World trade patterns

Developed and developing countries

Trade deficits - LEDCs and MEDCs

The difference between the value of a country's exports and its imports is known as the trade balance. If a country's value of exports is greater than its imports, this creates a trade surplus, ie the country is making money from trade. If a country's value of exports is less than its imports, this creates a trade deficit the country is not making money from trade and is inevitably in debt.

Usually, developed countries have a trade surplus and developing countries have a trade deficit.

Developed countries have a high standard of living and (usually) a large GDP or Gross Domestic Product, the total market value of all goods and services produced in a country in a given year. Developing countries have a low standard of living and (usually) a much lower GDP.

Exports of developed and developing countriesExports of developed and developing countries

In general, developed countries export valuable manufactured goods such as electronics and cars and import cheaper primary products such as tea and coffee. In developing countries the opposite is true. This means that added to their existing debts, it gives them little purchasing power and they remain in poverty.

The price of primary products fluctuates on the world market which means that workers and producers in developing countries lose out when the price drops. The price of manufactured goods is steadier which means that developed countries always benefit.

World trade per capita World trade per capita

A trade surplus allows a country's economy to grow, while a trade deficit makes a country poorer. Increasing trade and reducing their balance of trade deficit is essential for the development of a country. However, sometimes developed countries impose tariffs and quotas.

Tariffs are taxes imposed on imports, which make foreign goods more expensive to the consumer. Quotas are limits on the amount of goods imported and usually work in favour of developed countries.

Interdependence between countries means that they are dependent on one another in some way. For example, many developing countries are dependent on developed countries for manufactured goods or aid. Developed countries are dependent on developing countries for primary products, eg bananas.

Developing countries are also dependent on income from tourism, whereas the developed country relies on the climate and the hospitality of the developing country as a destination. In this way, countries can be said to be interdependent – they both need each other to trade successfully.