University of Oxford

Sugar and developing countries

Sugar and developing countries:

Introduction:

Protectionism is an economic policy where an economy restrains trade between other economies, these policies are aimed at discouraging imports and most of the policies used include tariffs, quotas and bans. Protectionism is aimed at protecting domestic industries from international competition.

Developing countries are agricultural countries where the economy depends on agriculture for growth, most developing countries are in Africa some of these countries are sugar producing countries include Malawi, Mauritius, Zimbabwe and Swaziland are some of the countries that produce sugar at low costs and face trade restrictions in developed economies.

According to Ricardo and Adam smith free trade is a way in which two countries would gain by trading, free trade ensures specialisation and therefore both countries would gain by trading even if one country has comparative advantage in the production of the two goods produced. The two scholars advocated for free trade and sugar protectionism has led both developing and less developing countries to loose.

Protectionism of sugar imports into the developed countries affects the less developed countries negatively and these effects are discussed in this paper.

Sugar protectionism and developing countries:

There are a number of problems that arise as a result of restricted trade on developing countries. These factors include increased poverty levels, increased debt problems, a decline in resource utilisation, lower export levels and therefore lower GDP, balance of trade, increased unemployment levels and slow economic growth.

Balance of trade:

Developing countries are mostly depend on agricultural products for exports and in turn import machinery and other capital intensive products, when they face protective policies in the developing countries they trade with then there is a high possibility that the countries will face a deficit in trade where exports will be less than imports, therefore protectionism in the sugar export market will result into increased balance of trade and also will result into the debt problem where countries are forced to finance their imports through debts.

There is also a decline in export earnings and therefore the country is affected as the trade restrictions are put in place, export earnings add up to the countries GDP levels and if the exports are lower then the GDP level of the country is lower and this means lower income to the general population of the economy.

Unemployment:

Most developing countries will produce both for the domestic market and also for export purpose, therefore they produce surplus in order to export, when surplus is being produced for the purpose of export the developing countries experience an increase in employment not only in labour terms but also resource employment, when there is a decline in demand in the export market this results into a decline in employment levels in these countries.

Unemployment will result from the closing down of export sugar industries and also a decline in employment in sugar cane growing fields where production is labour intensive due to the low cost of labour. Therefore the protectionism policy by the developed countries will result into an increase in unemployment levels for those industries that directly and indirectly depend on sugar exports.

Poverty:

As unemployment increases in the developing countries then there is an increase in poverty in this countries, poverty will result from lack of jobs and sustainable growth of the economy. The only solution to achieve sustainable growth and a reduction of poverty in developing countries and this can be achieved through increased export and capital accumulation. However the restrictions on sugar exports will result into a decline in export revenue and therefore result into increased poverty.

Unsustainable growth in the economy:

A country will benefit from trading and will further experience absolute advantage in specialising and trading in that which it has comparative advantage in, most developing countries have comparative advantage in the production of sugar and this is as a result of the existence of agricultural land and also cheap labour that make the final products to be les expensive as compared to other countries, therefore if a restriction to trade in what the economy has comparative advantage then the economy will experience a decline in economic growth and the growth level will be unsustainable.

The debt problem:

Most sugar producing countries are already faced with the problem of debts, export revenue is in most cases used to repay the debts owned to international finance organisations and if there is a decline in exports then this means that the country is not repaying its debts, as a result the debt problem arises not only because of the inability to pay the debts but also an increase in debt levels in order to finance imports which are mostly machines, crude oil and vehicles which are relatively expensive than the agricultural products.

Increased dependency on foreign aid:

As poverty increases in these countries as a result of increased unemployment and international debts then the developing countries to increase their dependency on foreign aid, this results into increased under development and the increased debt problem due to unsustainable economic growth.

Increased dependency of foreign aid in government budgets is as a result of decline in the productivity of a country, less production as a result of decline export of sugar will therefore mean that the country will depend on foreign debts and aid which will lead to increased inefficiency in the entire economy.

Decline in resource utilisation:

The economy will experience a decline in resource utilisation, agricultural land used for the purpose of production of labour will no longer be utilised and therefore there will be increased idle resources in the economy which can be used for the purpose of economic development.

Conclusion:

It is clear that protectionism on sugar imports by developed countries have negatively affected the developing countries, further the developed countries also experience an increase in their prices for sugar because they purchase domestic products that have higher prices than in the case where they would have imported from low price economies that have absolute advantage in production of sugar. In Adam smith theory and Ricardo’s theory of trade they advocated for free trade and through comparative advantage countries would gain by trading and that barriers to trade would only lead to inefficiency.

References:

Jostling T (2003) Key issues in the World Trade Organization negotiations on agriculture, American Journal of Agriculture, 85 (3) 663-667

Keeney R. and et al (2007) Distributional effects of WTO agricultural reforms in rich and poor countries, Economic Policy, April, pp 289-337

Todaro M. (2004) Economics for a Developing World, McGraw Hill Publishers, New York

Willem H. and Richard M. (1985) International Economic Policy Coordination, Oxford University press, Oxford

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