International Trade and Economic Development
Part 2 Section 2
Trade Barriers
Over-Specialization on a Narrow Range of Products
Chad depends greatly on agriculture and the export of primary products to support its economy. Chad's major export crop is cotton, and the agricultural sector is responsible for employing 80% of the whole labor force (World Bank). If the price of cotton rose, it would be beneficial to Chad, since this would increase the rate of economic growth since they could take in more money for the crops they are exporting. Additionally, if the revenue is used for essential services like health care and infrastructure, development will increase an Chad could have a positive development and future.
However, if there is a fall in cotton prices, Chad will experience deteriorating terms of trade. The current account deficit in Chad would increase, making it that much more difficult for Chad to finance current expenditures and pay for necessary imports. Chad will find it very hard to grown through international trade because it is so dependent on primary products, like cotton, and are continuing to grow and develop a dependence on primary exports like their newly discovered oil. Chad is especially vulnerable to a decrease in supply of cotton or oil, due to the poor cultivation methods and frequent floods in Chad. This would decrease revenue from exports and prohibit economic growth and development. Overall, a narrow range of products increases vulnerability and uncertainty in Chad, resulting in uncertainties in growth an development as well.
Price Volatility of Primary Products
The price elasticity of demand for oil and the price elasticity of supply for oil on the world market tend to be relatively inelastic, since people need oil regardless of whether they want to pay for it or not. Any change in demand or supply for the oil will lead to large fluctuations in the world market. For example, Chad experiences some floods on occasion. A flood would greatly decrease the supply of oil, if it were to hinder oil mining by say making it unsafe to operate machinery during this time period. This would raise the price of oil, but Chad would export less oil than normal. These great fluctuations would significantly impact the export revenue of Chad.
This volatility in price and the following volatility in export revenues make it difficult for everyone involved to plan for the future, including the Chadian government and the oil producers/miners. This uncertainty impacts investment in companies because people do not want to invest in such as risky, uncertain market. As a result, there is decreased investment in Chad, causing economic growth to fall. A decrease in economic growth will decrease the amount of money the government can spend on essential services, and thus hinder economic development.
Trade Strategies
Trade Liberalization
Trade liberalization, the removal or reduction of goods and services, began in Chad in 2000 with the first Structural Adjustment Program (SAP) (afdb). The SAP re-structured the Chadian economy through reducing tariff and non-tariff barriers. also, import restrictions were limited to only a handful of goods. This trade liberalization should increase world trade and allow Chad to concentrate on the production of goods and services where they have a comparative advantage.
Removing and reducing tariffs would cause Chadians to import more foreign goods at lower prices. This would enable them to spend less money on necessities and be able to save money that could be then invested in their future since the goods they previously needed are 'cheaper' now. This would increase economic development and growth. By focusing on areas where Chad has a comparative advantage, Chad can gain more revenue which would increase growth and development when the revenue made is used for the provision of essential goods and services.
Bilateral and Regional Preferential Trade Agreements
In order to increase revenue, and consequently GDP, Chad's government has decided to make a bilateral trade agreement, or an agreement that gives preferential treatment to another country in commercial relationships, facilitating trade and investment in the countries, with the United Arab Emirates (moft). This agreement states that they give each other the most favored nation status and do not charge tariffs on each other's goods and services. This helps trade flow more and more easily between the two countries (moft). This can increase the GDP and growth of a country, since citizens in the United Arab Emirates can now buy more Chadian goods and services, since they don't have tariffs and fees attached to them.
This export-led growth bases itself on openness and increased international trade. Chad concentrates on exports to increase its revenue, which should increase GDP and lead to higher incomes. This increase in economic growth can be used to create economic development through the provision of essential services such as health care and sanitation.
Trade Barriers
Over-Specialization on a Narrow Range of Products
Chad depends greatly on agriculture and the export of primary products to support its economy. Chad's major export crop is cotton, and the agricultural sector is responsible for employing 80% of the whole labor force (World Bank). If the price of cotton rose, it would be beneficial to Chad, since this would increase the rate of economic growth since they could take in more money for the crops they are exporting. Additionally, if the revenue is used for essential services like health care and infrastructure, development will increase an Chad could have a positive development and future.
However, if there is a fall in cotton prices, Chad will experience deteriorating terms of trade. The current account deficit in Chad would increase, making it that much more difficult for Chad to finance current expenditures and pay for necessary imports. Chad will find it very hard to grown through international trade because it is so dependent on primary products, like cotton, and are continuing to grow and develop a dependence on primary exports like their newly discovered oil. Chad is especially vulnerable to a decrease in supply of cotton or oil, due to the poor cultivation methods and frequent floods in Chad. This would decrease revenue from exports and prohibit economic growth and development. Overall, a narrow range of products increases vulnerability and uncertainty in Chad, resulting in uncertainties in growth an development as well.
Price Volatility of Primary Products
The price elasticity of demand for oil and the price elasticity of supply for oil on the world market tend to be relatively inelastic, since people need oil regardless of whether they want to pay for it or not. Any change in demand or supply for the oil will lead to large fluctuations in the world market. For example, Chad experiences some floods on occasion. A flood would greatly decrease the supply of oil, if it were to hinder oil mining by say making it unsafe to operate machinery during this time period. This would raise the price of oil, but Chad would export less oil than normal. These great fluctuations would significantly impact the export revenue of Chad.
This volatility in price and the following volatility in export revenues make it difficult for everyone involved to plan for the future, including the Chadian government and the oil producers/miners. This uncertainty impacts investment in companies because people do not want to invest in such as risky, uncertain market. As a result, there is decreased investment in Chad, causing economic growth to fall. A decrease in economic growth will decrease the amount of money the government can spend on essential services, and thus hinder economic development.
Trade Strategies
Trade Liberalization
Trade liberalization, the removal or reduction of goods and services, began in Chad in 2000 with the first Structural Adjustment Program (SAP) (afdb). The SAP re-structured the Chadian economy through reducing tariff and non-tariff barriers. also, import restrictions were limited to only a handful of goods. This trade liberalization should increase world trade and allow Chad to concentrate on the production of goods and services where they have a comparative advantage.
Removing and reducing tariffs would cause Chadians to import more foreign goods at lower prices. This would enable them to spend less money on necessities and be able to save money that could be then invested in their future since the goods they previously needed are 'cheaper' now. This would increase economic development and growth. By focusing on areas where Chad has a comparative advantage, Chad can gain more revenue which would increase growth and development when the revenue made is used for the provision of essential goods and services.
Bilateral and Regional Preferential Trade Agreements
In order to increase revenue, and consequently GDP, Chad's government has decided to make a bilateral trade agreement, or an agreement that gives preferential treatment to another country in commercial relationships, facilitating trade and investment in the countries, with the United Arab Emirates (moft). This agreement states that they give each other the most favored nation status and do not charge tariffs on each other's goods and services. This helps trade flow more and more easily between the two countries (moft). This can increase the GDP and growth of a country, since citizens in the United Arab Emirates can now buy more Chadian goods and services, since they don't have tariffs and fees attached to them.
This export-led growth bases itself on openness and increased international trade. Chad concentrates on exports to increase its revenue, which should increase GDP and lead to higher incomes. This increase in economic growth can be used to create economic development through the provision of essential services such as health care and sanitation.