Econ-Assignment
African Countries Unable To Penetrate the Global Market
According to Collier, Paul (2007) states that most of the countries in Africa are unable to grow exports of low skill labor-intensive manufactured goods such as textiles because of the lacking economies of agglomeration. Most of the African countries had come up with policies and regulations that blocked foreign investors from looking at the opportunity of relocating firms to Africa. In the 1980s, most of the African population was not able to break into the global market because it was stuck in one trap (Collier, 2007). Compared to Asia, that had agglomerations and was not held on one plan, which enabled it to be so competitive with a combination of low wages and economies of scale, that no country in the world would be compared to it as it had both of the most important factors of successful industrialization.
The fact that Africa was afraid of taking the diversification route of exports and failed to take the opportunity of breaking into the global market in the 1980s when there were opportunities to do so made it unfit for external investors. Mauritius was one of the nations that took the opportunity of diversification during the 1980s, and due to it having low wages, most foreign investors would prefer it to any other African country (Collier, 2007). The lack of grabbing the opportunity of being one of the global market competitors by being stuck on one plan would be termed as Africa shooting their leg and putting an end to development. The fact that Africa missed the boat during the 1980s opportunity is the main reason why it is hard for Africa to export low skill labor manufactured goods such as textiles.
From the survey of most of the countries that export most textile or clothes to other countries, it was clear that Asian countries were the most dominant being led by China. Surprisingly there were no African countries listed because of the effects of not following the steps that Asia took and taking advantage of the 1980s chance. Africa has plenty of low wage labor, as most of its population is unemployed. Still, its lack of economies of scale and economies of agglomeration makes it remain at the bottom in the issue of the global market, which makes it undeveloped and poor (Sumner, 2016). If only it took the opportunity as Asia did then it would have dominated the world market and encouraged private investments which could have enhanced capital flow in the continent which is vital for the development
Foreign Aid and Marginalization
Most of the developing countries have not yet established themselves to a level where they can sustain their population using the resources available in their country, which results in them depending on the developed countries for AidAid (Collier, 2007). The Aid that is sent to most developing countries in the world, mostly in Africa, is sent in the form of loans that are either in dollar pound or euros, which help developing countries pay for most of its essentials. On the other hand, the country that gives the aid profits more from it compared to the one that receives it. Foreign AidAid might look good from the outside, but it is intentionally meant to marginalize the African countries and profit the western economy.
Foreign AidAid helps the economy of the developed western countries grow as it is sent to Africa in foreign currency and the country that receives it has to buy the foreign exchange to transform it into local currency. During this process of foreign exchange, the aid provider benefits by earning more profits from the process (Asongu & Nwachukwu, 2016). Foreign AidAid comes with some strict demands and exaggerated tariffs or interest rates, which put the developing countries at a disadvantage, and instead of liberalization, it continues marginalizing them as they are not given a chance to develop.
The best AidAid that would be appropriate for African countries would be trade liberation, which will enable it to averts the Dutch disease. With trade liberalization, Africa will be able to enhance its industrialization, which will help it manufacture enough products to cater for its population and export to the world market (Collier, 2007). But the developed countries do not want this to happen as they will lose their market, and it will increase competitiveness in the world market, which will be unfavorable for them. For those reasons then AidAid will never come as a solution to the problems, but it will continue marginalizing the developing countries.
Reversing Marginalization
According to Collier, foreign Aid causes problems for developing countries, but there are remedies to it. First is the issue of trade liberalization. With this, it will be easy for developing countries to trade activities on their own and to use the favorable policies that are beneficial to them. Secondly, there is a need to reduce the amount of Aid that a country receives from donors by substituting it with other means, such as enhancing the value gotten from exports. Finally, due to the extra cost that the developing countries incur when doing the foreign exchange, they can use the foreign Aid in paying for foreign expertise, which means that they will not have to change the money into local currency.
Trade Policies That Affect Poor Countries Exports Diversification
The first way given by CollierCollier that affects how developing countries export their products to the world market is the high tariffs that are set by the rich country trade policy (Collier, 2007). The rich countries are in fear that if some of the developing countries penetrate the global market, the competition will increase, rendering them unable to keep up. For that reason, they put up policies that increase the tariffs and rates for processed material exportation while it lowers the tariffs for unprocessed materials. This makes the developing countries prefer exporting unprocessed materials to the developed countries instead of finished products.
The second way that CollierCollier provides, which affects how the developing countries export or diversify their exports, is the fact that the World Trade Organization (WTO) does not give attention to them (Collier, 2007). The WTO is an organization that is meant to defend the interest of the members and preventing them from being exploited by others, but it has failed in its duties. Most developing countries that are members of WTO are not allowed to make decisions or participate in bargaining, which makes it hard for them to have a free operation that would enable them to practice diversity exports.
Need For High Trade Barriers in Bottom Billion Countries
A production that is focused on the domestic market causes a problem for the country as it lacks diversity, economies of scale, and economies agglomeration, which affects how investors view them. With that, then it is clear that investors will not be interested in such countries that are stuck in one plan and that they cannot compete in the global market. With a lack of private capital flow in a country, it makes it hard for development (Slaughter, 2017). Secondly, the more dependent a country is to receive processed products from them affect the economy as it results in the country spending more money on imports that could have been invested somewhere else. Also, it deprives the country of taking part in foreign exchange that might benefit their economy, which is achieved through foreign trade or exports.
The governments in the bottom billion countries have high trade barriers in place to try and protect the natural resources that are in their countries from being overexploited by the rich countries who take advantage of them. It is important to note the rich countries usually take advantage of the developing countries exploit their rich resources and later sell them finished products at a very high price (Sumner, 2016). The fact that rich countries only continue getting richer at the expense of the developing countries most governments are putting barriers to put a stop to this by maximizing the resources in their own country.
Reference
Asongu, S. A., & Nwachukwu, J. C. (2016). Foreign AidAid and governance in Africa. International Review of Applied Economics, 30(1), 69-88.
Collier, P. (2007). The bottom billion: Why the poorest countries are failing and what can be done about it.
Slaughter, S. (2017). Global Poverty and Inequality. In Global Encyclopedia of Public Administration, Public Policy, and Governance (pp. 1-9). Springer, Cham.
Sumner, A. (2016). Global Poverty and the New Bottom Billion Revisited: Why Are Some People Poor?. mimeo, King’s College International Development Institute, available at the URL https://www. researchgate. net/publication/294893944.