pattern of trade at different levels of development

Pattern of Trade at Different Levels of Development – Cambridge IGCSE/A‑Level Syllabus 9708 (2026‑2028)

1. Levels of Development (Syllabus 11.4)

Cambridge classifies economies into three broad groups:

1. Developed (high‑income) economies – high per‑capita income, diversified industrial base, services dominate.
2. Developing (middle‑income) economies – moderate per‑capita income, mixed agriculture‑manufacturing‑services structure, rapid structural change.
3. Least‑developed (low‑income) economies – low per‑capita income, heavy reliance on primary agriculture, limited industrialisation.

2. Key Economic Indicators (illustrative ranges)

Indicator	Developed	Developing	Least‑Developed
GDP per capita (US$)	> 30 000	5 000 – 30 000	< 5 000
Industrial share of GDP	≈ 30 %	≈ 20 %	≈ 5 %
Services share of GDP	≈ 70 %	≈ 60 %	≈ 40 %
Human Development Index (HDI)	> 0.80	0.55 – 0.80	< 0.55
Export composition (share of total exports)	High‑tech goods & services ≈ 55 %	Manufactured goods ≈ 35 % + primary commodities ≈ 25 %	Primary commodities ≈ 80 %

Ranges are approximate and drawn from IMF/World Bank classifications; actual figures vary by country and year.

3. Economic Structure – Sectoral Employment

Sector (share of workforce)	Developed	Developing	Least‑Developed
Agriculture	≈ 3 %	≈ 25 %	≈ 60 %
Manufacturing & Construction	≈ 20 %	≈ 30 %	≈ 15 %
Services	≈ 77 %	≈ 45 %	≈ 25 %

4. Population Growth & Structure (Syllabus 11.4 – Demography)

• Fertility (births per woman)
  • Developed: 1.3 – 1.8
  • Developing: 2.0 – 3.5
  • Least‑Developed: > 4.0
• Mortality (deaths per 1 000 population)
  • Developed: 5 – 8
  • Developing: 8 – 12
  • Least‑Developed: > 12
• Net migration (per 1 000 population)
  • Developed: +2 – +10 (net immigration)
  • Developing: –1 – –5 (often net out‑migration)
  • Least‑Developed: –5 – –15 (strong out‑migration)
• Urbanisation – share of population living in towns/cities
  • Developed: 70 % – 85 %
  • Developing: 35 % – 55 %
  • Least‑Developed: 20 % – 35 %
• Population‑age structure – developed economies tend to have a larger proportion of 65+ year olds (ageing), whereas LDCs have a “youth bulge” (large 0‑14 year cohort).

5. Income Distribution

• Gini coefficient – measures inequality (0 = perfect equality, 1 = perfect inequality). Typical ranges:
  • Developed: 0.25 – 0.30
  • Developing: 0.35 – 0.45
  • Least‑Developed: > 0.45
• Lorenz curve – graphical representation of cumulative income share versus cumulative population share. The farther the curve lies from the 45° line of equality, the higher the Gini.

Worked Example – Calculating a Gini Coefficient

Suppose a country’s population is divided into five equal groups (each 20 % of the population) with the following cumulative income shares:

Cumulative population (X)	Cumulative income (Y)
0.00	0.00
0.20	0.05
0.40	0.15
0.60	0.30
0.80	0.55
1.00	1.00

Using the trapezoidal formula

\[ G = 1 - \sum_{i=1}^{n} (X_i + X_{i-1})(Y_i - Y_{i-1}) \]

we obtain:

\[ \begin{aligned} G &= 1 - [(0+0.2)(0.05-0) + (0.2+0.4)(0.15-0.05)\\ &\quad + (0.4+0.6)(0.30-0.15) + (0.6+0.8)(0.55-0.30)\\ &\quad + (0.8+1.0)(1.00-0.55)]\\ &= 1 - [0.01 + 0.06 + 0.15 + 0.20 + 0.23] = 0.35 \end{aligned} \]

Result: G = 0.35 – a moderate level of inequality, typical of a developing economy.

6. Indicators of Living Standards (Syllabus 11.3)

• Monetary – Real GDP per capita, GNI per capita (PPP‑adjusted).
• Non‑monetary – Life expectancy, literacy rate, access to clean water, infant mortality.
• Composite indices – see Table 1.

Index	What it measures	Data sources	Typical values (Developed / Developing / LDC)
Human Development Index (HDI)	Life expectancy, education (mean & expected years of schooling), GNI per capita	UNDP Human Development Report	> 0.80 / 0.55‑0.80 / < 0.55
Mean Equivalent Wealth (MEW)	Adjusted household income that reflects economies of scale and age‑related needs	World Bank “World Development Indicators”	High (≈ $30 000) / Medium (≈ $10 000) / Low (≈ $2 000)
Multidimensional Poverty Index (MPI)	Deprivations in health, education and living standards (10 indicators)	UNDP & Oxford Poverty & Human Development Initiative	0 – 0.05 / 0.05‑0.20 / > 0.20

Interpretation Exercise (AO2)

Country X has an HDI of 0.72, a Gini of 0.38 and an export structure of 45 % primary commodities, 35 % labour‑intensive manufactures and 20 % services. Classify Country X’s development level and discuss two likely features of its economic structure.

1. HDI = 0.72 → falls in the “developing” range (0.55‑0.80).
2. Gini = 0.38 → typical of a developing economy.
3. Export mix shows a strong reliance on primary commodities and labour‑intensive goods, indicating an early‑to‑mid‑stage structural transformation.
4. Likely features:
   • Significant agricultural employment (≈ 20‑30 % of the workforce).
   • Rapid growth in the manufacturing sector but services still below the 50 % mark.

7. Pattern of Trade at Different Levels of Development

7.1 Developed Countries

• Exports – High‑value‑added manufactured goods (machinery, automobiles, pharmaceuticals) and knowledge‑intensive services (finance, education, tourism). Export‑to‑GDP ratio: 45‑55 %.
• Imports – Raw materials, intermediate inputs, and low‑cost manufactured items. Import‑to‑GDP ratio: 40‑50 %.
• Trade balance – Often a surplus in services; goods balance can be mixed (e.g., Germany runs a large goods surplus, the UK a services surplus).

7.2 Developing Countries

• Exports – Mix of primary commodities (agricultural products, minerals) and labour‑intensive manufactures (textiles, electronics assembly). Export‑to‑GDP ratio: 30‑40 %.
• Imports – Capital goods, intermediate inputs, consumer goods. Import‑to‑GDP ratio: 35‑45 %.
• Dual‑economy – Co‑existence of a traditional agriculture sector and a modernising manufacturing sector; services are growing but still modest.

7.3 Least‑Developed Countries

• Exports – Predominantly unprocessed primary commodities (coffee, cocoa, oil, timber) and a few low‑value manufactured items. Export‑to‑GDP ratio often exceeds 60 % of total exports.
• Imports – Essential manufactured goods, foodstuffs, fuel and some capital equipment. Import‑to‑GDP ratio: 20‑30 %.
• Vulnerability – Narrow export base makes earnings highly sensitive to world‑price fluctuations (e.g., cocoa price crash in Côte d’Ivoire).

8. Theoretical Frameworks (Useful for AO2/AO3)

National‑income identity (open economy)

\[ Y = C + I + G + (X - M) \]

• Y – GDP (real)
• C – Household consumption
• I – Investment
• G – Government expenditure
• X – Exports
• M – Imports

Growth model linking export diversification to income growth (simplified)

\[ \frac{dY}{dt}= \alpha\,(X_{\text{high}}-X_{\text{low}}) + \beta\,K^{\gamma} \]

• \(X_{\text{high}}\) – Earnings from high‑tech exports
• \(X_{\text{low}}\) – Earnings from low‑tech/primary exports
• K – Capital stock
• \(\alpha ,\beta ,\gamma >0\) – Parameters that capture the strength of diversification and capital effects.

9. International Aid and Migration (Syllabus 11.5)

9.1 Forms of Aid

1. Official Development Assistance (ODA) – Grants and concessional loans from governments and multilateral bodies (e.g., World Bank, EU).
   Example: The United Kingdom’s ODA to Malawi (≈ £300 million in 2023).
2. Private aid – Charitable donations, NGO programmes, and philanthropic foundations.
   Example: Bill & Melinda Gates Foundation funding for malaria control in Sub‑Saharan Africa.
3. Foreign Direct Investment (FDI) with a development focus – Multinational enterprises establishing factories, infrastructure or services that create jobs and technology transfer.
   Example: Toyota’s joint‑venture plant in Thailand, which supplies the ASEAN automotive market and raises local skill levels.

9.2 Migration Flows

• Push factors – Low wages, limited job opportunities, political instability, environmental stress.
• Pull factors – Higher wages, better education and health services, political stability, existing diaspora networks.
• Typical patterns
  • Developed economies experience net immigration (e.g., Canada, Germany).
  • Developing economies often have modest net out‑migration, especially of skilled workers (brain‑drain).
  • Least‑developed economies usually have strong net out‑migration, particularly of young adults seeking work abroad.
• Policy relevance – Migration can alleviate labour shortages in high‑income countries and generate remittances for LDCs, but it may also exacerbate skill shortages at home.

10. Implications for Policy

1. Industrial policy – Encourage movement up the value chain through technology transfer, skill development and R&D subsidies.
2. Trade diversification – Reduce reliance on a narrow commodity base by supporting agro‑processing, digital services and niche manufacturing.
3. Infrastructure investment – Better transport, energy and communications lower trade costs and attract FDI.
4. Human‑capital development – Expand quality education and health services to raise labour productivity and enable high‑tech export growth.
5. Aid effectiveness – Align aid with national development strategies, strengthen institutions, and monitor outcomes to avoid dependency.
6. Migration management – Create legal pathways for skilled migration, protect migrant rights, and channel remittances into productive investment.

11. Suggested Diagram for Revision