Trade and development

Trade can be a key factor in economic development. The prudent use of trade can boost a country's development and create absolute gains for the trading partners involved. Trade has been touted as an important tool in the path to development by prominent economists. However trade may not be a panacea for development as important questions surrounding how free trade really is and the harm trade can cause domestic infant industries to come into play.

The current consensus is that trade, development, and poverty reduction are intimately linked. Sustained economic growth over longer periods is associated with poverty reduction, while trade and growth are linked. Countries that develop invariably increase their integration with the global economy, while export-led growth has been a key part of many countries’ successful development strategies.

Continents, countries and sectors that have not developed and remain largely poor have comparative advantage in three main areas:

Crucially for poverty reduction, the latter two at least are labor-intensive, helping to ensure that growth in these sectors will be poverty-reducing. However, low value-added, price instability and sustainability in these commodity sectors means they should be used only temporarily and as stepping stones in the path to economic development.

In many developing countries, agriculture employs a large proportion of the labor force, while food consumption accounts for a large share of household income. The United Nations Conference on Trade and Development (UNCTAD) notes that this means that “even small changes in agricultural employment opportunities, or prices, can have major socio-economic effects in developing countries”. Thus whatever the development strategy a particular country adopts, the role of agriculture will often be crucial. In 1994, the agricultural sector employed over 70% of the labor force in low-income countries, 30% in middle-income countries, and only 4% in high-income countries (UNCTAD 1999).

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