Composition of Trade:
It is indicative of the structure and level of development of an economy. For instance, most of the UDCs depend for their export earnings on a few primary commodities (PCs); these countries export raw materials of agricultural origin and import manufactured industrial products, thus, denying themselves the benefits of value added. As an economy develops, its trade gets diversified. It no more remains depended on a few PCs. It begins to export more of manufactured industrial goods and import industrial raw materials, capital equipment and technical know-how.
Manufactured exports create greater value addition than PCs as they go through more stages of processing. The manufacturing sector has greater linkages with the rest of the economy and, hence, the downstream effect on exports from these sectors are likely to be greater than primary exports.
The commodities entering trade could also be classified by various other criteria such as value added per unit of output, productivity of labour, capital intensity in production, the strength of backward and forward linkages, etc.
The shifts in the commodity composition of trade in these categories would bring out the nature of structural changes in regard to income generation, employment effect and overall industrialisation through linkages effects, etc. The following questions need to be analysed in this regard:
• What is the degree of concentration in the composition of exports/imports? Has there been any change in the degree of concentration over time?
• Is there any shift in the shares of the primary products and manufactured products in the total export or import trade?