Factors influencing development and patterns of world trade
The level of development of a country is determined by factors including:
- physicalRelating to the natural environment. factors, eg a lack of rainfall make it difficult to grow sufficient food
- economicRelating to money, wealth and the economy, and the production, distribution and consumption of goods and services. factors, eg some countries have very high levels of debtMoney that is owed to someone else.
- environmentThe immediate surroundings in which people live, or the natural world such as the land, air or water. factors, eg desertificationThe spread of desert conditions in arid regions due to human activities, drought or climate change. could lead to famine
- socialRelating to people, how they may be affected and their influences. factors, eg some countries have low levels of education, poor water quality or a lack of doctors
- political factors, eg war or a corrupt government would hinder development
- natural resources, eg some countries have an abundance of raw materials such as timber or oil
- trade, eg low income country (LIC)Based on the World Bank's income classifications, a LIC has a gross national income (GNI per capita) of $1,045 or lower. (LICs) often rely on the export of low value primary products
Patterns of world trade
Trade involves the sale and purchase of goods, services or information:
- importGoods or services which enter a country. are goods purchased from abroad and brought into a country
- exportGoods or services which leave a country. are goods purchased by other countries and sent to them
- the balance of tradeThe difference between a country's imports and exports. is the difference between the money earned from exports and that spent on imports
Usually, high income country (HIC)A country with a gross national income per capita above US $12,735 (according to the World Bank) such as the Netherlands and the UK. (HICs) export valuable manufactured goodsProducts that have been made from raw materials, either by hand or by machines. such as electronics and cars and import cheaper primary productsResources that are extracted from the natural environment, eg gold, fish or trees. such as sugar and tea. In low-income countries the opposite is true. This means that low-income countries earn little and spend more, giving them a negative balance of trade. The countries are forced to borrow money to pay for imports and can go into debt.
The price of primary products fluctuates on the world market. Prices are set in HICs and producers in LICs lose out when the price drops. LICs are very dependent on the world-trade system yet they have little control over how it operates.
HICs control world trade through trade tariffs, subsidies and trade quotas:
- Tariffs are taxes imposed on imports. This can make imports more expensive than goods manufactured in the home country.
- Quotas are limits on the amount of goods imported. This stops some countries exporting their goods to richer countries.
- Subsidies are a government policy to encourage the export of goods through direct payments, low-cost loans, tax relief or government-financed international advertising (which artificially make HIC goods more marketable).