Does Trade Couse Economic Growth? Essay

1780 words - 8 pages

The last few decades have been characterised by an unprecedented expansion of trade, which has come to great prominence on the global agenda as one of the most important drivers of economic growth. The effects of trade on economic performance have been the centre of political debates of both rich and developing economies. There are many advocates of trade as a proxy for growth on one side, and sceptics who doubt that trade promote long and sustainable growth, on the other side. Thus, this essay aims to provide and analyse different approaches that tackle this subject, considering both the positive and negative impacts of trade on economic growth. Moreover, a number of evidences and empirical data which support the theoretical models shall be presented.
To begin with, from the Ricardian model, one of the oldest theories in economics, which showed that two countries will be both better off if each specialises in the industry where it has a comparative advantage, and then trade with one another, many other economists have pleaded for a positive correlation between international trade and economic growth. As an example, OECD (1998: 36) states: "More open and outward oriented economies consistently outperform countries with restrictive trade and [foreign] investment regimes.” In the same train of thought, Sun and Heshmati (2010: 2) highlight that, nowadays, “Due to liberalization and globalization, a country’s economy has become much more closely associated with external factors such as openness”. Hence, leading a study regarding the reflection of international trade on economic growth would be of highly importance in this globalised era and would be of great use for policymakers in order to determine the root of productivity gains with respect to international trade.

In this regard, it would be easily noticeable that free trade leads to higher competition among domestic companies as the market power of monopolies and oligopolies would be weaken. To continue, through trade firms are enabled to sell into larger markets, which would increase the total output produced as well as the variety of the goods offer, resulting into a rise in employment and a decrease of average production costs, and ultimately into a fall in the prices of goods. In addition, expanded markets not only generate more scope for “learning by doing”, which would allow firms to improve their productivity with practice and repetition, but also offer more opportunities of investment in research and development. Nevertheless, being exposed to other new techniques in the production of goods, might lead to higher improvement and innovation incentives within companies regarding their own products. Thus, free trade could be regarded as a driver of knowledge and technology diffusion across the globe. (The Economist, 1st October 1998)
Consistent with the statements above is Didier and Pinat’s (2013) work, in which they claim that international trade is a favorable factor in a country’s...

Find Another Essay On Does trade couse economic growth?

How does China's fascist-style government help/impede economic growth and the well-being of its subjects?

1265 words - 5 pages question: Economic growth in China over the past 15 years is the result of what? It is the result of the CCP adopting the very thing it claims to be against: capitalism. So we currently have a system in China that claims to be something it is not. This is one point CCP apologists are confused on. The point is that the more China moves away from all the CCP stands for (and has stood for in the past), the more likely China will grow and prosper. If

International Trade and Wages Essay

2152 words - 9 pages . The impact of foreign trade is enormous. Foreign trade and economic trade have a vis-à-vis relationship and it does make an impact on the developmental approach in the societal economy. The market expands and grows rapidly because of the foreign trade and thus promotes demand and supply in the economic growth of a country. It does affect the whole of economy every second. There are umpteen number of ways the growth can be assessed. They are the

1234567890-=

1152 words - 5 pages the recent global financial crisis, such concepts as economic partnership and trade policies had to be changed with some governments around the world. While some of the economies adopted protectionist policies, others sought growth through facilitating trade with the objective of proceeding towards investigating new opportunities among current allies, as well as making future trade deals with the countries that are opening up to the global

Analyzing Canadian Energy Trade Policy Through Two Lenses

650 words - 3 pages trade policy design and implementation. Second, I will compare Canada’s energy free trade policy with China and Russia’s state control energy trade policy, and analysis their lessons for Canada’s future energy trade policy design. National Energy Program (NEP) was created by liberal government in 1980 to ensure price stability and to increase Canadian consumption of its own resources. However, this program failed because of incorrect economic

The WTO role in the Australia and US free trade agreement

1925 words - 8 pages from other countries is referred to as trade diversion since it does not increase trade overall but rather amounts to a diversion of existing trade (Carbaugh 2004; Levy 1997). The distinction between trade creation and trade diversion is important because trade creation is more likely to produce a net economic benefit. Although trade creation may hurt some sectors, it is almost always economically beneficial overall because it occurs only when the

Impact of Globalization on Indian Economy

1997 words - 8 pages reduces poverty while its regional concentration increases. Such development has been observed in India and China. 11 Works Cited Afonso, Ó. (2001). The impact of international trade on economic growth. Retrieved from www.fep.up.pt Carkovic, M., & Levine, R. (2002). Does Foreign Direct Investment Accelerate Economic Growth? University of Minnesota. Department of Industrial Policy & Promotion. (2014). FACT SHEET ON FOREIGN DIRECT INVESTMENT

Globalization a Boon or not for Developed Economies

3647 words - 15 pages . 2, pp. 111-118.Tornell, A. & Esquivel, G. (1997), The Political Economy of Mexico's Entry into NAFTA, In Regionalism Versus Multilateral Trade Arrangements, edited by Takatoshi Ito and Anne O. Krueger , Chicago: University of Chicago Press.URATA, S. (2002) "Globalization and the Growth in Free Trade Agreements"Asia-Pacific Review, Vol. 9, No. 1Zarzoso, I.M. (2006), "Gravity Model: An Application to Trade between Regional Blocs", Atlantic Economic Journal, Vol. 31, No. 2, pp. 174-187.

Trade Openess Theory

2634 words - 11 pages some theoretical backgrounds supporting that trade openness can led to growth, as Marshal said in 1890 (as cited in Thirlwall p. 504) ‘the cause which determines the economic progress of nations belong to the study of international trade”. Robbins (2003) summarize some ( This part also mentions criticisms against those theories. Firstly, David Ricardo (1817) is the pioneer who forms the static gains from trade using law of comparative advantage

What role does the WTO play in international business? Argue the case that the WTO is either helpful or a hindrance to international trade, giving particular examples to support your case.

3303 words - 13 pages and better compete with foreign competitors because of the cheaper but quality product/service imported into the domestic market.In addition, the WTO does face the issues of labour standards (e.g. use of child labour), low wage in some countries and less environmental protection (Hill 2000). Countries (e.g. China, India) with these factors may be in a favourable position in attracting foreign investment and international trade. However, economic

A critical Analysis of Trade imbalance between China and the United States

6553 words - 26 pages States12The strategic equation13Democracy in Trade imbalance17Economic relations22Summary25REFERENCES27CHAPTER IContext of the problemTrade deficits occurring in the context of normal trade relationships are not necessarily a sign of trade problems. After all, many factors-- including exchange rates and relative economic growth rates--contribute to a country's trade balance. Thus, it is entirely possible for a highly protectionist country to run a

Globalization: The European Union, the ASEAN Group, and NAFTA

3502 words - 14 pages growth that it has provided the nation. The increase in liberalization of trade that occurred with the enactments of the Canada-United States Free Trade Agreement and the North American Free Trade Agreement was among the most important events in Canadian economic policy in the twentieth century.20 Canada's integration into the globalizing world through the North American Free Trade Agreement has caused its share of Gross Domestic Product (GDP) to

Similar Essays

The Role Of Trade Openness In Generating Economic Growth: A Review Of The Literature

1676 words - 7 pages . Dollar, D., & Kraay, A. (2004). Trade, Growth, and Poverty. The Economic Journal, 114(493), F22-F49. Edwards, Sebastian. "Openness, productivity and growth: what do we really know?" The Economic Journal 108.447 (1998): 383-398. Frankel, Jeffrey, and David Romer, "Does Trade Cause Growth?" American Economic Review, June 1999, 89(3), 379-399. Rodriguez, Francisco, and Dani Rodrik. "Trade policy and economic growth: a skeptic's guide to the cross

Liverpool's Slave Trade As A Centre Of A Global Commerce And An Important Factor In British Economic Growth

2162 words - 9 pages Liverpool's Slave Trade as a Centre of a Global Commerce and an Important Factor in British Economic Growth This essay will attempt to answer the question by approaching it in three stages. Firstly it will assess the importance of Britain's slave trade in the context of global

Does Global Trade And Empire Explain British Economic Development Over The Course Of The Eighteenth And Nineteenth Centuries?

1957 words - 8 pages Britain in the 18th and 19th Century moved from a pre industrial to an industrial society. This move was not a natural or obvious progression. Exactly what can explain this revolution is still open to much contention. Global trade and Empire certainly influenced this process this essay will explore the degree to which trade and empire can explain industrial growth or weather other factors played a more dominant role.We must draw a distinction

How Does Imposing Trade Restrictions Affect A Country's Macro Economic Objectives?

752 words - 3 pages Nowadays all countries need to trade between themselves. Countries always lack of some type of good and the only way they can get them is by importing them from other countries which do produce the desired goods. However, countries many times import products they are able of producing and now, this isn´t a matter of need; it´s a matter of taste in order to give the consumers the possibility to choose.Both imports and exports