HOMEWORK 1-INTERNATIONAL TRADE THEORY & POLITICAL ECONOMY OF INTERNATIONAL TRADE
1. Read the Samuelson critique from Chapter 5. Explain briefly what you understand from this critique. Do you agree or disagree with this critique?
2. The world’s poorest countries are at a competitive disadvantage in every sector of their economies. They have little to export. They have no capital; their land is of poor quality; they often have too many people given available work opportunities; and they are poorly educated. Free trade cannot possibly be in the interests of such nations! Do you agree or disagree, discuss.
3. Read the section on “Evidence for the Link Between trade and Growth” ...view middle of the document...
There are a lot of discussions weather poorest countries benefit or suffer from free trade. Considering all the economic problems that such countries face, I strongly believe, that in most cases free trade is the best thing for them.
Countries might try to export goods that they have been traditionally producing (for example rice and coca), and that require factors of production that they have in surplus (labor and land), in other words, free trade allow the country to specialize in what it is the most productive in.
Free trade agreements also stimulate the growth in investments in the poorer countries. This affect the whole country’s economy – from developing banking sector because of the great inflow of money, to the reducing of child labor, as now high technology equipment is available to the producers, and that requires more skilled adult workers. Thus another advantage occurs – one way or another free trade encourages education, which is a good thing in every way. Developed countries relocate their manufacturing to developing countries, giving new jobs, what leads to higher standards of leaving, and provide economic growth in the end.
The other huge effect of trade in developing countries is reducing poverty. For example, 30 years ago, South Korea was as poor as Ghana, and thanks to trade, now it is as rich as Portugal.
On the other hand, some local producers might not survive the competition, but that will encourage them to improve their own production, and to find new ways of handling business.
In the end I think that free trade has a lot of positive effects on poorest nations, and stimulate both economic and cultural growth.
Trade positively affects economic growth, both in developed and in developing countries, that is a fact. But in which way?
For me the most obvious answer to this question is that trade leads to more competitiveness, and thus encourages producers to be in a constant stay of improvement. It is also very easy to see how it benefits the developing countries – it opens the way of foreign investments, providing new jobs, increase in the level of education, access to better goods and services and so on. Reducing taxes for small producers in developing countries makes their products more affordable in the world market, thus helping it to grow. Also trade leads to great improvement in leaving standards in developing countries – while...