global interdependence

Visible Export

Physical good sent abroad

Visible Import

Physical good brought in from abroad

Invisible Export

Service sold to a foreign country

Invisible Import

Service bought from a foreign country

Global patterns of trade

Most trade happens between developed countries (e.g. USA-Germany, UK-France).

Manufactured goods trade

There's a high volume of manufactured goods traded from emerging economies (e.g. China, Vietnam) to developed countries.

Raw materials flow

Many raw materials and commodities (e.g. oil, cocoa, copper) flow from LICs to HICs.

Inequalities in Trade Flows

Some countries benefit more from global trade than others, leading to economic inequalities.

Reasons for inequalities

Colonial history, trade barriers and tariffs, lack of infrastructure in LICs, dependence on a narrow range of exports, terms of trade (price of exports vs. imports).

HICs terms of trade

HICs often have favourable terms of trade, exporting high-value goods and services.

LICs export issues

Many LICs export low-value raw materials and import expensive manufactured goods.

Vulnerability of economies

Sub-Saharan Africa often relies on a few primary exports, making economies vulnerable to price changes.

Resource Endowment

Natural and human resources shape export potential.

Locational Advantage

Geography affects transport costs and accessibility.

Colonial Ties

Historical trade routes influence modern trade patterns.

Trade Agreements

Formal deals promoting trade between countries or blocs.

Global Market Changes

Economic shifts and crises influence demand and trade priorities.

World Trade Organization (WTO)

A global intergovernmental organisation that regulates and promotes international trade.

WTO establishment

It was established in 1995 and now includes over 160 member countries.

WTO Key Functions

Promotes free trade, acts as a forum for negotiation, resolves trade disputes, monitors and enforces trade rules.

Free Trade

International trade without restrictions such as tariffs, quotas, or subsidies.

Positive impacts for exporting countries

Economic growth, foreign exchange earnings, development of industries.

Positive impacts for importing countries

Greater consumer choice, access to resources and technology.

Access to resources and technology

Especially for countries lacking raw materials or manufacturing capabilities.

Specialisation

Countries can focus on their comparative advantage.

Overdependence

On one or two export commodities makes economies vulnerable (e.g. oil, coffee).

Environmental degradation

Increased production may lead to deforestation, pollution, or resource depletion.

Unequal gains

Profits may go to foreign companies, not local communities (e.g. TNCs in mining or agriculture).

Domestic industry collapse

Local producers may struggle to compete with cheaper imports.

Trade deficits

When imports exceed exports, leading to debt and economic instability.

Loss of cultural identity

Some argue that global trade promotes homogenisation and western consumerism.

Fair trade

A trading partnership, based on dialogue, transparency, and respect, that seeks greater equity in international trade.

Core Principles of Fair Trade

Paying fair prices to producers, ensuring safe and humane working conditions, prohibiting child and forced labour, encouraging environmentally sustainable practices, and supporting community development.

Improving Income Stability for Producers

Fair trade helps reduce reliance on volatile global commodity markets, where prices can fall below the cost of production.

Empowering Small-Scale Farmers and Workers

Fair trade supports cooperatives and associations, helping farmers gain collective bargaining power.

Promoting Sustainable Development

Fair trade standards encourage environmental protection, such as reduced pesticide use, organic farming, and soil conservation.

Raising Consumer Awareness

Fair trade labelling helps consumers make ethical purchasing choices.

Limited market share

Fair trade goods make up a small percentage of global trade.

Certification costs

Some small producers can't afford to meet the strict requirements or pay for certification.

Not all farmers benefit equally

Larger farms or better-resourced cooperatives may benefit more.

Dependence

It doesn't necessarily lead to long-term independence or diversification of economies.

National debt

The total amount of money a country's government owes to internal or external lenders.

Development Loans

Many LICs and NEEs borrow from institutions like the World Bank or IMF to fund infrastructure.

Commodity Price Fluctuations

Countries dependent on exports like oil, cocoa, or copper suffer when global prices fall.

Example of Zambia

Zambia's copper-dependent economy faced debt crises when copper prices dropped.

Political Instability and Corruption

In some cases, borrowed funds are misused or embezzled, and do not contribute to development.

Natural Disasters or Conflict

Countries hit by earthquakes, floods, droughts, or wars often borrow heavily to fund recovery and rebuilding efforts.

Example of Debt Increase

Haiti's debt increased after the 2010 earthquake.

Bilateral Debt

Borrowed from another single country (e.g. China or the US).

Multilateral Debt

Borrowed from international organisations (e.g. World Bank, IMF, African Development Bank).

Short-term Debt

Short-term loans have higher repayment pressure and can strain economies.

Long-term Debt

Long-term debt often leads to decades of interest payments.

Debt Servicing

Refers to the need to repay interest and principal on loans.

Impact of High Debt Servicing

High debt servicing diverts money away from vital public services like education, healthcare, or infrastructure.

Economic Instability

High debt can reduce investor confidence and damage credit ratings, making it harder to borrow in the future.

Consequences of High Debt

Governments may be forced to raise taxes or cut public spending, which can lead to social unrest.

Stunted Development

A country in debt may not be able to invest in productive sectors (e.g. manufacturing, renewable energy) that could help them grow and reduce poverty.

Cycle of Dependency

Creates a cycle of dependency on foreign aid and new loans.

Loss of Sovereignty

Countries often have to follow strict conditions imposed by lenders, which may include reducing subsidies, privatising services, or cutting social welfare programmes.

International Debt Crisis

The international debt crisis refers to a situation where many low-income countries found themselves unable to repay their external debts, especially during the 1980s and 1990s.

1970s Oil Crisis and Borrowing Boom

Oil-exporting countries had large profits and placed money in Western banks, which then loaned out money to LICs at low interest rates.

1980s Interest Rate Rise

In the early 1980s, global interest rates rose sharply, causing LICs to face much higher debt repayments.

Falling Commodity Prices

Countries depending on a few exports (e.g. coffee, copper, cocoa) found that their incomes fell drastically.

Structural Adjustment Programmes (SAPs)

The IMF and World Bank offered loans with strict economic reforms (privatisation, cuts in public spending) that often worsened poverty and inequality.

Economic Stagnation

Countries had to spend a large share of their income on debt repayments, leaving little for investment in health, education, or infrastructure.

Dependency and Instability

Countries became trapped in a cycle of borrowing, unable to escape poverty, leading to social and political unrest.

Debt Relief

Debt relief involves partial or total cancellation, rescheduling, or reduction of debt repayments, aimed at helping countries in severe debt crises recover economically and socially.

Heavily Indebted Poor Countries (HIPC) Initiative

Launched by the IMF and World Bank in 1996, aimed to reduce the debt of the world's poorest and most indebted countries.

Conditions for HIPC Initiative

Countries had to implement economic reforms and reduce poverty through Poverty Reduction Strategy Papers (PRSPs).

Outcome of HIPC Initiative

Over 30 countries received debt relief (mostly in Sub-Saharan Africa), freeing up money for education, health, and infrastructure.

Example of Debt Relief Use

Uganda used debt relief to provide free primary education.

Positive Impact of Debt Relief

Freed up national budgets for essential services (health, education, sanitation).

International Aid

Money, goods, or services given by one country (or organization) to another, typically to promote development, provide relief, or assist during emergencies.

Relief Aid (Emergency Aid)

Aid given immediately after a disaster such as an earthquake, flood, or conflict.

Purpose of Relief Aid

To save lives and meet basic human needs (food, water, shelter, medicine).

Characteristics of Relief Aid

Short-term, rapid response, delivered during humanitarian crises.

Examples of Relief Aid

Emergency supplies sent after the 2010 Haiti earthquake; medical aid to countries hit by Ebola or COVID-19 outbreaks.

Development Aid

Aid aimed at promoting long-term economic and social development in a country.

Purpose of Development Aid

To reduce poverty, build infrastructure, improve health and education.

Characteristics of Development Aid

Long-term, focused on sustainability and capacity-building, often part of national development plans.

Examples of Development Aid

Funding schools and training teachers in rural Uganda; building water supply systems in arid areas of Ethiopia.

Tied Aid

Aid that must be spent on goods or services from the donor country.

Purpose of Tied Aid

Helps the donor's economy but may limit the recipient's freedom.

Characteristics of Tied Aid

Can be inefficient or expensive; criticized for benefitting donor more than the recipient.

Examples of Tied Aid

A country receives aid to build a road but must use a company from the donor country; UK gives aid to buy British-made equipment.

Bilateral Aid

Aid given directly from one country to another.

Purpose of Bilateral Aid

May be humanitarian, political, economic, or strategic.

Characteristics of Bilateral Aid

Can be tailored to specific needs; sometimes influenced by political or diplomatic motives.

Examples of Bilateral Aid

Japan funding infrastructure projects in Southeast Asia; UK giving aid directly to Commonwealth countries.

Multilateral Aid

Aid given through an international organisation that then distributes it.

Donors of Multilateral Aid

Countries contribute to institutions like the United Nations (UN), World Bank, International Monetary Fund (IMF), European Union (EU).

Purpose of Multilateral Aid

Pooling resources to fund large-scale development and relief efforts.

Characteristics of Multilateral Aid

Often targeted at large-scale, global issues (e.g., health, climate); viewed as more neutral and coordinated.

Examples of Multilateral Aid

World Bank loans to develop roads across Sub-Saharan Africa; WHO (via UN) funding vaccination programmes in low-income countries.

Aid Donors

Various sources of aid including governments, NGOs, multilateral organizations, and private donors.

Examples of Government Donors

UK, USA, Japan.

Examples of NGO Donors

Oxfam, Red Cross, Save the Children.

Examples of Multilateral Organization Donors

UN, World Bank, IMF.

Examples of Private Donors

Gates Foundation, celebrities, corporations.

Positives of International Aid

Improved basic services, disaster response, and humanitarian relief.