTAGES
Political Issues
• War and strife often occur because of natural
resources.
• Thousands of people have been killed for control
of oil, others for control of the diamond trade or
even farmland.
• Trade in precious commodities can cause political
alliances that do not help the local people
SDG AND TRADE DEVELOPMENT
• SDG sub-targets relating to the WTO
• Correct and prevent trade restrictions and distortions in world
agricultural markets, including through the parallel
elimination of all forms of agricultural
• export subsidies and all export measures with equivalent
effect, in accordance with the mandate of the Doha
Development Round
 SDG AND TRADE DEVELOPMENT
• Support the research and development of vaccines and medicines for the
communicable and non-communicable diseases that primarily affect
developing countries
• Rights regarding flexibilities to protect public health, and, in particular,
provide access to medicines for all
• Provide access to affordable essential medicines and vaccines, in accordance
with the Doha Declaration on the TRIPS Agreement and Public Health, which
affirms the right of developing countries to use to the full the provisions in the
Agreement on Trade-Related Aspects of Intellectual Property
 SDG AND TRADE DEVELOPMENT
• Increase Aid for Trade support for developing countries, in
particular least developed countries, including through the
Enhanced Integrated Framework for Trade-related Technical
Assistance to Least Developed Countries
• Implement the principle of special and differential treatment for
developing countries, in particular least developed countries in
accordance with World Trade Organization agreements
 SDG AND TRADE DEVELOPMENT

• By 2020, prohibit certain forms of fisheries subsidies which

contribute to overcapacity and overfishing, eliminate subsidies
that contribute to illegal, unreported and unregulated fishing and
refrain from introducing new such subsidies, recognizing that
appropriate and effective special and differential treatment for
developing and least developed countries should be an integral
part of the World Trade Organization fisheries subsidies
negotiation
 SDG AND TRADE DEVELOPMENT
• Promote a universal, rules-based, open, non-discriminatory and equitable
multilateral trading system under the World Trade Organization, including
through the conclusion of negotiations under its Doha Development Agenda
• Significantly increase the exports of developing countries, in particular with
a view to doubling the least developed countries’ share of global exports by
2020
• Realize timely implementation of duty-free and quota-free market access on
a lasting basis for all least developed countries, consistent with World Trade
AID FOR TRADE

https://youtu.be/ScdK2Aec-sQ
 SOME CONCLUSIONS ON TRADE
AND ECONOMIC DEVELOPMENT
• Trade can lead to rapid economic growth under some
circumstances
• Trade can benefit LDCs if they can extract trade
concessions from developed countries – to make their
goods more competitive ( while maintaining a reasonable profit
margin)

• Trade seems to reinforce existing income inequalities –

moreover barriers to trade (tariffs) raises the level of
imports increasing prices of imported household goods
while subsidising inefficient industries.
• LDCs generally must trade as regional cooperation
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may help LDCs