Pacific State University
EC512 International Economic Development
Assignment # 9
Q1. The effects of international trade on a country’s development are often related to four basic economic concepts: efficiency growth, equity and stability Briefly explain what is meant by each of these concepts as it relates to the theory of international trade.
The whole economic basis for international trade rests on the fact that countries do differ in their resource endowments, their preferences and technologies, their scale economies, their economic and social institutions, and their capacities for growth and development. Developing countries are no exception to ...view middle of the document...
Importance of Exports to Different Developing Notions
Although the overall LDC figures for export volumes and values are important indicators of patterns of trade for the group as a whole, the varying importance of exports to the economic well—being of individual nations is masked by these aggregate statistics.
Trade Theory and Development: The Traditional Arguments
Five basic questions about trade and development derived from the neoclassical free-trade model.
1. . How does international trade affect the rate, structure, and character of LDC economic growth? This is the traditional "trade as an engine of growth" controversy set in terms of contemporary development aspirations.
Trade is an important stimulator of economic growth. It enlarges a country’s consumption capacities, increases world output, and provides access to scarce resources and worldwide markets for products without which poor countries would be unable to grow.
2. How does trade alter the distribution of income and wealth within a country and among different countries? Is trade a force for international and domestic equality or inequality? In other words, how are the gains and losses distributed, and who benefits?
Trade tends to promote greater international and domestic equality by equalizing factor prices, raising real incomes of trading countries, and making efficient use of each nation’s and the world’s resource endowments
3. Under what conditions can trade help LDCs achieve their development objectives?
Trade helps countries achieve development by promoting and rewarding the sectors of the economy where individual countries possess a comparative advantage, whether in terms of labor efficiency or factor endowments. It also lets them take advantage of economies of scale.
4. Can LDCs by their own actions determine how much they trade?
In a world of free trade, international prices and costs of production determine how much a country should trade in order to maximize its national welfare. Countries should follow the principle of comparative advantage and not try to interfere with the free workings of the market.
5. In the light of past experience and prospective judgment, should LDCs adopt an outward—looking policy or an inward—looking one or should they pursue some combination of both, for example, in the form of regional economic cooperation and strategic export policies? What are the arguments for and against these alternative trade strategies for development?
Finally, to promote growth and development, an outward-looking international policy is required. In all cases, self—reliance based on partial or complete isolation is asserted to be economically inferior to participation in a world of unlimited free trade.
Q14. What are the possibilities, advantages, and disadvantages of export promotion in developing nations with reference to specific types of commodities (e.g., primary food products, raw materials, fuels, minerals, manufactured goods)?