The rest of this paper will discuses recommendations for the Organization of African Unity as it continues to pursue the establishment of the African Economic Community.
A recommendation for of boosting mutually beneficial regional trade in Africa is that the main objectives of RECs should now shift towards diversifying the African export base and moving away from the of dependence on exporting basic commodities. This can be achieved through the specialized production through the creation of value chains, the provision of policies, funds and educational resources that will allow formalization of informal boarder trading and thirdly the removal all non-tariff barriers within RECs.
According to the theory of comparative advantage, in a global economy increased openness to trade coupled with specialization and division of labor can enhance the amount consumption and income within an economy (Regional Integration and Trade in Sub-Saharan Africa, 5). These benefits that apply to the global economy can also be translated into benefits for African economies in a regional context. Openness to trade can increase incomes and economic growth through three key principals; the technological spillover effect, the creation of incentive though increased competition and increased economies of scale due to increased market access. Technological spillovers enable domestic firms to compete with other economies through exposure to more innovative ideas and methodologies, therefore encouraging the long run growth of private industries (Regional Integration and Trade in Sub-Saharan Africa, 5). This is especially relevant to African counties because they have similar resource endowments and capabilities, therefore it will be easier for competitors to...
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...ers. This approach will enable Africa’s strongest firms and potential industries to achieve economies of scale. Moreover, the increased competition created by opening national markets to other African competitors and trading partners will create incentive for African companies to reduce costs and increase innovation.
“The most important lesson to draw from the 50-plus years of the EU is that regional integration is not an event. Rather, it is a process. The same can, and rightly so, be expected of the AEC” (Babarinde, 105). Africa’s road to integration has been a difficult one, not because it is impossible but because it is a great task that requires great spirits and great political will. Africans have historically proven to be a strong and capable people, accordingly the African Economic Community will be another great triumph for Africa and the world at large.
• A more competitive, efficient and profitable business with less competition in the domestic markets.
Europe, in the late 1800’s, was starting for a land grab in the African continent. Around 1878, most of Africa was unexplored, but by 1914, most of Africa, with the lucky exception of Liberia and Ethiopia, was carved up between European powers. There were countless motivations that spurred the European powers to carve Africa, like economical, political, and socio–cultural, and there were countless attitudes towards this expansion into Africa, some of approval and some of condemnation.
Few governments will argue that the exchange of goods and services across international borders is a bad thing. However, the degree to which an international trading system is open may come into contest with a state’s ability to protect its interests. Free trade is often portrayed in a good light, with focus placed on the material benefits. Theoretically, free trade enables a distribution of resources across state lines. A country’s workforce may become more productive as it specializes in products that it has a comparative advantage. Free trade minimizes the chance that a market will have a surplus of one product and not enough of another. Arguably, comparative specialization leads to efficiency and growth.
Priscilla. “The World Economy and Africa.” JSpivey – Home – Wikispaces. 2010. 29 January 2010. .
With Europe in control, “the policies of the governing powers redirected all African trade to the international export market. Thus today, there is little in the way of inter-African trade, and the pattern of economic dependence continues.” Europeans exported most of the resources in Africa cheaply and sold them costly, which benefited them, but many Africans worked overtime and were not treated with care.
It is thought-provoking, in the sense that Africa’s need for foreign created a race to the bottom, much like what Pietra Rivoli described in The Travels of a T-Shirt in the Global Economy. Due to some African states’ reliance on foreign aid in order to mine and profit on their resources, they allow business standards to be lowered and for Chinese firms to tip the contracts moresoever in the favor of Chinese firms. This lowers the potential earnings of African states by lowering royalty rates, for example. Additionally, Burgis’ research was thorough and transparent. When he did not receive a response or if his questions were dodged, he made it obvious to the readers. Sure, some could view this book as too anecdotal to be used as a credible source of Africa’s situation. However, this is due to the nature of the system Burgis is writing about; after all, they are shadow states for a reason. Some readers will be saddened by this text, others angry, most curious to learn more, but above all, everyone will be intellectually stimulated and
Europe and Africa have been linked together in evaluating the state formation process. Both regions have similarities, strengths, weaknesses, and room for improvement. To this day both regions are far from perfect. Some light can be shed on this subject, by evaluating Europe and Africa’s state formation process, evaluating what party benefits, and briefly explaining two economic consequences of European colonialism in Africa.
Krugman defines comparative advantage as “the view that countries trade to take advantage of their differences” (1987, p. 132). Comparative advantage theories assume constant returns to scale and perfect competition. Krugman writes that trade exists when countries differ from one another in goods they have to offer, technology, or factor endowments. Although there are multiple models explaining the cause of trade, each differs as to what factors are included to explain why trade takes place. Economist Ohlin and authors Burenstam-Linder and Vernon began introducing counter-points to comparative advantage as early as the late 1950’s, saying that formal models of comparative advantage did not take into account all factors affecting international trade. International specialization and trade caused by increasing returns, as well as economies of scale and techn...
The Law of Comparative Advantage was introduced by David Ricardo in 1817 in his book ‘Principles of Political Economy and Taxation’. According to this classical theory, a comparative advantage exists for a country when it has a margin of superiority in the production of a certain commodity over others. Comparative advantage results from differing endowments in the factors of production like technology, natural endowments, climate, etc. among different countries. Therefore, each country exports the commodities which it can produce at a lower opportunity cost or, in other words, lower marginal cost of production and imports the rest. This would ultimately be beneficial for all countries engaging in free trade as each would gain through its specialization
Trade is more than the exchange of goods and services; it sows the seeds for growth, development and provides the knowledge and experience that makes development possible (Cho, 1995). Trade is considered one of the main driving forces behind economic growth and poverty reduction, especially in Africa (Fosu and Mold, 2008). Adam Smith’s 1776 theory of absolute advantage states that a trading nation can gain by specialising in the production of the commodity of its absolute advantage and exchanging part of this output with other trading partners for the commodities of its absolute disadvantage (Llorah, 2008). This process enables countries to extend beyond their borders, allowing greater specialisation in production, enhanced effectiveness in use of thin resources, the growth of national income, the capacity to accumulate independent wealth and enhances the growth of the economy (Cho, 1995). According to DFID’s report, Trade Matters, other positive derivatives include raised employment, increased household income and the chance for people to earn their way out of poverty, independent of aid (DFID, 2005). The role of trade, while strongly advocated, is still highly debated (Collins and Graham, 2004; Madeley, 2000) and many recent studies question the positive role of economic growth on open trade (Bene, 2009). The extensive arguments surrounding this controversial discussion empirically highlight the difficulty in isolating the effect of trade liberalisation on economic growth, although it is clear that it does, and will continue to have, an important role in poverty alleviation.
CAFTA, the Central America Free Trade Agreement, or commonly known as the Dominican RepublicCentral America Free Trade Agreement (DR-CAFTA), is a free trade agreement. In international trade, free trade is an idealized market model, often stated as a political objective, in which trade of goods and services between countries are not hindered by government imposed tariffs (taxes on imports) or non-tariffs (Wikipedia, 2007).
Hopkins, A. G. An Economic History of West Africa. New York: Columbia UP, 1973. Print.
This chapter sheds light on this issue in the specific context of sub-Saharan Africa. This is of particular interest as African countries seek to trigger a strongly virtuous cycle of growth, which translates into genuine poverty reduction and human development.
There is no doubt that European colonialism has left a grave impact on Africa. Many of Africa’s current and recent issues can trace their roots back to the poor decisions made during the European colonial era. Some good has resulted however, like modern medicine, education, and infrastructure. Africa’s history and culture have also been transformed. It will take many years for the scars left by colonization to fade, but some things may never truly disappear. The fate of the continent may be unclear, but its past provides us with information on why the present is the way it is.
African Business News. “Women’s Rights in Africa: 18 countries are yet to ratify the Maputo Protocol!” African Business News 10 July 2013: Page 51