Trade versus Aid

Intro:

- be aware that the issue is controversial

• many argue one or the other is more important in development of a country
• both equally important
• South Korea relied on trade-led growth
• Burkina Faso and other African LDCs relied primarily on aid
• Bangladesh is an example of a country which bridges the gap between the two

Trade:

- often favoured due to example set by Asian Tigers
- South Korea an example of a country implementing trade-led growth

• opening markets to international trade = rapid growth and industrialisation
• strong manufacturing sector whose production was cheap and able to expand through FDI
• able to flood export markets with cheap products whilst other countries were in recession
• attracted interest of TNCs

- aid not much of a success in South Korea

• aid from USA after Korean War
• contributed to huge amount of GDP - 18.5%, but economy still struggled
• wasn't until development of manufacturing sector that SK properly industrialised

- trade has a long-term impact on international cooperation, especially in trade blocs e.g. NAFTA and EU

• due to creation of NAFTA, Mexico became one of the largest recipients of FDI among emerging markets, receiving $156 billion
• Europe combined is able to trade more efficiently with the rest of the world and is more efficient than 28 countries competing with each other
• EU grown from much more than a means for trade, but also towards social, environmental and political cooperation
• Romania's economy has grown by 7% since the country asked to join the EU

- however, trade is much more dependent on export markets and other countries' economies

• e.g. East Asian Financial Crisis
• Asian economies started to fail in 1997
• confidence in Asian markets fell and TNCs and other investors withdrew their money
• Japanese recession in same decade meant that export markets shrank

- future competition with growing economies could hinder Asian Tiger economic growth as TNCs look towards RICs

• cheaper workforce = cheaper products = more efficient production
• NICs have to base their 2ry industry on more high quality goods to retain TNC and consumer interest
• although products, e.g. electrical goods, sell for more money they require more specialist machinery and higher skilled workforce (education up for country-?) = more expensive to make

Aid:

- can be both economically and environmentally sustainable - NGOs' influence in Burkina Faso

• 80% of country live rurally --> depend on agriculture
• desertification and increasingly frequent droughts caused crops to fail due to lack of moisture in soil
• huge number of people in poverty (>36% below poverty line)
• due to food insecurity people have little alternative for income

        'bottom-up' charity approaches, e.g. Tree Aid(!) improving food security and thus level of development

• NGO works in Sahel Region with local communities - 'pro-poor growth'
• planting trees through forestry schemes and teaching people about more sustainable agriculture and food security
• trees provide food sold to get income (Tamarind Tree - pod-like fruit sold to restaurants globally) --> children to shl etc. -->literacy rate up + skilled workers in future
• women entrepreneurs more involved in local community as leaders and having active roles regarding future of forests

- too dependent on international aid

• e.g. Tanzania and Botswana during economic crisis in 80s and 90s
• still continue to rely on aid to make up annual budget rather than independently fund economic growth
• mainly confined to LDCs with inadequate infrastructure and less skilled workers to produce more than raw materials to sell

Trade and Aid:

- Bangladesh example of a country which has been equally dependent on trade and aid - reinforces idea that the two must co-exist

• balance for each = vital for agricultural sector
• without aid helping farmers develop sustainable farming methods and introduction of fertiliser etc., agricultural workers won't get more profit from traded goods - production not efficient
• aid won't be influential if country hasn't established markets to sell produce to
• UK enabled >100,000 farmers to gain improved access to markets - strategy involves both aid and trade

- textile industry is country's main export and considerable source of income --> argued trade more important

• though low pay and poor working conditions = trade doesn't always ensure country's development has reached the individual
• external aid may be required to improve working conditions and pressurise industries to increase minimum wage
• likewise, 'top-down' aid doesn't always find its way to communities - esp. with corrupt government

Conclusion:

- both equally important

• although trade = more long-term
• aid = short-term
• factors inhibiting path to development often come from country itself - poor infrastructure and education - can be resolved with aid and allowing country to pursue export-led growth
• aid may thus be a way to initiate growth and trade to sustain it
• 'bottom-up' aid strategies more effective than 'top-down'
• similarly trade must be able to support the individual too