Critically assess the Role of Trade in Development Essay

Critically assess the Role of Trade in Development - Essay Example In the context of low developed countries, trade becomes crucial to i) reduce economic vulnerability and protect the environment and ii) to mobilize financial resources (UNCTAD, 2010). The role of trade in the economic development and national development strategies are countless. Broadly the decisive role played by trade in economic development is discussed under five major heads in this paper. The goods and services which are produced locally have access to a larger market and the demand expansion effect of trade make the economy capable of overcoming the constraints of its local and domestic market size. This case becomes more relevant in the case of small and medium sized economies who have limited domestic purchasing power. The increasing returns to scale as a result of access to international markets can further reinforce the benefit of operating at a higher output level. The manufactured goods propose better prospects for export earnings by allowing for a more rapid productivity growth and production expansion and also offer the promise of greater price stability as volumes expand, thereby avoiding the declining terms of trade which hinders the long run economic performance of many developing countries (UNCTAD 2002) Trade leads to acquisition of newly affordable goods that are necessary for technological dynamisms, poverty reduction and increasing economic development. Those goods would not available unless export or import occur properly and even if they are available, those may not be for the scarce domestic resources. The import-supply role of the imports like food, fuel, capital equipments, spare parts, intermediate inputs and machinery for long run investment are very critical in the context of low developed and developing countries where the agriculture sector is more predominant and the productive capacities of manufacturing industries are weak. If the foreign earnings from exports are appropriately