Impact Of Trade On Intra Trade Industry

International trade is the exchange of goods, capital, and services across international borders or territories. In most countries this trade represents a significant share of their (GDP) gross domestic product. This type of trade has political, economic, and social importance to all nations involved. There are many factors surrounding international trade, such as, advantages, limitations, foreign exchange rates, and others. As we review these factors, this will allow us to better understand how international trade truly functions.

This article helps to see the theoretical development of comparative advantage through the findings of David ricardo. It states how the basis of this model can be applied to multiple goods and actually be used to benefit countries and have gains from trade.

The international trade relationship among countries is complex which combined both challenges and opportunities. International trade agreements between countries might bring some opportunities to some developing countries in some

In this age of globalization, Economic integration and regional cooperation have become a reality. International trade has enabled countries to exchange goods, services and capital across the border, enabling better opportunities for both producers and consumers. However, in recent years, the benefits of International trade have been questioned by many economists and business experts. There are no doubts that International trade has been a blessing for many countries around the world, but the question that remains unanswered is, how does International trade benefit the United States economically. With fall, declining economic growth, and increase in unemployment, as claimed by conservatives, trade deals such as NAFTA and TPP have been under the spotlight for quite sometimes. Despite all criticisms, recent International trade data show a different reality. It shows how the benefits of International trade outweighed the cost of the economy of the United States.

Trade agreements have been around for the past several centuries, and naturally, they have evolved. Earlier on, they were used exclusively as agreements between nations to reduce tariffs on each other’s products. Tariffs, however, were not the only way a nation could protect its industries. Trade agreements have evolved to address this situation, and instituted measures to disincentivize circumvention of the spirit of these agreements. Evolving still, trade agreements have now grown into massive collectives between nations that regulate more than just trade. Moreover, these agreements have become political tools to cement solidarity between nations, and are used to harmonize economic regulation on an international scale.

Under the globalization, it is very rare and costly for a country to produce everything she needs; the variations of productive factors allow countries to produce in their comparative advantages and trade with each other. In this way, countries should know how to allocate their resources efficiently to achieve optimal result during time in trade.

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

Engaging in international trade is an effective stimulation of economic growth. David Ricardo’s principle of comparative advantage argues while nations involved in international trade, a country will become specialised in producing a product that has the lowest relative costs. (Economist, 2015) By focusing on the production onto a limited scope of product or industries, firms or the nation will experience rise in productivity due to higher efficiency in allocation and utilisation of resources. As the process of specialisation will cause reallocation of other less efficient resources, nations, as a result, will import products that are less efficiently produced from other countries. While different nations specialising in different goods and services, a greater variety and cheaper products will become available for consumption, improving the quality and quantity of consumption by all nations. To determine whether developing nations are experiencing disadvantage in the international trade, it requires a careful examination with Porter’s Diamond factor endowments. It analysis a nation 's competitiveness under four categories: factor endowments, demand condition, related and supporting industries and firm strategy, structure and rivalry.

Trade can be in several forms, such as managerial skills exchange within different countries, technology skills transfers when trading all kinds of goods and services. However, certain exceptions are unable be exchanged, just like every country must to produce their own a railway services its own and cannot import or export to other country.

There are several reasons to why countries may trade. Differences in the technologies used in a country or differences in their ability to manufacture goods is one of the most popular reasons for explaining trade (Krugman, 2011). However, if a country has the better technology to produce all goods than another country, should it then become self-sufficient? It could, yet if it only concentrated on the production of the goods it can produce for the lowest cost and exchange the excess of those goods with the other country for the goods that it produces cheapest, then both can be better off (EconLib, n.d). This example introduces the important economic concept of comparative advantage (CA). A country has a CA in producing a good if it can produce it at a lower opportunity cost (OC), the cost of forgoing the production of another good, than anyone else (Krugman, 2014). This concept was first illustrated by the 19th century economist David Ricardo, who used it to determine the pattern of trade between countries. Ricardo developed a model in which he proved that countries will benefit if they specialize in the production of the goods in which they have a CA and export those goods to other countries in exchange for goods in which they have a CA. As a result of specialization and trade countries will be better off than they would have been in the absence of trade (Krugman, 2011).

The main results of damages associated with international trade are presented in Table 4.1. For example, the first row shows that exported crop products generate approximately $2,351 million damages (DEX), and create $14,754 million value-added (VEX) to the US economy. While, imported crop products correspond to $2,246 million damages (DIM) and $11,020 million value-added (VIM) that would otherwise be generated by the domestic production. Net damages generated by trade of crop products is $106 million (ΔD=106 million), which accounts for 2.83% (ΔD/ΔVA=2.83%) of net value-added created by trade of crop products (ΔVA=3,734 million). That is, on average for each thousand-dollar value-added generated by net exports of crop

International trade has brought massive gains to a number of countries around the world. It has helped spread technology, enhanced competitiveness, raised productivity, and gave consumers with a number of choices. These potential gains from trade have motivated countries to aggressively negotiate for trade relations and explore new trade opportunities. For instance, a study which was carried out by World Trade Organization (WTO) (2008), for the period 1950-2007 shows that export increased by 2.7 percent faster than gross domestic product (GDP). Obviously, regional economic integrations played a vital role in promoting world trade in terms of both quantity and quality of goods and services traded.

Comparative advantage is a principle developed by David Ricardo in the early 19th century to explain the benefits of mutual trade (Carbaugh, 2008). Many underlying assumptions of comparative advantage depend on states of economic equilibrium and an absence of economy of scale. In reality, economies are dynamic and subject to innovation and interference; which has led to revised assumptions of return and competition (Krugman, 1987). These factors have created questions of free trade and governmental participation in an economy by the development of strategic trade policies. These new concepts do not replace the theory of comparative advantage; however, they further explain how trade can benefit a country's economy (Krugman, 1987).

Emergence of revolution in the world led to globalization. Hitherto, people gain from the massive and healthy business trades across the borders. In this case, one country is able to gain from selling or buying of goods. At some point, countries realized the importance of creating a global trading arena to encourage the producers from all nations. In this regard, people enjoyed from some exemptions that interfered with flow of goods and service across borders. Despite the vast advantage that parties enjoy in this kind of trade, they face various hurdles, which demoralize them as they perform their business transactions. For instance, changes in the economic status in one of the countries result in reduction in value of goods. Likewise, some traders may suffer due to high rates of taxation in the bordering countries.

Intra-industry trade refers to the exchange of similar products belonging to the same industry. The term is usually applied to international trade, where the same types of goods or services are both imported and exported. Intra industry trade goes against all previous/existing theories of competitive advantage based on Ricardian technology differences or Heckscher-Ohlin factor abundance theories which cannot explain this type of trade. Measuring