Causes of unfavorable terms of trade in developing countries

Causes of unfavorable terms of trade in developing countries

  1. Production and exportation of similar products by developing countries. This leads to excess supply on the world market hence low export prices as compared   to import prices.
  2. Discovery of synthetic substitutes by developed countries   for exports from developing   countries. This has greatly reduced   the demand   for exports   from developing   countries   hence   low export prices.
  3. Development of raw material saving technology by developed countries.   This has reduced   the demand for raw materials   from developing   countries hence low export prices.
  4. 4. Production and exportation   of   cheap primary   products   (raw, materials)   by   developing countries. Such products fetch low prices on the world market hence unfavorable     terms of trade.
  5. International commodity agreements favour   developed countries by   fixing   low   prices   for exports from developing   countries   and higher prices for exports from developed   countries   hence deteriorating   terms of trade
  6. Weak bargaining power among developing countries due to limited economic integration   leads to low prices for their exports.
  7. Some developing countries (like Uganda) are land locked. This leads to high costs of transport for their exports and imports. The  high  transport   costs  reduce   the  prices   for  their  exports   and increase  the prices  for their  imports  hence  unfavorable   terms  of trade.
  8. Protectionism by developed countries against  exports from   developing  countries  in  form of tariff  and  non-tariff  barriers.   This is aimed at protecting   their economies   as a way of achieving self-sufficiency   and reliance.   This has greatly reduced the demand   for exports   from developing countries hence unfavorable   terms of trade.
  9. Developing countries have a high marginal propensity to import.  This   enables   developed countries  to fix high prices  on their  products  hence  unfavorable   terms of trade.
  10. Unfavorable exchange rate
  11. Low quality exports due to poor technology
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