Since time immemorial, trade has been one of the most significant factors that have facilitated rapid development and modernization of developing countries also referred to as third world countries. In third world countries, trade started long time ago and has developed significantly since then up to date. It all started with the need of many different commodities or produce produced in many different communities. Ancient people from these countries started with exchanging goods for goods and later use of currency following its invention. Since then, trade have been undergoing numerous stages of development and posing different impacts on these countries. For instance, trade led to development of improved infrastructures in these countries. For instance, it started with walking paths, which developed to trade route and finally roads. Hence, this paper is aimed at analyzing and discussing origin, development and effects of trade on third world countries/developing countries.
Trade refers to the ac t buying, selling, or exchanging goods and services at either retail or wholesale within a country or between two or more countries. There are two types of trade domestic and foreign trade. Developing countries also known as third world countries refers to countries with low economic development levels although this is normally related closely with the social development in terms of life expectancy, education, healthcare, among others. Trade has contributed significantly towards improvement of these social developments in these countries (Buffie, 2001, 88). Trade has been for long one of the most significant factors that are facilitating rapid development of developing countries. People and organizations have been trading in developing countries since ancient times. It all started with exchange of good where livestock formers exchanged animal products with farm produce produced by cultivator and since then, it has undergone rapid development as seen below.
Development of trade in developing countries
Page (1994, 42) asserts that in developing countries, trade started long time ago due to scarcity and resources. During ancient times, particularly in developing countries, there was existence of three major groups of people including pastoralists, cultivators and miners. Pastoralists produced animal products such as skins, milk, meat, horns, among others while cultivators produced farm produced including fruits and seeds, and miners worked in mines where they produced minerals which had precious value and used in decoration of ancient kings' palaces.
Due to significance and needs associated with the products produced by these different groups, usually communities, pastoralists had to look for miners; miners looked for cultivators and the other way round (Page, 1994, 42). Since people were living far away from each other, they were forced to create a central place- market- where they used to meet and transact. Nevertheless, since communities were living far away from each other, traders were forced to walk for long distances before reaching these central places where they exchanged their good hence earning the name long distance traders. Long distance trade is one of the most popular kinds of trades that took place in developing countries. In this kind of trade, traders used to walk long distance exchanging goods for goods and later good for money/currency (Page, 1994, 47).
However, exchange of goods for goods was cumbersome and tiresome and also difficult to measure exact amount. This led to the need of seeking other alternative, means of trading. Hence, with the arrival of foreigners including Arabs, Portuguese, among others, currency was invented and used widely for trading. Furthermore, the quality of goods exchanged started to improve and increase with a variety of them such as glassware, guns, among other goods being exchanged and sold. With invention of currency, trade developed easily and rapidly since currency was easy to carry and use (Rajapatirana, 2000, 23). People now started to buy huge amounts of products with currency which they easily carried in the pockets or bags.
The arrival of foreigners impacted developing countries both negatively and positively. When regarding positive impacts, foreigners through trade, developed big industries in developing countries due to readily availability of raw materials for these industries. These industries are currently one of the major factors that are facilitating rapid growth and development of third world countries. Foreigners started to pay residents of third world countries with huge sums of money so as to have access to raw material of which some were exported to their mother countries hence turning trade into an international activity (Rajapatirana, 2000, 23).
With the development of agrarian revolution in Europe and other America, there was an increased for employees to work in their plantations. This made them to seek laborers from developing countries. They travelled across the world looking for a cheap source of labor until when they reached Africa where they introduced a kind of trade known as slave trade. In this trade they exchange glassware, guns, among other precious goods with slaves who were deported to Europe and America to work in their farms.
Rajapatirana (2000, 23) asserts that as a result, this led to improved water transport in these countries since slave were transported through boats which were sailed across trans-Atlantic ocean. It also affected negatively involved communities since all able-bodied men were kidnapped or sold to slavery. This affected agricultural production since farms were left with nobody to work in. fear was also highly developed among residents of these countries.
With the beginning of industrial revolution and industrialization, and gaining of independence from colonizers, trade started to develop immensely in third world countries. New methods of trading have been invented through research and technology (Rajapatirana, 2000, 23). Members of these countries are now in a position to even trade and transact online. Trade have developed rapidly to the extent that rules and regulations have been implemented by these countries so as to ensure that trade is carried out within legal frame work.
Trade and the Global Economy
There has been a sharp increase in the tradable goods fraction of world production over the past fifteen years courtesy of continuing trade liberalization in combination with stridently moribund transport and communication costs. An absolute explosion in e-based connectivity since 1995 in addition to the emergence of a completely new international IT outsourcing industry has resulted to the networking of service providers across the world at the same time. Consequently, rapidly developing trade in both goods and services has become a highly strong engine in driving global growth dynamics (Rajapatirana, 2000, 27).
In an international economy, there is no country that is self-sufficient. Each country is engaged at different levels in trade to sell what it manufactures so as to earn what it lacks and also generate more efficiently in some economic sectors compared to its trade partners. Trade facilitate economic competence by offering a broader variety of goods usually at a lower prices particularly due to specialization, economies of scale and the related relative advantages as supported by the conventional economic theory (Rajapatirana, 2000, 30). The globalization of production refers to the attendant to the trade globalization since one can't function in the absence of the other. Trade took place at an ever increasing scale over the previous 600 years to play an even more active section in the regions' and countries' economic life regardless of whether global trade has taken centuries prior to the modern age, since ancient trade routes like Silk Road can give evidence.
This procedure has been supported by the significant technical improvements within transport sector. Since 1970s, the scale, efficiency and volume of global trade all have continued to increase. As such, a point has been attained long distances can be traded for a short period of time, and this at the same or lower costs (Page, 1994, 47). It has become highly possible to trade between sections of the world that initially had limited access to global transportation systems. In addition, trade was also expanded by the disintegration and division of production that went along with these procedures. Hence, trade facilitates lower costs of production.
In the absence of global trade, few countries would preserve adequate living standards. Each country would only manufacture a limited number of products and shortages would be widespread with only domestic resources being available. International trade permits massive variety of resources ranging from Persian Gulf oil, Chinese labor to Brazilian coffee, to be made highly accessible. It also improves the supply of many different manufactured goods that are manufactured in different sections of the world to what can be referred to as international market.
Through the regional specialization of economic activities, wealth becomes increasingly derived. This way, production costs are reduced, productivity increases and surplus are produced, which can be transformed or traded for commodities that would not be cheap to manufacture domestically and would be simply absent (Kufuor, 2004, 75). Consequently, the overall cost of production worldwide is reduced by international trade. Consumers can purchase more goods from salaries which they earn and living standards should in theory increase. As a result, it is demonstrated by international trade that the degree of globalization with increased spatial mutually dependency among elements of international economies and their degree of integration. These interdependencies mean many relationships where capital, raw materials, services and goods flow are developed between regions of the world.
Kufuor (2004, 78) asserts that continuing growth of global trade, in both absolute terms and in relation international national income. The value of international trade has developed by a factor of sixteen times since the late 1970s if measured in current dollars. The developing role of multinational corporations as vectors for global trade especially in the terms of share of global trade occurring within corporations an a higher relative development of trade in Pacific Asia as numerous economies developed an export-oriented growth policies that has been linked with imbalances in commercial relations are among the most salient relationships where capital, raw materials and service flows.
The volume of goods and services exchanged between countries is taking an increasing share of the wealthy generation majorly by providing opportunities of economic development in new areas and through reduction of the costs of a wide collection of manufacturing goods. Global trade surprised for the first time 50 per cent of the international GDP by 2007, a double increase in its share since 1950 (Kufuor, 2004, 80). The facilitation of trade consists of how the process regulating the global movements of goods can be improved. It relies on the reduction of the general cost of trade which puts transport, transaction, tariff and time costs into consideration. Hence, the capability to compete in an international economy is relying on the transport system as well as a wide variety of supporting service activities. These activities comprise of:
v Distribution-based: It includes a multimodal and intermodal goods transport system consisting of modes, infrastructures and terminals that spans throughout the world. It covers a physical capacity to support trade.
v Regulation-based: it is made up customs processes, tariffs, rules and handling of credentials. They indemnify that trade flows abide to the rules and regulations of the authorities which they cross.
v Transaction-based: This comprise of banking, legal, finance and insurance activities where accounts can be established and risk alleviated. They indemnify that the sellers of goods and services are settled upon compensation and the buyers have a lawful option if the result of the transaction is no judged satisfactorily or is a partial or full loss is incurred.
According to Odell (2006, 110), the quality, efficiency and cost of these services influence the trading atmosphere as well as the general costs connected with the global trading of goods. Numerous events have been conductive to trade facilitation within recent decades including:
Ø Integration procedures like the emergence of economic blocks and the reduction of tariffs at an international scale via contracts facilitated trade since regulatory regimes were matched. One simple measure of integration is associated with the custom delays, which can be an important economic obstruction since it adds uncertainty in supply chain management. The higher the degree of economic integration, the more probable the concerned elements are to trade. The global trade has been facilitated as a result by a set of factors connected with the developing degrees of economic incorporation, the result of procedures like the European Union or the North American Free Trade Agreement (Odell, 2006, 110). As a result, the transactional facility is eased with the growth of transportation networks and the modification of trade flows that comes prior to increased combination. Integration procedures have also occurred at the local scale with the development of free trade zones where a country is provide with different structure of governance so as to facilitate trade especially export leaning events. In this case, the process of integration is not consistent since only a section of territory in engaged. A good example of the far-reaching effects of the setting of special economic zones is China.
Ø Standardization regarding the setting of an ordinary and ubiquitous frame of orientation over information and physical flow. Principles promote trade since because those who abide to them benefit from consistent, compatible and interoperable goods and services that usually lead to lower production maintenance and distribution costs. Some of the first internationally accepted measures included measurement units and the growth of information technologies and ultimately result to normal operating and mass communication systems. Nevertheless, it is the container that is viewed to be the most important global standard for trade facilitation. Access to global trade is facilitated by offering a load unit that can be handled by any mode and terminal with proper equipments.
Ø Production systems are highly supple and implanted. It is efficiently industrious to maintain a network of geographically diversified efforts that favors commodities, services and parts exchange. According to Bown (2009, 211), a role has been played by communication technologies in that they facilitate transactions and the management of multifaceted business operations. Oversees direct investments are connected commonly with the globalization of production since firms invest oversees in search of decreased production costs and new markets. A leading example of such procedures, which went on balance with the increasing availability of goods and services that can be transacted on the international market is China.
Ø Transport efficiency has developed significantly de to the improvements and innovations in the infrastructures and modes of transportation in terms of their capability and throughput. Ports are especially significant in such a context due to the fact that they are entries to the global trade via marine shipping networks. Consequently, the transportation of commodities, parts and finished products have improved. Decreasing transportation costs are doing a lot compared to the increasing trade, it has also assisted to change the location of economic events. Until now, crossborder transportation concept remains to be addressed better in terms of capacity security and efficiency.
Ø Transactional efficiency. The financial sector similarly played an important duty in integrating international trade including provision of credit for global commercial transactions. For example, a credit letter can be issued based upon an export agreement. Hence, an exporter can obtain a payment guarantee from a bank until its clients finalizes the transaction upon delivery (Bown, 2009, 211). This is especially significant because the delivery of global trade transaction can last for several weeks due to long distances covered. It is also common that the goods are insured incase of damage, theft or delays during the transfer, an activity that is supported by insurance companies. Furthermore, international financial systems allow converting moneys in accordance to the exchange rates that are set commonly by market forces while some moneys including Chinese Yuan are set by policy. Hence, monitory policy can be a tool, although litigious that it used to influence trade.
Global Trade Patterns
Global trade in both terms of value and tonnage has been a developing trend in the international economy. The appearance of international trade patterns can be articulated mainly within three main phases including:
First phase: immobile factors of production. These concern a conservative viewpoint on a global trade that prevailed until the 1970s where factors of production were not highly mobile. Especially, there was no unlimited level of mobility of raw materials, parts and finished goods in a setting which was fairly regulated obstructions like tariffs, limitation to oversee ownership and quotas (Kufuor, 2004, 77). Trade concerned mainly a variety of certain products known as commodities and very few services that were not highly available in local economies. Trade remained limited and delayed by incompetent freight distribution resulting from protectionism, fairly high costs of transportation and regulations. Trade was more an excise to deal with scarcity other than facilitating economic efficiency in this context.
Second phase: mobility of production factors. Since the 1980s, the mobility of production factors mainly capital became possible. The lawful and physical atmosphere through which global trade was occurring resulted to a better realization of relative advantages of certain locations. Concurrently, regional trade contracts emerged and the international trade structure was strengthened from a legal and transactional point of view (Kufuor, 2004, 90). Additionally, containerization offered the abilities to support more complicated and long distance trade flows in a similar manner done by the developing air traffic. Activities that were labor concentrated were relocated slowly to lower costs location due to high production costs in ancient industrial regions. The procedure started as a national one, and then extended to the neighboring countries when probable and subsequently a truly international phenomenon. Hence, oversee direct investment flowed, principally towards new production regions as multinational firms became highly flexible in the international positioning of their assets.
Third phase: global production networks. There is development in global trade, now consisting of a broad variety of services that were fixed previously to regional markets and a rush in the mobility of production factors (Bown, 2009, 211). The priority is now moving towards geographical and functional integration of production, consumption and distribution with the appearance of international production networks since regional trends are established well. Complicated networks consisting of information, commodities, parts and finished products' flows have been set which demands high degree of authority of logistics and cargo supply. Strong actors have emerged in such an environment which is not engaged directly in the function of retailing and production although taking mainly the accountabilities of managing the network of flows.
According to Odell (2006, 110), the international economic system is hence one permitted by a developing degree of integrated services, finance, manufacturing, retailing and nonetheless supply, which in turn is majorly the result of enhanced transport and logistics, a more proficient utilization of regional relative advantages and a trading atmosphere supportive of the lawful and financial difficulties of international trade. The consequence has been a movement in the international trade flows with numerous third world countries having a developing participation in global trade. The nature of what can be put into consideration as global trade has also evolved especially with the appearance of international commodity chains. The strategies of international firms positioning their production assets so as to decrease costs maximize new market chances while preserving the consistency of their goods supply systems are reflected obviously by this trend. Additionally, another significant trade has been developing importation of resources from third world countries including energy, agricultural products and commodities.
An increasing share of the manufacturing activities occurring in third world countries with producers looking for low cost sites for numerous stages of the supply chain is the main factor behind the development in global trade. Thus, the evolution of global trade has accordance with production evolution (Odell, 2006, 110). Nevertheless, there are significant variations in the global trade that are connected with the economic cycles of growth and depression, variation in the cost of raw materials, as well as troublesome geopolitical and financial activities. The global production division has been associated with developing flows of manufactured goods which take an increasing share of global trade. There are relatively less bulgy liquids like oil and many dry bulk general goods being traded.
Odell (2006, 110) stipulate that the geography of global trade still discloses supremacy of a small number of nations particularly in Europe and North America. The United States, Japan and Germany alone account for approximately a third of all international trade, but this superiority is being challenged seriously being developing economies. For example, export oriented economic growth policies followed by developing economies mainly in Pacific Asia, have been associated by developing physical and balance of payment inequities in global trade. This is mainly reflective in the structure of American container structure. Furthermore, great seven countries account for the a half of the international trade, a supremacy that has lasted for more than one hundred years. A developing share is being accounted by third world countries of Asia with Chine being responsible for the most important developments in both complete and comparative conditions. Those geographical and economic changes are also reflected over trans-oceanic trade with trans-pacific trade developing rapidly when compared to trans-Atlantic trade.
According to Bown (2009, 211), one of the most significant features of international trade is regionalization. The bulk of global trade has a regional implication facilitated by closeness and the organization of economic organizations such as the European Union and NAFTA. The closer economic bodies are the more probable they are to trade, which describes that the most powerful trade relations are in the Western Europe and North America. The same, although more recent development, has appeared in Asia mainly between China, Taiwan, Korea and Japan which developing faster compared to other third world countries.
Factors that facilitate trade in developing countries
According to Odell (2006, 110), in developing countries, there are many raw materials and minerals. These are therefore some of the main factors which facilitates trade in this countries. Foreigners come to these countries with an objective of buying raw materials or fields which have these materials. Availability of raw materials also led to develo0pment of industries which are main source of trade (Bown, 2009, 211).
Establishment of export processing zones (EPZs) is one of the new approaches that can be applied to foster trade development in developing countries. EPZs also referred to as free zones are regions where local and foreign firms locate their production facilities for manufacture, processing or assembly of goods. The rapid expansion of industrial base, alleviation of the problem of unemployment and stimulation of the domestic sector through connections of the rest of the economy are the advantages that creation of EPZ provides in third world countries (Odell, 2006, 108). Free trade zones have been used by Pacific and Asian countries as development instruments when compared to any other developing countries. In Hong Kong, South Korea, Singapore, china and Taiwan, the establishment of EPZ has been a huge success.
There are different views on the role of EPZs in stimulating and sustaining economic development. EPZs have created new employment, generated foreign exchange, increased export flows and extended national revenues. However, EPZs can facilitate unwanted in-migration from rural areas and generate high reliance own foreign-owned firms. Nonetheless,' benefits conferred by EPZs are usually higher than the cost.
Odell (2006, 110) stipulates that the success of third world countries of South-East Asia in developing through industrial export-led development has illustrated that this is a clean fide opportunity for faster economic development. Domestic industrialization and vigorous exportation are the pre-requisite for the successful development that is driven by the exportation of produced goods. Successful exportation needs creative marketing, flexibility, zeal in penetrating foreign markets, attractive packaging, adoptability and acquisition of information on demand conditions within foreign markets in addition to the production of high quality manufactured goods. Developing countries have the potentials in terms of human resources, access to the requisite technology and raw materials hence the will, persistence and the organizational acumen to succeed are the only things that are required (Bown, 2009, 211).
For many reasons particularly the success of export-led development in the developing countries, the modern worldwide convention is in good turn of export-oriented trade policy (Bown, 2009, 211). Export promotion is therefore an essential feature of this kind of strategy. The policy of export promotion is being canvassed for quite a number of reasons such as:
Impacts of trade on developing countries
Trade led to emergency of big trading centers in the developing countries. It also led to emergency of huge urban centers in theses countries. Trade led to improvement of road transports in these countries since trade routes were modified into modern tarmac roads (Kufuor, 2004, 77). On the negative impact, trade led to colonization of third world countries with whites who were looking for minerals and other raw materials. It also led to emergency different social classes with rich trade merchants making upper class.
Developing countries have been helped by the global trading system to fight poverty through prevention of the increase of protectionism in the financial disaster. According to world trade organization, it was striking that developing countries are now becoming most enthusiastic in calling for conclusion of Doha round to launch world trade because they stand to benefit more than a rewriting of global trade rules (Kufuor, 2004, 77). These were revealed a week prior to the United Nations reviews progress the reducing world poverty via a system of target referred to as the millennium development objectives.
As a matter of fact, the multicultural trade system has windswept the disaster practically well and third world countries have been protected from an enormous wave of protectionism. According to world trade organization, the disciplines of the trading system is adjudicated by the world trade organization and encouraging its 153 associates to keep the borders unclosed hence permitting trade to grow by 10% this year following contracting 12% in the year 2009 in the economic crisis. The organization said that this is the main contribution to assist third world countries to adopt this crisis.
According to Kufuor (2004, 80), the fact that third world countries have been trading intensively with each other in the last decade is the biggest change within global trade patterns. For instance, the South-South trade accounts for 50% of economic development for quite a number of third world countries' commerce hence, replacing rapidly the old trade connection with ancient colonial authorities. At the same time, the increase of the international supply chains implies that third word countries are no longer required to aim to specialize in the whole industrial sectors but they can be highly competitive even by producing personal components.
According to the world trade organization, there are new chances and the system has been shifting in the right direction generally. For two years, the Doha stocks have been stalled particularly over differences between rich authorities such as the European Unions and the United States and the developing countries such as China and India beyond the extent to which developing countries should open up their markets and economies (Kufuor, 2004, 77).
Nevertheless, negotiators assert that this deal will be only probable in the year 2011 at the earliest. For example, Festus Mogae, former Botswana president, said that a Doha deal was crucial for developing countries in Africa to secure their delicate economies from protectionism and inequitable trade practices. He however said that, this was due to the fact that forces determining the world trade are out-dated and self-interest in that the weak have no voice.
In general, trade is one of the most significant factors in developing countries. It has facilitated and improved the rate at which these countries are developing. Trade has also facilitated rapid development of other sectors such as transport and communication in developing countries. Trade has made world to be a global village in that transaction can be carried out anytime and anywhere. Third world countries are now coming in a good position to compete favorably with developed countries including great seven. Trade has led to reduced transport and communication costs in third world countries with members of third world countries being in a good position to access information and communicate faster than before.
Movements of goods and services have also developed immensely with heavy cargos being transported faster and safely when compared to ancient times. Hence, all governments in developing countries should come up and give trade first priority and implement rules and regulations that will govern trade and trading activities in their respective countries. They should put into place well formulated procedure that shall be followed by their citizens so as to protect them from high competition resulting from developed countries and enabling them to compete favorably by obtaining high quality products and raw materials at cheap and fair price. By doing these, they will be in a good position to develop their level of trade and the rate at which it is developing very fast than before.