Free Trade Vs Fair Trade

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Introduction Adam Smith, author of The Wealth of Nations, shows support for free trade and emphasises it as a trade policy which ought to be adopted. Krugman and Obstfeld back Smith's support by stating that the efficiency of trade is increased by free trade and accumulates the national income of countries. Free trade is a theory which suggests that each nation benefits in specialising in an economic activity from which it gains absolute advantage, enjoying absolute superiority over other nations in a specif economical activity (Peng). With free trade follows opportunity, replacing regulation and growth of economic activity. (Rugmann and Collinson). Arguments for free trade Trading Barriers If nations adopted a free trading policy…show more content…
McDonald and Burton clarify that infant industries can feel supported into growth (and sometimes beyond) by the trade policy of protectionism and tariff barriers. This form of strategic protectionism enables industries seeking to grow to enjoy the benefits of first mover advantages, a concept of specialising in producing and exporting only those goods and services which it can produce more efficiently (Investopedia) and the benefits of economies of scales. A prime example of this is Amazon, the first online bookstore. By gaining the first mover advantage into the markets, it has gained and maintained dominance over many firms. Firms have adopted the concepts and practices such as retailers like Barnes and Nobles. Professer Marvin Lieberman and David Montgomery, Stanford University, conclude that first mover advantage can be gained from technology leadership, control of resources and buyer switching costs after gaining the opportunity to access the pioneering stage of a concept. Free Trading Areas Free trade areas, FTA, are economic integration arrangements in which barriers to trade (e.g. tariffs), exchange of goods and information among member nations are removed. It is arguable to say that fair trade aims to create equilibrium between LEDC's, less economically developed countries and developed nations in terms of trading activities and ethics. In saying this, free trading between more economically developed countries and LEDC's will mean

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