Global Inequality and Declining Terms of Trade Notes
Global Inequality and Declining Terms of Trade
Main Goal of Development
Development aims for an increase in economic growth (Wood & Roberts, 2012:119).
A common yet problematic measure of economic growth is the change in national income over time.
Problems with Measures of Economic Growth
Ignorance of wealth distribution, which reflects how money is distributed among the population.
National income metrics do not account for:
Economic activity not involving monetary transactions.
Illegal or ‘under-the-table’ economic activity.
Wealth Distribution Insights
Cartoon example illustrates wealth distribution:
50% of wealth held by one group while the rest divides the remaining 50%.
Economic Activities Counted and Not Counted
Counted Activities (above waterline):
Formal, documented economic activities (approx. 50%+ in North America).
Not Counted Activities (below waterline):
Informal, undocumented economic activities that contribute to the economy but are often overlooked.
Commodities and Economic Categories
Primary Commodities:
Include agricultural products, livestock, minerals, timber, fish.
Secondary Commodities:
Manufactured goods.
Tertiary Activities:
Services.
Singer-Prebisch Theory of Declining Terms of Trade
Long-run trend: Value of primary products decreases relative to manufactured products.
Countries reliant on primary commodities experience real output value declines, impacting their import capability.
Factors Causing Declining Terms of Trade for Agriculture
Agricultural productivity impacted by:
Environmental factors: Weather uncertainties lead to market instability.
Substitution with cheaper alternatives: E.g., corn syrup vs. traditional sugar.
Increasing competition: Rise in alternative agricultural products.
Example comparisons:
Challenges faced by traditional crops (e.g., sugar cane vs. corn syrup).
Economic Trends Over Time
Primary commodities become less scarce than manufactured goods as supply increases.
Continuous development of new manufactured goods maintains initial scarcity but leads to competitive dynamics.
Consequences of Declining Terms of Trade
Cycle of poverty for countries specializing in primary commodities due to decrease in unit value of exports over time.
The Ultimate Causes of Global Inequality
Questions of economic disparity:
Why are regions rich while others remain in poverty?
Structured layers: core, periphery, and semi-periphery.
Theories Explaining Economic Disparity
Modernization Theory
Suggests all countries go through 5 stages of growth:
Traditional: Pre-industrial, rural settings.
Take-off: Period of urbanization and industrialization.
Drive to maturity: Economy diversifies, urbanizes further.
High mass consumption: Service sector predominates.
Critique: Reflects capitalist perspectives; oversimplifies historical trajectories.
Dependency Theory
Asserts core countries exploit peripheral ones, initiating cycles of dependency that began in colonial eras and endure post-independence.
Core exports manufactured goods while peripheral countries ship raw materials.
Notable Advocates: Singer & Prebisch were prominent dependency theorists.
World-Systems Theory
Analyzes global economy through colonial and trade patterns that favor core countries.
Recognizes historical shifts in core countries through centuries.
Critiques of Dependency & World-Systems Theories
Risks of simplistically attributing exploitation to countries instead of the political-economic systems and individuals involved.
Does not encompass instances of countries moving up socio-economic ladders (e.g., “4 Tigers,” PRC, Vietnam).