7.3 North-South Economic Relations and Power Dynamics

Economic relations between the Global North and South have been shaped by historical colonialism and contemporary disparities. The North exports high-value goods and services, while the South provides raw materials and low-value products. This dynamic perpetuates unequal trade patterns and power imbalances.

Power asymmetries in international trade favor the Global North, with advanced economies controlling key technologies and influencing global trade rules. The effectiveness of trade agreements like the WTO is mixed, while transnational corporations significantly impact developing economies, bringing both opportunities and challenges.

Historical and Contemporary Economic Relations

Economic relations of Global North vs South

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• Historical economic relations shaped by colonialism and imperialism
  • Global South's raw materials and resources extracted by colonial powers (rubber, cotton, minerals)
  • Labor in Global South exploited through forced labor and low wages
  • Unequal trade patterns established favoring colonial powers over colonies
• Contemporary economic relations marked by disparities in trade, investment, and aid
  • Global North exports high-value manufactured goods (electronics, machinery) and services (finance, consulting)
  • Global South exports primary commodities (agricultural products, raw materials) and low-value manufactured goods (textiles, basic consumer goods)
  • Foreign direct investment flows primarily from Global North to South, with multinational corporations (Coca-Cola, Nestle) operating in developing countries
  • Aid flows from North to South through official development assistance, often with conditions attached (structural adjustment programs)

Power Asymmetries and Development

Power asymmetries in international trade

• Global North holds economic and technological dominance
  • Advanced economies control key technologies and intellectual property rights
  • Developed countries have greater influence in setting global trade rules and standards
• Political influence of Global North in international institutions (World Bank, IMF, WTO)
  • Voting power and decision-making often aligned with interests of developed countries
  • Developing countries have limited bargaining power in trade negotiations
• Unequal terms of trade disadvantage developing countries
  • Prebisch-Singer hypothesis: prices of primary commodities decline relative to manufactured goods over time
  • Tariff escalation: higher import duties on processed goods from developing countries (cocoa vs chocolate)
  • Non-tariff barriers: standards, regulations, and subsidies in developed countries limit market access for developing country exports (agricultural subsidies in US and EU)

Effectiveness of trade agreements

• World Trade Organization (WTO) aims to promote free trade and address development issues
  • Principles of non-discrimination, reciprocity, and transparency in trade relations
  • Dispute settlement mechanism to resolve trade conflicts between member states
  • Special and differential treatment provisions for developing countries (longer transition periods, technical assistance)
• Mixed effectiveness in addressing developing country interests
  • Market access improved through tariff reductions and elimination of quantitative restrictions
    • Limitations persist: tariff peaks on sensitive products, tariff escalation, and non-tariff barriers
  • Flexibility for development policies remains constrained
    • TRIPS Agreement limits access to affordable medicines and technology transfer
    • Agreement on Agriculture affects food security and rural livelihoods in developing countries
  • Capacity constraints and implementation challenges hinder developing countries' participation in WTO (limited negotiating resources, difficulties in meeting complex requirements)

Impact of transnational corporations

• Transnational corporations (TNCs) and foreign direct investment (FDI) shape economic landscapes in developing countries
  • Market-seeking FDI: TNCs establish subsidiaries to serve growing domestic markets (retail, telecommunications)
  • Resource-seeking FDI: TNCs invest in extractive industries to access natural resources (oil, minerals)
  • Efficiency-seeking FDI: TNCs locate production in developing countries to lower costs (labor, land, taxes)
• Impacts on host economies are mixed and context-specific
  • Technology transfer and spillover effects can upgrade local capabilities, but linkages and diffusion may be limited (enclaves, intellectual property barriers)
  • Employment generation and skills development occur through TNC subsidiaries and local suppliers, but concerns arise about labor standards and working conditions (sweatshops, precarious work)
  • FDI inflows improve balance of payments, but profit repatriation and transfer pricing can negate benefits
  • Competition from TNCs with superior resources and market power can crowd out domestic firms and infant industries, challenging industrial policy and local entrepreneurship