Dynamic gains from Trade
Dynamic gains from trade refer to the long-term benefits that result from increased specialization and exchange of goods and services between countries. These gains include technological advancement, productivity growth, and innovation, which can lead to higher living standards and economic growth. By allowing countries to focus on their comparative advantages, trade can drive dynamic gains that benefit all participating nations.
7 Key excerpts on "Dynamic gains from Trade"
eBook - ePub- Eamonn Butler(Author)
- 2021(Publication Date)
- London Publishing Partnership(Publisher)
...The benefits of trade Trade, then, benefits both sides and would not happen if it did not. The obvious benefits, which economists call the static gains from trade, are the increase in value that comes from voluntary exchange, raising public welfare (particularly that of consumers) and boosting economic growth. But trade also sets off events that accelerate growth and economic development, known as the Dynamic gains from Trade. And there are non-economic benefits, non-material gains from trade, too. Static gains from trade Greater incomes. Trade delivers higher national income. The rolling back of mercantilist trading barriers was a large part of Britain’s economic boom in the late nineteenth century (Cain 1982). Similarly, the post-war efforts to encourage trade increased the incomes of Western nations in the late twentieth century (Terborgh 2003). More recently, South Asia and China/South East Asia entering into the global trading networks in the 1980s and 1990s set off the ‘Asian Miracle’ that has taken nearly a billion people out of dire poverty (World Bank 2016). Research suggests that each 1 per cent growth in trade increases the incomes of a country’s citizens by about 2 per cent (Frankel and Romer 1999). It has enriched even countries with few natural resources. The major trading centres of Hong Kong and Singapore, for instance, were relatively poor places at the end of World War II but are now among the richest. By contrast, countries with plentiful natural resources that cut themselves off from trade, such as North Korea, rank low on world prosperity tables. Choice, quality, value and welfare. Trade delivers more than higher income alone, however. It also delivers a better quality of life. Plainly, richer countries can afford to spend more on things like education, better healthcare and a cleaner environment...
eBook - ePub- Hendrik Van den Berg, Joshua J Lewer(Authors)
- 2015(Publication Date)
- Routledge(Publisher)
...He found that between 1858 and 1870, real wages rose by 65 percent, which he suggests as the upper bound of the real gains from trade for Japan. Unlike Bernhofen and Brown’s estimates, Huber’s less precise estimates captured the gains from economic growth as well as the static gains from comparative advantage. An increase of welfare of anything close to 65 percent in just two decades is quite large indeed. The need to estimate the dynamic gains from international trade is especially urgent given economists’ arguments that free trade is one of the policies that developing countries should embrace in order to close the income gap between rich and poor countries. Figure 1-4 shows clearly that even a static gain of 8 or 9 percent of GDP, as Bernhofen and Brown found for Japan’s exceptional shift in trade policy in the mid-1800s, cannot contribute much to closing the 1,000 or 2,000 percent differences in per capita incomes between developed and less developed economies. For most people living in the less developed economies of Africa, Latin America, and Asia, the issue is not about moving from I 1 to I 2 in the low-income economy in the bottom left corner of Figure 1-4. Rather, what is needed are the welfare gains associated with moving from I 1 to I 20 in Figure 1-4. That requires the outward shift of the PPF, not the one-time gain from trade of at most a few percent of GDP at the bottom left corner of Figure 1-4. Such an outward shift of the PPF requires many years of economic growth. Figure 1-4 Comparing the Gains from Trade and Economic Growth 1.3 Economic Growth and International Trade The relationship between international trade and economic growth is complicated by the fact that specialization and exchange have occurred for much of human history, albeit on a small scale, but economic growth is a very recent phenomenon. Hence, trade’s hypothesized positive influence on economic growth must also be a recent phenomenon...
eBook - ePub- John Weiss(Author)
- 2010(Publication Date)
- Routledge(Publisher)
...In addition there are barriers to international trade that have nothing to do with policy interventions, but arise from the cost of moving goods between countries (trade costs). The basis for the potential gains from international trade is specialisation in the production of goods which a country can produce relatively cheaply, that is specialisation along the lines of comparative advantage. Since the comparison is between costs of goods within one country, there must always be something in which that country has a comparative advantage, in that a good is cheap relative to everything else that the country can produce. A majority of the goods that are sold on world markets are a form of manufactured product; hence, how far countries can take advantage of the potential gains from trade will have a large impact on their manufacturing sectors. Gains from trade Drawing on international trade theory, many have argued that unlike the arguments in Chapter 2, it is not meaningful to distinguish between broad sectors, like manufacturing or agriculture. In this view, it is far more important to differentiate between activities that produce goods that can be bought and sold on the world market (tradable sectors) and those that focus exclusively on the domestic market (non-tradable sectors). 1 In addition, within tradables, given the vast range of possible products, there will be only a limited number in which an economy has a comparative advantage. This reasoning is associated with Neoclassical or market-based views of development that stress the importance of specialising on the basis of an economy’s comparative advantage. Hence, it is not manufacturing per se that is important, but within manufacturing the goods that a country can produce relatively efficiently and thus export successfully to the rest of the world. There are different explanations for comparative advantage differences between countries corresponding to different theories of trade...
- Eckhard Siggel(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...Small countries, require export markets in order to produce economically at large scale. They are also likely to import many goods at prices that are lower than their own potential costs of production. In the rest of the chapter we shall focus first on the main rationale for trade and the gains from trade, and then examine the arguments against free trade. Next, we discuss the instruments and consequences of inward-oriented trade regimes, as well as trade policy reforms and outward orientation. 5.1 Comparative Advantage and the Gains from Trade International trade is known to be beneficial to countries that specialize in activities, in which they have comparative advantage. The principle of comparative advantage, which was first rigorously analyzed by Ricardo, is one of the most fundamental ones in economics. It states that even if a country is less productive in all activities than other countries, it can nevertheless gain from trading with these countries, provided that it specializes in those activities in which it is relatively more productive. The greater relative productivity is measurable as opportunity cost, which poses no conceptual problems as long as we analyze the simple case of two activities, two countries and a single factor of production, as Ricardo did in his famous demonstration of comparative advantage. To recall, let the two goods, food (F) and clothing (C), be produced in both, the Home country (H) and a foreign country (F). We assume for simplicity that only one factor of production, labour, is used and that the following amounts of labour per unit of output (L F and L C) are required: Home Foreign Food 5 6 Clothing 10 18 The opportunity cost of clothing in terms of food equals the factor input ratio, L C /L F, which is two in Home and three in Foreign. Therefore, producers in Home have comparative advantage in clothing and producers in Foreign have comparative advantage in Food...
- Peter Robson(Author)
- 2010(Publication Date)
- Routledge(Publisher)
...2 Towards a Developmental Theory of Integration among Developing Countries What are the benefits that developing countries can expect to derive from participation in regional economic groupings? Orthodox comparative static analysis based on the customs union theory of Bye (1950) and Viner (1950) attributes such gains to increased production arising from specialisation according to static comparative advantage, that is, essentially to static resource allocation gains. The orthodox theory analyses the effects of integration principally in terms of the trade creation and trade diversion that would result. Trade creation refers to a shift from the consumption of higher-cost domestic products in favour of the lower-cost products of other member states. This reduces the cost of goods previously produced domestically. Trade diversion refers to a shift in the source of imports from lower-cost sources outside the regional bloc to a higher-cost source within it. The merits of integration are then evaluated using the relative magnitudes of trade creation and trade diversion as the sole criterion. A union that is on balance trade creating is regarded as beneficial, whereas a trade-diverting union is regarded as detrimental. This analysis has only a limited bearing on the evaluation of gains from integration in developing countries. A major reason for this is that its standpoint is that of free trade, so that any gains derive solely from a move towards free trade involving, on balance, the reduction or elimination of inefficient or high-cost domestic industries...
eBook - ePub- Jacob Viner(Author)
- 2016(Publication Date)
- Routledge(Publisher)
...The reciprocal-demand analysis is an attempt, imperfect but superior to available substitutes, to describe the aggregate or average results of such changes in desires or costs when they affect appreciably a wide range of commodities. III. T ERMS OF T RADE AND THE A MOUNT OF G AIN FROM T RADE Terms of Trade as an Index of Gain from Trade.—From the beginning of the classical period, if not earlier, the trend of the commodity terms of trade has been accepted as an index of the direction of change of the amount of gain from trade, and it is therefore an old doctrine that a rise in export prices relative to import prices represents a “favorable” movement of the terms of trade. It has been recognized at times that the proposition is valid subject only to important qualifications, but systematic discussion of the qualifications which are necessary, or of the nature of the connection between the commodity terms of trade and the amount of gain from trade, seems to be almost totally lacking in the literature. Ricardo had little to say of the terms of trade as related to the gain from trade, perhaps because the question then came up only in connection with the unwelcome arguments that by monetary expansion, or by protective duties, the commodity terms of trade of a country could be made more favorable. While Ricardo did not deny that, of itself, an increase in the amount of foreign goods obtained in return for a unit of native goods was a favorable development, he was careful to point out that whether or not it reflected a genuine improvement in the position of the country depended on how it came, or was brought, about...
eBook - ePub- Miltiades Chacholiades(Author)
- 2017(Publication Date)
- Routledge(Publisher)
...Country B (A) is exporting (importing) X B K units of X while it is importing (exporting) X B E units of Y. The equilibrium terms of trade (p E) are given by the absolute slope of the vector KE. Observe that b x / b y < p E < a x / a y —and that KE is steeper than NK but flatter than MK. Figure 3.7 Figure 3.7 shows the gains from trade and their division between the two countries. Without trade, each country will necessarily have to consume on its production-possibilities frontier. With trade, as figure 3.7 shows, both countries consume beyond their respective production-possibilities frontiers, because they both specialize completely. In fact, the gains from trade correspond to the area NKM of figure 3.7. The larger this area, the larger the gains from trade. In addition, observe that the area NKM is divided into two parts by the terms-of-trade line KE —the area EKM going to A and the area EKN going to B, so to speak. Therefore, the closer the terms-of-trade line KE lies to B’s production-possibilities frontier (i.e., the smaller the difference between b x / b y and p E), the smaller will be B’s share of the gains. Similarly, the closer KE lies to A ’s production-possibilities frontier (i.e., the smaller the difference between a x / a y and p E), the smaller will be A ’s share of the gains. As pointed out earlier, the concept of the gains from trade is much subtler than it appears. In general, the introduction of free international trade will make (within each country) some people better off and others worse off compared with the pretrade equilibrium position. But it is not clear whether the society actually becomes better off or worse off when some of its members gain and some lose. Within the context of the classical theory, however, this difficulty does not arise. Labor is the only factor of production, and if any worker becomes better off, all of them do...
