There is no doubt that increasing in international trade is supporting the economic growth across the world, raising incomes and creating jobs. However, international trade can also some create economic obstacles, such as the international context and the market policy and regulations of each country, and consequently it can be said that the effects would have positive and negative sides, and it is useful to mention all of them and to take them into consideration.
When evaluating the benefits of free trade, the first economic concept we must look at is comparative advantage: the comparative benefit one nation has over another in the production of a
When one country is able to be more efficient in producing one good or service compared to a different country, a comparative advantage has occurred. This usually takes place when a country is able to focus and specialize in a product or service so they will have a stronger dominance in what they do. The United States have exceeded in creativity and innovation, which accounts for the advantage in technology (Macroeconomics, 24-38). The U.S. also has a trade surplus in services and is the forerunner in the worlds’ service exports (Global Trade in Services, 84).
First of all we need to define what the comparative advantage is. One obvious concept is that country’s ressources can
Some of the countries with surplus commodities may dumb them on international markets at a low price. Under such conditions, some of the efficient industries can might find difficulties in competing for long period. Furthermore, countries whose economies are mostly rural will face unfavourable terms of trade. For example, ration of export prices to import prices. Which means that their export income is more smaller than their import payments the make for high value added imports, as it leads to subsequently large foreign debt levels.
Chapters twenty and twenty-one went over the relationship of international markets in a global economy. In an increasingly interconnected world, global trade has caused countries to shift to specializations in their markets. Therefore, raising average wages due to increased productivity. Countries can have absolute or comparative advantages in a certain market. As written in the text, an example of absolute advantage would be Saudi Arabia in the oil industry. This is because they have such an abundance of easily assessable oil very few countries can complete in that market. A comparative advantage is when a country can produce a product at a much lower cost. Comparative advantage is a balance of opportunity cost that leads a nation to specialized in a specific market. Comparative advantage can also be gained through the exploitation of workers or practices that are severity destructive to the environment. To protect a nations cultural, economic, and social interest a country will use tariffs, import quotas, and non-tariff barriers to deter domestic companies from purchasing goods from counties who practice unpleasant or morally object able methods, such as child labor.
Comparative advantage is affected by the interplay between the resources available to a country (the relative abundance of factors of production) and the production technology (which affects the intensity through which the factors of production are used in the production process). What we understand from the Heckscher-Ohlin model is that international trade is by and large directed by the differences in resources or in other words, the existence of differences in economies’ resources is the cornerstone of trade.
With the Absolute Advantage Principle we can only gain in which one country is better off in producing its products or services in which it is advantaged to that country but in Comparative Advantage even if the country is not able to produce those products it can still trade and be advantageous to both the countries.
In the “Rodamia and its neighbors” trade simulation, I came across a few advantages and disadvantages of international trade. First let’s talk about the simulation itself. The first step of the trade simulation involved deciding whether to import or export corn, cheese, DVD players, and Watches. I decided it was best to import corn and watches and export DVD players and cheese. This was an easy simulation because all I had to do was decide which items we had a comparative advantage with and which countries offered the best products at a lower opportunity cost. Even though Rodamia does not have the absolute advantage on corn or cheese, I was able to help maximize the countries benefits by specializing in the production of cheese which gave us a comparative advantage.
This article shows that international trade can have practical limitations. The textbook explains that one of these limitations is the fact that while two countries can both benefit by trading with each other, excessive trade can
Firstly, International trade is the trading of products and ventures crosswise over worldwide outskirts. It makes the economy to make utilization of the characteristic assets for the creation of merchandise and how it 's most appropriate. It has been discussed that international trade arises when a country specializes in the production of certain goods and thus it produces more than what is needed to supply the domestic demand and therefore it exports the surplus (Collings, 1929). Also, it empowers a nation to acquire products are not produced in the economy as it may be expensive by bringing in from different nations at lower costs. Another thing is that it increases efficiency due to the international competition, each producer tries to produce the better quality goods (Collings, 1929). On the other hand, international trade may have a negative
Comparative advantage, theorized by David Ricardo, exists when countries have marginal dominance over goods and/or services production levels, and when the opportunity cost of their production is lower. International trade affords great opportunities for workers by improving their overall living conditions. The International Monetary Fund states international trade between diverse countries facilitates trade and industry growth, higher employment levels and more apposite income standards as opposed to countries without international trade economic structures (www.imf.org, 2000).
Comparative advantage works if a country has a lower opportunity cost of producing a product than other countries (Holden, 2008). Comparative advantage is about lowering the opportunity cost of producing a particular product. The opportunity cost of producing a particular item is equal to the potential benefit that could have been gained by choosing an alternative (Boyte-White, 2015). Clearly in the reading example between