How does trade & investment maintain/reduce the development gap?

Trade and investment play a key role in the development gap and global wealth distributions. Traditionally trade flows are from the north to the south. Developing countries produce low value primary goods. Increasing exports can help a country narrow the development gap. Traditionally north-south trade flows have focused on developing countries exporting primary goods, however in the last 20 years developing countries have moved into manufacturing - about 80% of their merchandise exports are now manufactured products. This has meant a change in the nature of the north-south trade relations. Some countries have trade surpluses (exports exceed imports) while some countries have trade deficits (imports exceed exports)Globalisation has had a big impacts of trade flows. Some countries like China and India have had large increases in trade while others have had decreases.

Terms of Trade:A country's terms of trade is the ratio between the currencies earned from its exports and the prices of imports. World prices for raw materials have fallen over recent years in relation to the price of manufactured goods. Manufacturing adds value to commodities. Therefore any countries that export raw materials and import manufactured goods are likely to have declining terms of trade. Often the poorest developing countries with declining terms of trade, have to export even more as the world price falls. If all they have to export is food products, then food becomes scarcer for them and prices rise leading to poorer standards of living and increased poverty.

Banana Wars:USA:The American finance group owns Chiquita. The US government went to the WTO and the WTO supported the US case. EU:The EU protected trade with its former colonies and put tariffs on Central American bananasThe main banana traders in the EU are Geest and Fyffes which buy from farmers in the Caribbean. The EU was trying to help its former colonies to maintain trade links. The WTO declared the EU tariffs on Central American bananas illegalBy supporting the Caribbean farmers, we were giving unfair preferences to them which the USA didn't like because we weren't buying their bananas. In this case trade made the development gap worse for workers in Costa Rica and the Caribbean.