One reason is that poorer countries tend to export low-value primary products such as agricultural goods, while richer countries export higher value goods.
Frank (1971) argues this is a legacy of colonialism during which rich countries made their colonies specialize in exporting one primary product such as sugar or cotton back to the ‘mother land’. After independence, developing societies were over-dependent on exporting these primary commodities, which typically have a very low market-value.
Examples include The Ivory Coast in West Africa – 33% dependent on cocoa beans; Kenya (in East Africa) which is about 30% dependent on two primary products – tea and cut flowers.
This type of trade does not necessarily promote development because the declining value of such commodities means developing nations need to export more and more every year just to stay in the same place. This has been described as ‘running up the downward escalator’.
A second reason why trade doesn’t work for development is that the global capitalist system depends on inequality
Emanuel Wallerstein argued that the world capitalist system is characterised by an international division of labour consisting of a structured set of relations between three types of capitalist zone:
- The core, or developed countries control world trade and exploit the rest of the world.
- The semi-peripheral zone includes countries like China or Brazil – which manufacture produces
- The peripheral countries at the bottom, mainly in Africa, which provide the raw materials such as cash crops to the core and semi periphery.
Companies in the core countries need to keep prices of end-products as low as possible in order keep up demand, so they pay as little as possible for the raw materials and manufacturing. In short, the development of the west in terms of cheap, consumer goods depends on the poverty of the periphery and relative poverty of semi-periphery.
However, this may not always prevent trade working for development – countries can be upwardly or downwardly mobile in the world system. Many countries, such as the BRIC nations have moved up from being peripheral countries to semi-peripheral countries, and some (e.g. South Korea) can now be regarded as core countries.
Thirdly, a lack of regulation at both global and national levels means that workers have few protections in developing countries and thus don’t benefit from trade.
Many workers are exploited with low wages in sweat shops, which means workers don’t earn enough money to pay for social development such as education or health; Bangladesh is a good example of a country in which poor health and safety regulations result in high deaths.
Other Corporations such as Shell extracting oil in Nigeria burn gas flares and have leaky oil pipes which destroys the environment and leads to women miscarrying, which actually pushes the development of some areas backwards.
Dependency Theory argues that Nation States compete in a ‘race to the bottom’ to attract Transnational Corporations (and extract materials/ produce goods to trade) through having the least regulations.