ABSTRACT
This chapter explores the role of trade in development strategies. It analyzes how trade instruments can be used to design industrialization strategies, each of which has particular advantages and risks. A key aspect of the process of globalization has been the rapid rise in the importance of trade in gross domestic product (GDP). Growth in exports has been spectacular in many middle-income countries. In China, exports as a share of GDP grew by 4.8 percent/year between 1970 and 2018, and in India by 4.1 percent/year. Previously non-traded services have seen a recent sharp increase in trade. These include banking, insurance, telecommunications, retailing, transportation, and professional services such as accounting, auditing, and international law. When prices differ between countries by more than transaction costs, private traders can profit from exporting and importing. When a free trade agreement or a customs union is created, exporters to countries in the agreement/union may find themselves displaced by exporters from within the union.
