Reducing Disparities in wealth and development

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Disparities in wealth and development Reducing disparities :

Disparities in wealth and development Reducing disparities Discuss the different ways in which disparities can be reduced with an emphasis on: trade and market access, debt relief, aid remittances. Evaluate the effectiveness of strategies designed to reduce disparities.

The Theory: Reducing disparities:

The Theory: Reducing disparitie s Modernist approach – here the stress was the need for countries to be able to fill a savings gap in order to develop by following the same path that developed nations already had done. The Rostow model is very good for looking at development as it introduces the idea of filling the savings gap through either. Trade, FDI, Loans, Remittances, Aid Neo- Liberal Approach – Free market approach adopted by Reagan and Thatcher in the 80s and followed by WTO, World Bank and IMF as the way for economies to develop. Very trade based, with changes in internal structure. FDI can cause the development of a core through “cumulative causation” with effects trickling down.

Marxists and populists:

Marxists and populists Both critics of the free market approach Only some such as S.Korea have managed to develop into NIC’s following this approach and this has not been done through having totally free markets but through protecting its infant industries. Marxists tend to point to the need for a lot of “top-down” policies which involved central government – e.g. in China the development of the 3 gorges dam project Populists tend to point to the need for “bottom up” policies such as those used by many NGO’s such as Water Aid.

Slide 4:

The choice of aid that countries or organisations such as the World Bank give to countries can be looked at in terms of top town and bottom up also.


Tasks: Trade Market Access Fair Trade What is it? How does it reduce disparities? How successful has it been in reducing disparities? Debt Relief Aid Remittances What is it? How does it reduce disparities? How successful has it been in reducing disparities? Basic Ideas to Be got From Geographyalltheway before final Doc Use the Geographyalltheway pages and the Pages from your Geography IB guide fill in the information in each section.

Reducing Disparities through Trade:

Reducing Disparities through Trade Source: UNDP development report

The Role of Trade in Reducing Disparities:

The Role of Trade in Reducing Disparities

Slide 8:

Why do people trade It is to do with comparative advantage. There is an uneven spread of natural resources in the world. The theory is that people specialise in what they have a comparative advantage. They produce this in large quantities implying economies of scale and then trade their surplus with others who have a comparative advantage in other things. Thus all countries push their production possibility frontiers out and they both grow economically. Trade in this way is therefore a good thing and can only benefit all. This is the view of the World Trade Organisation (WTO) and as such they are main proponents of free trade. - trade without obstacles and impediments such as quotas, tariffs or any other artificial barriers to the free flow of goods and services across borders.

Using Natural Resources to trade:

Using Natural Resources to trade it would be expected that those with an abundance of natural resources would be able to trade more and would therefore be richer. Britain – the earliest country to industrialize did this by Autarkic Development. It developed around its plentiful resources of coal and iron. It wanted to trade with other areas of Europe, but these areas threw up trade barriers such as high import taxes to help their infant industries. Britain however had a whole empire that it could obtain raw materials from and for which to sell its processed products. Something which continues today in the relationship that MEDC’s and LEDCs have. Some Countries have had astounding Economic Growth Rates as a result of using its Natural Resources. An Example would be the United Arab Emirates with a GDP$ 50,000 and US$20billion trade surplus. Due to oil revenues. However other countries such as Nigeria have not used their resource and in many ways it can be seen a resource curse. Here it has increased internal inequalities and led to enviromental degradation of the delta area where oil mining occurs. Some countries with very few natural resources of their own have in fact used this to promote trade based on the import of primary resources and the export of secondary manufactured goods. This was particularly true for Japan and also for Singapore. In both these cases trade has been the instrument behind phenomenal economic growth rates that have benefited the population. Let us look at the case of Singapore to exemplify this. In this case the resource that Singapore had an advantage in was its human resource but also its location advantage.

Slide 10:

Location: south of Malaysia. Singapore straits. Natural resources: none, even water is piped in across from mainland. GDP/ capita: $50,000 Ethnic make up: 75% Chinese, 15% Malay, 5% Indian Singapore: It has two main resources: it location and the human resource of an entrepreneurial and skilled population. It is a free port and is the busiest in the world. 1 ship every 6 minutes anchors. Takes less than a second to handle one tonne of cargo. It has 7 free trade zones for manufacturing. And assembling without import or export duties. It is the worlds largest manufacturer and exporter of disks. Most money comes however from oil – a resource it does not posess . It imports, refines and then exports oil products. It is the worlds 3rd largest refining centre. So natural resources are not necessary. However what was important. The human resource: 1. workforce. 2. political system

Singapore cont.:

Singapore cont. At independence it had 10% unemployment and labour unrest. People Action Party were elected under president Lee Kwan Yew. Started on a program of import substitution until 1965 when export led industrial growth was promoted by encouraging TNC’s to invest by. Low taxes Low cost estates Government control of wages through the National Wage Council Strikes made illegal. Good infrastructure Foreign investment rose form US$57 million in 1965 to $1575 in 1971. Growth rate of 10% per annum. Initially labour intensive, changed to capital and skill intensive and saw diversification into electronics. By 1979 it had lost its wage advantage and has moved to services. It still makes a large amount from oil based industries such as oil rig manufacturing and oil refining. Success has been due to : Natural harbour and related port functions. It is most dependent on trade. Quality of human resources Firm leadership who have changed policies on trade as and when it is needed.

Korea path – made simple:

Korea path – made simple 1. Import Substitution 2. Export promotion – labour intensive 3. Capital-Intensive exports – iron , steel, 4. Free trade and hi-tech, expansion to other areas of Asia 5. An open economy Modernists/ Neoliberalists – link to free market and export led growth Dependency – link to import substitution and protectionism. Both use Korea and Singapore as case studies !!


Soooooo Modernists / neoliberalists see trade (free trade) as being route to reducing inequalities. WTO, World Bank and IMF work together to ensure this. Means that new loans, debt cancellation only possible if they agree to STRUCTURAL ADJUSTMENT POLICIES Link here is to work we have done on causes of debt and the world debt crisis. (see next slide for overview) Open up for investment from TNC’s Take away any tariff barriers

Does it work? – look at these two!:

Does it work? – look at these two!


But…. At the moment most LEDC’s rely on the trade of commodities They are often reliant on a small number of commodities for most of their trade These commodities are affected by fluctuations in prices which are determined by markets in the west. There are many examples of unfair trade Examples of dumping of goods from west on poorer countries Lack of market access for some goods, especially into trading blocs such as the EU Terms of trade for traditional goods from LEDCs compared to manufactured goods from MEDC’s has continued to decline Notes from the article “The World Trading System is Unjust and Unfair”

Basically – debt, trade and the environment:

Basically – debt, trade and the environment 1970’s and the first oil crisis. Oil prices rose rapidly as a result of OPEC reducing output Money was deposited in western banks who needed to pay interest. Therefore they needed to lend the money out at a higher rate of interest tom make money. Lots was offered to LEDC’s at fairly low costs Over time a few things happened Lots was lost through corruption e.g. Mobuto Sese Seke in Zaire When there was a world recession interest rates were put up meaning that many counties found it hard to pay back interest rates. Mexico was the first country that threatened to default on their interest payment. This led to a plan called the Brady plan which restructured their debt in return for some concessions on how they managed their economy. Many countries now have huge debt servicing ratios that they cannot develop.

Some cartoons:

Some cartoons

Some Reading and Preparation:

Some Reading and Preparation 3 geofiles Coffee , a case study of a Cash crop – Trade vs Aid Fair Trade The notes you have made collaboratively The pages from your IB Guides

Slide 19:

Explain how debt relief and aid may reduce disparities. [5 Marks] Explain how trade and remittances may reduce disparities. [5 Marks] Explain how trade and access to markets may reduce disparities. [5 Marks]

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