TRADE AND ECONOMIC DEVELOPMENT

PROGNOSIS OF PROGRESS

Muhammad A Faraz Author

Public policy and economic development professional
Public Policy University of Reading, England

Email: indite2faraaz@yahoo.co.in
Email: indite2faraaz@gmail.com
TABLE OF CONTENTS/LIST OF CHAPTERS

__________________________________________________________

INTRODUCTION

CHAPTER 1
TRADE AND ECONOMIC DEVELOPMENT

CHAPTER 2
PO L I T I C A L S T A B I L I T Y

CHAPTER 3
RESOURCE ENDOWMENTS

CHAPTER 4
CO M P A R I T I V E A D V A N T A G E

CHAPTER 5
D I P LO M A T I C R E L A T I O N S

CHAPTER 6
CO M P I T A T I V E N E S S

CHAPTER 7
DEVELOPMENT

CHAPTER 8
CO N C L U S I O N , T H E N E E D

REFERENCES
 Abstract

T h i s p a p e r e s t a b l i s h e s a l i n k b e t w e e n t r a d e a n d d e v e l o p m e n t , a n d ho w e x p a n s i o n o f t r a d e
in the county can act as a rock bed for a prosperous future along with certain ‘necessary
c o n d i t i o n s ’ t h a t m u s t b e f u l f i l l e d . T h i s p a pe r i s a u ni q u e c o m b i n a t i o n o f r i g o r o u s a n a l y s i s
a n d e m p i r i c a l e vi d e n c e f o c u s i n g o n h o w t h e p r o c e s s o f e c o no m i c d e v e l o p m e n t c a n p r o g r e s s
a n d h o w i t w i l l c re a t e po s i t i v e i m p a c t o n t h e e c o n o m y . M o r e c l e a r l y t h i s p a p e r e x a m i n e s
ho w e x p o r t o ri e n t e d po l i c i e s o r p o l i c i e s p r o m o t i n g g r e a t e r n a t i o n a l i n c o m e f r o m t r a d e c a n
r e a l l y t r a n s f o r m t h e e c o n o m y a n d e v e n t u a l l y h e l p c o u n t r i e s r e a c h t h e hi g h e s t s t a g e o f
e c o n o m i c d e v e l o pm e n t o v e r a p e r i o d o f t i m e . A n d o n t h e o t h e r h a n d t h i s p a p e r a n a l y s e s
t h e e x t e n t o f p o s i t i v e i m p a c t a n d p r o m i ne n c e o f h u m a n a n d s o c i a l c a p i t a l i n o r d e r t o
po s i t i o n t h e c o u n t r y o n p a t h o f r a p i d a n d s u s t a i n e d g r o w t h a n d e c o n o m i c e x p a n s i o n .
B as e d o n v e r i f i a b l e e m p i r i c a l e v i d e n c e t h i s p a p e r s h o w s h o w t h e e x p o r t b a s e d e c o n o m i e s
c h a n ge d o ve r a p e r i o d o f t i m e d u e t o p o l i c i e s t h e y a d o p t e d a n d h o w t h o s e p o l i c i e s
a c h i e v e d t w o - d i m e n s i o n a l u n m a t c h e d e c o n o m i c a d v a n c e m e n t a n d hu m a n de v e l o p m e n t a t
o n c e . F i n a l l y t h i s p a p e r s y s t e m a t i c a l l y p r e s e n t s i n b r o a d s e n s e w h a t po l i c e s s h o ul d be
de s i g n e d b y l o w - i n c o m e c o u n t r i e s i n o r de r t o b o o s t a n d h e l p t h e m r e a l i z e t h e i r p o t e n t i a l
that ultimately places these countries on path of economic development and sustained
p r o s pe r i t y .
KEY WORDS

Human Capital
Technological Advancement
Human Capital and Trade
Economic Development and Social Capital
Diplomacy and Trade

ACEDEMIC DISCIPLINE
Economics

S UB J E C T C L A S S I F I C A T I O N
D e v e l o pm e n t E c o n o m i c s

TYPE (METHOD/APPROACH)
Em p i r i c a l
INTRODUCTION

Recent Economic Success of few Asian Countries like China, Taiwan, South Korea have boosted the
urge and focus of emphasis of other countries to follow the path of expansion of national income
possibly through trade to provide launch-pad for culmination for effective utilization of available
resources. Role of external sector in resolution as a major path or primary factor that had impulsive
impact on national income comes along with fulfillment of various economic and political demands.

It is and it will always be true that to what degree and in what proportion we do possess resources or
how far we can develop it to jumpstart the economy plays a central role. But perhaps it cannot be
concluded that abundance of natural resource and it efficient utilization can only bring about a
radical change way the economy operates. Empirical evidence shows that over the last few decades
many Asian countries driven by policies that progressively supported manufacturing, technology,
infrastructure and education gradually surpassed the growth rates and the pace of technological
advancement compared with advanced western countries creating a dominant place in international
markets as well as enhanced the standard of living.

What matters for advancement of trade is closely related to what does it really require for economy
to the operate, it is just a matter of identification of nation’s potential; but beyond all arguments
isolated view or disengagement with evidence that trade is only a matter of surplus resources or
something which can’t relied on to harbor by poor economies, I think is against the dogma of
diligent economic management and by far a penitent mistake. Interestingly this paper examines how
huge investments in human capital development can be a foundational step forward towards
increasing the share of external sector in the national income based on optimum utilization of
resources which remains the decisive factors combined with lot of socio-economic and political
factors that will be discussed in chapter ahead.
1. TRADE AND DEVELOPMENT

In pursuit of economic development; economists and Governments have devised and

experimented host of alternatives in the last fifty years. a glance on these efforts accurately reveals
that major constituents/emphasis in terms of testing has been exclusively high reliance on
industrialization, effective labor utilization and other possibilities that stood as opportunity for
realization of dream of economic development. Economic development not of course exhaustive to
exaggeration of any of the single alternatives adopted so far. By far by any stretch of imagination and
mathematical argument it not at all conveys that mere dependence on industrialization or any other
alternative bears the fruit of economic development. Rather collective impact of all possibilities in
terms of economic and social change and cognitive effort with political stability or will would be
drivers of massive economic change and prosperity. There are many connections and perquisites in
the process of economic development that are to be acknowledged and gathered in systematic
format. There is no revision of attitudes towards industrialization and utilization of labor in the
process of economic development, for these are the primary achievement without which process of
economic development cannot be initialized. Developed and prosperous society with equal justice
supported by strong institutions at both political and economic front is indeed the ultimate dream of
every nation and its political elements, and how beautifully this dream can be can realized is indeed
described in this paper in a very broad and versatile way, based on an analogy which is a
combination of trade and development. National sovereignty, social security, education, research and
development, institutions that support innovative sprit, policies that help expand markets, competitive
environment along with most importantly political will the honestly utilize natural resources for the
development of the country and a vision of creating an edge in international markets are some the
crucial issues that needs to be considered and strategies must be evolved around these principles to
create prosperous future and a strong today.

Pathways to economic development and change are numerous and vivid, but the intention of
this paper is to elaborate in broad fashion the prospective possibilities that exist for reformation of
trade and economic development and how does international trade can bring magnificent changes in
the process of economic development.

Normally trade or exclusive dependence on trade for subjective purpose of attainment of

certain rate of growth in GNP calls for wide variety of economic, political and social
complementarities indeed, for that matter view that trade can became a factor of relief in/for
economic development is not an easy belief. Over the last 3 decades Asian Economics like China,
Korea, Taiwan and Singapore and the like have registered significant growth rate in terms of GNP
Per capita income, advancement in the level of technology and rise in standard of living mainly
because the share of trade in composition of GNP has been the dominant and driven by other number
of socio-economic changes. The basic philosophy of the Park Chung Hee government [Korea] was
“exports first” or “nation building through export promotion”. (C Harvie, 2003) China’s international
trade has experienced rapid expansion together with its dramatic economic growth which has made
the country target the world as its market. The stable political system, vast natural resources and
abundant skilled labor in China have made it a modern global factory. (Peng Sun, 2010) Therefore
the growth story in China is formidably a product of three vital elements which can’t ignored while
making assumptions and policy prescriptions for advancement of economic growth and development.

In the first case the stable political system turned unto a rock solid foundation for structuring
economic policies focusing on efficetve resource utilisation and helped China grow its economic
activeties that ultimatly placed closer to the path of economic development. Secondly the uniqueness
of Chinese growth lies in expansion of its market base that crossed its borders and eventually
became a dominant export based economy in the world. This is the result of accessing markets
overseas where China maneuvered quiet wonderfully in accessing them. Capitalization on
comparative Advantage or the development of comparative advantage by effectively and sensibly
u t i l i z a t i o n o f r e s o u r c e s i n t h e s e y e a r s h a v e d e m o n s t r a t e d e c o n o m i c a d v a n c e m e n t i n C h i n a . The
emergence of Taiwan's SMEs is closely related to the economic, social and educational policies adopted by the government in
the past. The "Land to the Tiller" program and the Economic Construction Plan, the implementation of which began in 1953,
the beginning of compulsory education in 1968, and the Ten Major Construction Projects plan, which began to be implemented
in 1973, along with other measures adopted in the areas of economic development, manpower resources, social stability and
public construction, have all provided SMEs with an excellent environment in which to grow and develop. (Ministry of
Economic Affairs, 2014)

The Taiwanese experience so far exclusively reveals that a combination of both nation-
building plans like huge investments in infrastructure, Technology, education and export promotion
policies has led to rapid industrialization as well as development measured in terms of life
expectancy, literacy rates, and infant mortality rates among other indicators. The connection
between economic development and trade appears distant and imaginary but realistically these
countries show that a multiple theories of economic development have been strategically
implemented with central focus being expansion of markets and industries complementing social
development altogether bringing closer to economic development.

On the other hand economic development is complex phenomenon driven by host of factors
that potentially overshadows success achieved in economic indicators such as available huge foreign
exchange reserves, or current account balance or just in per capita income. Economic development
calls for recognition and safe-guarding of human rights together with effective system of social
justice and increase in income per capita, leading to improvement in quality of life of the people. But
to start-off the process of reviving the economy as a whole and to reach to the highest stage of
development we must strongly focus on expanding markets, enhancing skills and ultimately move
forward towards full utilization of resources from current under-utilization. The fundamental structure
for economic development can be erected on the pillars of trade and skills enhancement that will
potentially lead the country towards prosperity based on certain perquisites that are discussed below.
The process of examination of connections and interconnections between trade and
development is of primary importance to understand how the process of trade works what are its
pillars. The below section presents the fundamentals of trade and development, perhaps in
interesting way.

PILLARS OF TRADE
1. POLITICAL STABILITY

Relationship between politics or entire political setup (or administrative machinery for
that matter) and economy or working of the economy is very much stronger, much intermingled and
much dependent by far. It is the political system and government that establishes ways and means of
working of economy. For the purpose of establishment of effective governance in democratic
countries people rely on political system and voting. Economic activities are subjected to high degree
of fragility in practice then in paper, since all economic activities are to be coordinated and
subordinated by governance and a system based on equality and justice. Activities such as
production, distribution and exchange for example May virtually halt on the occasion of wide spread
disturbance in national political scenario thereby leading to major jolt to economy. No single
economic activity can be ever performed when disturbance between existing political system and
people emerges, as it is evident from experience with Western African countries like Cote D Ivoire,
Liberia and Sierra Leone, to name a few.
Stable Politics
Dynamic policies
Strenthening the Business
environment
Promotion of economic
activity
Optimum Resource
Utilisation
Development of Human
Capital
Investment in Technology,
R&D and infrastucture
Expansion of Markets
Internationaliazation of
Markets
Stong Dilpomatic Relations
Rise in GNP

One thing of course that deserves the right of mentioning or worth mentioning is the law that
state formulates. In reality governmental and institutional set up assists in what it does requires for
stability in economic functions and maintainability of same, the same can be invariably classified in
to 3 broad categories

1. Functioning of Authority

2. Absence of violent political tussle

3. Prevalence of law and order

Even the Classical Economists Argued for maintenance of law and order by the
state in their definition and specification of role of government. Adam Smith in his Magnum opus
Wealth of Nations published in 1776 said that,

“The first duty of the sovereign [is] that of protecting the society from the violence and invasion of
the other independent societies…….. The second duty of the sovereign [is] that of protecting, as far
as possible. Every member of the society from the injustice or oppression of every other member of
it”

No new perception or set of ideas can ever be evolved on the role of government and the
political system as a whole for providing a solid ground for civil activities based on the above idea of
Adam smith, and furthermore in search for progressive growth rate of economy, proactive and liberal
attitude political system must perspire in their effort in dragging the wheels of their economies to
enabling them to run into the future. Like other economic activities trade is also an integral part of
economy that can be prospective source of economic expansion where we can see expansion of
labor markets in terms of opportunities for employment and rise in income level and thereby in rise in
standard of living guided but only after achieving the necessary condition i.e. Stable political system
and a political will to maintain it. Ironically it’s natural to say why it is so important for a country to
create an environment of peace and solidarity and secondly how does it affect the entire economic
process? Firstly political uncertainty, mass violent protests, fanaticism, polarized political
institutions; rigid hardliners in the country creates an environment very unsuitable even for day to
day life this is because the entire society naturally comes under the influence of widespread
uncertainty and social chaos as a consequence of uncontrolled and ever rising differences between
different groups in the country. As result gradually food supplies, transport, health care gets affected
leading the increased misery of the people and agitation gets multiplied, and later on as basic
services gets disturbed, financial institutions such banks faces the heat of growing face-off in the
form of mass absence and then finally supplies, payments, transport, security goes off indefinitely it
starts affecting the entire set economic activities.

Recent political crises in Egypt, Syria and other African countries is indeed a testimonial and
act as a source of conformity that virtually affected everyone leading to much larger and much
adverse repercussions on the economy. Political crisis brings along with them massive economic
damage in terms of destruction of established infrastructure directly affecting transportation,
procurement, production, employment and income whereby it naturally stalls the process and invites
severe slowdown and ultimately the economy withers away. Many countries engulfed by civil unrest
all over the world have shown minimalistic economic activity over the year that has led to widespread
social unrest, poverty mainly driven by agitation and unemployment due to intolerable socio-political
conditions. Syrian Industry Minister Kamaleddine Tohme said, The Syrian industrial sector has lost
$2.2 billion since the war began. The private industrial sector has lost $1.5 billion, while public
industry has lost $700 million. More than 120,000 people have been killed in Syria’s war and millions
more forced to flee their homes. Further UN reported that more than half the Syrian population is now
l i v i n g i n P o v e r t y . [ CITATION Huf13 \l 1033 ] S o t h e n e c e s s a r y c o n d i t i o n f o r t h e p r o m o t i o n o f
economic activity and social peace is resolving civil and ethnic conflicts in the country that
shockingly stand out as the most devastative factors hampering the social-political and economic set
up of a country

2. RESOURCE ENDOWMENTS
Chapter 2

The second most crucial factor that determines the fate of nation for its participation in
international trade is the resource endowments. Not all nations face scheme of equivalence when it
comes to resources, and it’s been empirically tested that variations in such endowments are natural.
Trade is something which cannot be merely rightly reasoned for having abundance in natural
resources and other resources that were developed as economy expanded, but it eloquently calls for
skillful utilization. But the developing countries are in quagmire of deficit of investment and
managerial ability, so are unable to discover most promising reward for economy. Investment being
macroeconomic in nature will have remarkable observation on various factors like employment, level
of income and also trade.

Many countries in the world are lucky in terms of having a comparative advantage in
production of one or more commodities. Level of dexterity in terms of production of manufactured
goods is handy to advance economies whereas developing countries are at a contrast. This is calls
for huge public investment in institutions providing training, skills enhancement education
development of skills in line with requirements in the country which will bring about major different in
the years to come. Because even resource rich countries ultimately relies on skilled and technically
sound labor force in order to make complete utilization of whatever resources they are endowed with
therefore it’s not surprising to say that their exist iron strong relationship between nationwide skill
development program and trade. At first the link might look somewhat mere exaggeration of the two
factors but in reality human resource development has played a key role in activating economic
progress which undoubtedly leads to expansion of markets as in case of China. On the contrary
those Countries who primarily agrarian societies are at much greater advantage if they systematically
attempt to increase the rate of total production or total output by simply by investing in agricultural
sciences developing crops much resilient to whether or crops which are less dependent on water
certainly because their total share of exports in international commodity markets can be increased
dramatically and there can possibly lead to greater share in national income through marketization of
commodities at international markets.

At the end of August, about 200 unemployed Saudi university graduates congregated in front of the Education
Ministry, in Riyadh. The young men were there to demand government jobs; they held a banner calling for an end to their
"oppression." The rare public protest highlighted the tensions and expectations that make higher-education reform in this
kingdom a daunting prospect, despite the hundreds of billions of dollars the government is dedicating to the endeavor.
A few weeks before the protest, the Saudi Council of Ministers, which sets national policies, passed the country's
latest five-year development plan. It calls for spending about $200-billion on expanding access to schools and universities, and
for substantially increasing vocational training by 2014. Mohammad Al-Ohali, deputy minister of educational affairs, says that
is why the Ministry of Higher Education has placed "more emphasis in the last three or four years on technical, engineering,
science and medical programs," as well as "fields of study related to the job market," such as administration and computer
science. "These are the main focus of the new universities we have established," he says. The plan also suggests spending
$240-million in grants for research projects each year, and calls for the establishment of dozens of research centres and
technology incubators at universities. Saudi education officials regularly invoke their determination to turn the kingdom into a
"knowledge economy." In 2009, the king created the King Abdullah University of Science and Technology, or Kaust, as it's
known, and personally donated its $10-billion endowment, saying he hoped it would "become one of the world's great
institutions of research."[ CITATION Urs10 \l 1033 ]. Perhaps h e a v y i n v e s t m e n t i n r e s e a r c h a n d
development activities and technological evolution in terms of methods of production, clever
applicability of abundant resource like labour (for example China) can bring the desired change.
Production of series of innovative products, together with resource endowments go in for a logical
pronouncement over prospective role of trade in national economies. Policies that promote resource
enhancement should be designed and implemented rather than policies that view resources as scare
which eventually over a period of time loses focus from advancement of trade and development.

In this age of technological finesse and in the global for innovation, resources must be developed
and creative edge should be created, possibilities must be expended based on available sets of
resources we cannot sit and moan about lack of apparent and readily available resources in the
country. Perhaps what is needed is consistent pursuit of enhancing and utilization of skills/resources
so that nation’s ability to participate in international markets is broadened and ultimately it reaches a
stage where it establishes its own reputation globally.

3. COMPARATIVE ADVANTAGE
Chapter 3

Nature cannot be the cause for opportunity always; something somewhere must be done to
strike a balance between human ability and nature. There mainly exist two prominent theories of
trade based on comparative advantage the ricardian theory and H-O model of trade. The Ricardian
theory assumes that comparative advantage arises from differences in technology across different
countries while the H-O model of trade theory suggests that technologies are same across the
countries. Instead, the H-O model attributes comparative advantage to cost differences resulting from
differences in factor prices across countries, or in other words H-O model attributes international
trade for the uneven geographic distribution of productive resources. Again it can be said that even if
a country was not having any significant advantage in the production of any commodity but it could
gain considerable expertise with broadening of economic base or technology or other factor which
will cultivate something it doesn’t had earlier.
Only thing that can be done is advancement in technology and discovery and clever utilization
of exiting sources. Over time; the deficiency of comparative advantage could be resolved and nation
might attain new rung on the ladder of advantage. If we look at the central aspect of the highly
admired Schumpeterian economics innovation and invention emerges the dominant source thriving
the entire economic activity after completion of each cycle from trough to peak and helps reinstate
economy back on the track. But countries struggling to speed up the whole economic process can’t
rely on invention and innovation to gain momentum but rather investment in resources available like
labor, strengthen of market based system; assisting institutions to work for the benefit of the country
can be the biggest source of relief and prosperity in the long term period.
 Increase Economic activity,
Investment in Education, Training, Investment, Rise in production,
Skill Development R&D and expansion of Markets

Raised Per capita Income,

increase in National Income,
Trade and Rise in Standard of
Living

Comparative advantage can possibly be created through efficient allocation of resource for the
purpose of gaining absolute advantage from all the available resources. Many countries may be
having cost advantage but which is ultimately dependent upon availability of cheap and abundant
factors of production helping in bringing the total cost of production and increase markets
competence but on the other hand certain countries may technological advancement such as
Germany and certain countries may have the advantage of vast cultivable lands and huge population
depended on it but it not due the inability of the national governments that they are unable to clear
the hurdles and evolve new advantages. Globalization along with technological advancements in this
age have created much bigger and reliable avenues for countries to enhance their potential and
created pathways for achieving absolute advantage or the comparative advantage. For Example,
Brazilian sugarcane production until recently was limited to its own intrinsic purposes and for
domestic markets but evolution of newer and more efficient technology has helped its sugarcane
markets serve in the production of ethanol, an advanced bio-fuel. A combination of technology,
political will, advance education system and ultimately vision are the key ingredients for massive
changes in the economy.

4. DIPLOMATIC RELATIONS
Chapter-4

One the most crucial non-economic factor that virtually stands as a foundation for trade
between nations is diplomatic relations among themselves, which can undermine the underlying
significance of economic needs between nations. It’s not just interplay of demand and supply or
scarcity and abundance that has precise impact on trade and capacity to enter international markets,
but perhaps diplomatic relations are undeniably at the center of potential to trade. Ceteris Paribus, it
has been observed that in the recent days, trade relations are not the definitions and adjectives of
needs and counter-needs, there has been an apparent deviation in mathematical reasoning for trade.
In much broader extent trade needs stronger diplomatic relations along with other perquisites.

Over the last century there has been constructive and considerable development of trade that
perhaps in a big way was responsible of deep-rooted mutations in characteristics of trade or
international trade but also simultaneously solidified the fate of participating nations. In the recent
past economic relations whether bilateral or multilateral seems to be more objective-oriented and
politically stimulated or diplomatic in nature According to classical economics, nations trade and
should trade freely without any artificial barriers or scientific evolution such as governmental
dialogue or interest based commerce or further bureaucratic bolster. In the wake of strained or
broken diplomacy it alters or even damages the course of relation from economic stand-point.

Most obvious and often-distinguished example of broken diplomacy and following a sequence
of shackles that emerged between US-Cuba relations. According to Council on Foreign Relations,
relations between US and Cuba today are virtually non-existent; US mission in Havana has minimal
communications with Cuban Government. Since 1960 Americans have been barred from trading with,
investing in, or travelling to Cuba. Economic sanctions or isolation in the field of commerce is nothing
but economic deprivation and that leads to failure of utilization of resources, declining investment,
rising unemployment, squanders the prodigy of labor and ultimately creates poverty. Another case of
broken diplomacy and strained relations between US and North Korea is worth examining and moving
further economic embargoes sanctions also play a devastating role that needs to be studied.
Furthermore for the purpose developing stronger and deeper insights over the prominence of
diplomatic relation over trade the US-Iran relations over the period 2 decades can also be of central
importance, because over the recent past we have noticed that the diplomatic ties between both
countries have been devastated due to Iran’s nuclear enrichment program which Western powers or
especially US are skeptical about the real propose behind developing nuclear weapons by Iran.
Similarly relations between US and North Korea have developed deep fissures in recent years. “On
the contrary Australian trade and diplomatic relations with most of the countries seemed to be of
friendly nature certainly because Australian government is greatly pursing its ambition of expanding
its markets through the engine of smooth diplomacy, which apparent by the fact the it has forged
numerous Free Trade Agreements [FTA’s] with several countries over the past few years. For
example today several of the FTA’s are in operation with countries like, Chile, Singapore, Malaysia,
T h a i l a n d , N e w Z e a l a n d , A S E A N N a t i o n s a n d U n i t e d S t a t e s . ” [ CITATION Gov14 \l 1033 ]

The central purpose of strong diplomatic ties is to lay strong trading and cooperative
foundation between countries because as I’ve already discussed above that all nations in the world
doesn’t share equal set of natural resources and secondly because it helps countries to expand and
share their markets which are perhaps the most efficient way of optimum resource utilization leading
to increased returns to the national economy.

5. COMPETITIVENES
Chapter-5

Competitiveness in relative sense can be defined as comparison of a country’s performance

with another country, in absolute sense in can be said Ceteris Paribus, competitiveness is economic
soul of the nation where-in due to its absence trade composure of the nation grows obsolete and
traditional or even more depended on primary commodities. Perhaps it cannot be denied that to
achieve price-based, service-based, product-based and technology-based edge in international
markets it is a requisite to enhance complementarities to competitiveness. The OECD‘s Definition of
competitiveness it refers to a countries ability to sell goods in global markets “while simultaneously
m a i n t a i n i n g a n d e x p a n d i n g t h e r e a l i n c o m e s o f i t s p e o p l e o v e r t h e l o n g t e r m ” [ CITATION Tho10 \l
1033 ]
Many empirical studies show a strong correlation between a country’s trade share and its
economic performance. This relation runs in both directions: the richer countries become richer and
richer the more they trade but on the flip side countries with export based growth strategies grow
richer more quickly. The East Asian experience of export-led growth over the past three decades
provides powerful real –world evidence of the potential for trade to be an engine of growth and
p o v e r t y r e d u c t i o n . [ CITATION Tho10 \l 1033 ]
 Most of developing countries in the African Continent and Asian region are labor-intensive
whose export prima facia, are characterized by primary goods; in this connection exports by Andorra
during 2005-06 gives us vital information. In the year 2005, live animals, vegetable products,
prepared foodstuff, tobacco substitutes and mineral products constituted some of the few major items
e x p o r t e d b y A n d o r r a . [ CITATION Dat10 \l 1033 ] A n d o n t h e o t h e r h a n d E a s t A s i a n e c o n o m i e s
accomplished remarkable success both in economic and non-economic perspectives, but story never
ended here, along with these economic astonishments they presented a far reaching, out-smarting
example of originating competitive edge in commodities they sold. Innovation, technological
advancement and research on multiple platforms so as to broaden what a country produces and
finishes are key ingredients for and to maintain competitiveness because nation’s ability to export in
the long term relies ultimately on these extremely sensitive factors. Whether evolution of tendency to
compete with labor or product, is directly determined by quality of human resources a country has.
We may have abundant supply of labor so that cost of production can be brought down and increase
competitive spirit in the short term but in the long term we cannot rely on skill-less labor to push the
export-engine further. So there is an iron-strong connection between primary factor of production,
trade and national income. The more skillful and more intelligent the labor the sweeter the fruits in
income, and further according to this notion, competitiveness ultimately depends upon degree of
human resource development. Education, economic entitlements, and social freedom are the
foundation for competitiveness, trade, growth and economic development. Japan achieved sustained
growth in per capita income between 1880s and 1970 through industrialization. As a result of these
domestic advances, Japan was well positioned to take up the western challenge. It harnessed its
infrastructure, its high level of literacy and its proto-industrial distribution network to the task of
emulating western organizational forms and western techniques in energy production, first and
foremost enlisting inorganic energy sources like coal and other fossil fuels to generate steam power. [
CITATION Uni132 \l 1033 ] Ultimately the need is for total transformation of resources into
propellers of progress and this can be done by continues refinement of human capital, recognition of
sets of avenues and investment to expand their capacities and finally huge investment in research
and development.

6. DEVELOPMENT
Chapter -6

In historical parlance; both development and growth were one and the same. Dogma of
differences emerged between the two recently as it is evident from empirical evidence that
development is enriches the lives of the people and growth enriches the people. (Material
enrichment)

According to Human Development report 2006, Published by the United Nations Development
P r o g r a m “ h u m a n d e v e l o p m e n t i s t h e e n d – e c o n o m i c g r o w t h a m e a n s ” . [ CITATION Wor10 \l 1033 ]
The object of this section is to present in brief the interconnections and interdependencies that are in
much larger perspective, required to shape trade as a defining factor for increase in national income
and share of labor income. It may be noted that employment creation and boosting level of income
not at all suffice that what is required for development, by enlarging financial capacity of the society
we cannot assume that task has been done.
 As discussed above to reach higher ranks on the ladder of economic development, education,
freedom of opportunities, and equal representation of minorities, driven by strong political will are
absolute requirements. Development or Economic development starts with human development and
this starts with provision of elementary or satisfaction of natural human needs. For example,
opportunity to learn very much depends on how far a family can bear the expenses of even
elementary schooling, and furthermore secondly schooling of young children largely depends
availability affordable education especially in rural remote areas, accessibility to affordable health
care, removal of cultural lags, socio-economic shackles like illiteracy, child marriage, ethnic conflicts,
inevitably leads to vicious income poverty trap (though, illiteracy is not sole responsible for
widespread poverty) and further, gender bias, prevalence of racism and other discriminations that
directly and indirectly impacts available and justified opportunities must be eradicated.

These are the few hindrances along with various factors that are needed to be considered to
enhance the human capacity so that new ideas and innovative spirit evolve over time leading to
development and strengthening nation’s terms of trade.

Trade in all its guises, in the long term needs radical affirmative approach from all the corners
that directly or indirectly has a bearing on enriching the capacity to produce, maintain
competitiveness and recognize the apparatus of socio-economic change. The view that international
commerce is a matter of resource endowments or a matter of differences in technology used in the
production is completely a different analogy when it comes to development of what we don’t have
today or what we can have tomorrow.

7. CONCLUSION; THE NEED

Chapter -7

At the outset smooth operation of economic activities demands stable political conditions that
promotes business activity, development of human capital unless we deliver these vital perquisites
economic activity collapses and leads to widespread disturbances. For example the near collapse of
Syrian economy as discussed above. Harmonization of state-public relations and reduction of ethnic
conflicts are the main source of increased business activity as well as socio-political peace in the
country that directly invites normalcy acting as a platform for prosperity. Furthermore lawlessness,
suppression of rights, unequal representation of ethnic groups, social discrimination, economic
polarization where productive resources are exclusively subjected to the richer sections of the
society which inarguably leads to disastrous outcomes.

Political
and healthy foriegn relations
Investment
Social
stability

Reducation
Political
Economic Development
in violent social and
Civil religious
conflicts
liberty

Social Export
Orinented
Free Trade

Justice planning

All armed conflicts leads to poverty, indeed this is because the root cause of some or most of
the civil conflicts ironically lies in economic issues, that eventually leads to dreadful consequences
waning social peace and economic integrity. Poverty and armed conflict are closely related in sense
that during the time of ongoing crises and post-crisis period capacity to earn a better living and lead
a healthy life diminishes to great extent. Econometric evidence shows that countries that experienced
the sharpest drop in growth after 1975 were those with divided societies [as measured by indicators
of inequality, ethnic fragmentation and so forth] and with weak institutions of conflict management
[proxied by indicators of the quality of governmental institutions rule of law, democratic rights and
s o c i a l n e t s ] . [ CITATION Nam10 \l 1033 ]

Social peace and political stability are the 2 fundamental necessities for the promotion of
economic activity which ironically should start with human development. Investment in human
development is creation of new resource and a preparation for prosperous future opening up
multitude of opportunities for economic expansion and markets.
The second most decisive factor which comes under the realm of economic planning is
resource utilization, because economic growth is naturally driven by strategic action plan maximizing
resources. As in case of India with a population of more than a billion still it finds difficult to reduce
imports and fix its current account balance even after 6 decades of independence is really a product
of negligent planning missing the importance of pivotal factors that can bring lot of economic change.
India had been recording sustained trade deficits due to low exports base and high imports of coal
and oil for its energy needs. [ CITATION Ind14 \l 1033 ]

So in order to internationalize domestic markets investment in and identification of

capabilities of a nation measured in terms of proportion of underutilized resources that can be a
potential source for speeding up economic activity is a necessary condition that shouldn’t be
overlooked by planning mechanism.

The third most decisive factor for speeding up in economic growth is establishment of
research and development institutes funded by government in key sectors like pharmaceuticals,
technology, and electronics. Innovation is a complex development of discoveries and inventions [e.g.
new machinery.] brought into business and social development [e.g. introduced on the market] that
hopefully leads to diffusion [adoption of new users]. Most of the sectors and industries are currently
experiencing “Schumpeterian renaissance”: innovation is today the crucial source of effective
c o m p e t i t i o n , o f e c o n o m i c d e v e l o p m e n t a n d t r a n s f o r m a t i o n o f s o c i e t y . [ CITATION Has07 \l 1033 ]

But on the contrary low-income countries like Pakistan, Brunei, and Algeria lack financial
resources to step-up investment in this sector so in this case governments should promote business
development activity by removing regulatory hurdles for establishing businesses faced by young
entrepreneurs as to facilitate development of strong market and evolution of competitive instinct.

Needless to say, connection between trade and development is strong and possibilities are
high that will bring radical transformation to the economy but the real success truly depends on
degree optimism of policy makers, identification and development of potential resources, investment
that facilitates development of available resources because what is ultimately required for
transforming consumer based economies and into export based economies.
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http://ideas.repec.org/p/wbk/wbrwps/5329.html

http://www-
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