Causes of unfavorable terms of trade in developing countries
- 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.
- 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.
- 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. 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.
- 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
- Weak bargaining power among developing countries due to limited economic integration leads to low prices for their exports.
- 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.
- 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.
- 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.
- Unfavorable exchange rate
- Low quality exports due to poor technology
CATEGORIES Economics
TAGS Dr. Bbosa Science
Brilliant post and useful information. I think this is what I read somewhere but I dont know with your experience
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