How does the trade trap affect LICs?

How does the trade trap affect LICs?

• A. LICs earn little from exports and cannot invest in industry, infrastructure or services.
• B. LICs earn high profits from exports but fail to reinvest abroad.
• C. LICs diversify their economies thanks to export earnings.
• D. LICs protect domestic industries with high tariffs.

Answer: (A)

Trade traps limit a country's development because export earnings stay very low. LICs often depend on a narrow range of primary commodity exports, which have volatile prices and often deteriorating terms of trade. That means government and firms don’t accumulate enough revenue from exports to fund investment in industry, infrastructure, or services, so the economy struggles to diversify and grow. This is why the statement describing LICs as earning little from exports and being unable to invest in industry, infrastructure or servicesbest fits. The other ideas describe situations like high export profits, successful diversification, or tariff protection, which do not match the typical trade-trap scenario.

Trade traps limit a country's development because export earnings stay very low. LICs often depend on a narrow range of primary commodity exports, which have volatile prices and often deteriorating terms of trade. That means government and firms don’t accumulate enough revenue from exports to fund investment in industry, infrastructure, or services, so the economy struggles to diversify and grow.

This is why the statement describing LICs as earning little from exports and being unable to invest in industry, infrastructure or servicesbest fits. The other ideas describe situations like high export profits, successful diversification, or tariff protection, which do not match the typical trade-trap scenario.