Why Nations Trade

2. Why Nations Trade • How does resource distribution affect trade? • What are the differences between absolute and comparative advantage? • What are the major imports and exports of the countries of the world? • How does trade affect employment?

3. Advantages to Trade • Lower Prices • Different Factor Endowments • Economies of Scale • Increased variety/choice • Ability to acquire needed resources • Competition aiding efficiency • Political Benefits • Growth and development

4. Each country of the world possesses different types and quantities of land, labor, and capital resources.

5. Resource Distribution/Factor Endowments • By specializing in the production of certain goods and services, nations can use their resources more efficiently. • Specialization and trade can benefit all nations.

6. Economies of Scale (and lower prices/increased efficiency) • As firms get larger the specialization of their workforce and the introduction of technology improves productivity.

7. Acquisition of needed resources

8. Increased variety/choices

9. Flaws in Theory of Comparative Advantage • Doesn’t address winners and losers in the country • Assumes factors within the country are perfectly mobile • Static model - doesn’t address potential for changes • Ignores externalities – positive and negative • Ignores economies of scale • Ignores national security and issues of inter-dependence • Many others….

10. Growth and Development • http://www.gapminder.org/world/#$majorMode=chart$is;shi=t;ly=2003;lb=f;il=t;fs=11;al=30;stl=t;st=t;nsl=t;se=t$wst;tts=C$ts;sp=5.59290322580644;ti=2010$zpv;v=1$inc_x;mmid=XCOORDS;iid=tyadrylIpQ1K%5FiHP407374Q;by=ind$inc_y;mmid=YCOORDS;iid=0AkBd6lyS3EmpdHZSTVMxaVdxQlFLR3NMbnBEWnVuTXc;by=ind$inc_s;uniValue=8.21;iid=phAwcNAVuyj0XOoBL%5Fn5tAQ;by=ind$inc_c;uniValue=255;gid=CATID0;by=grp$map_x;scale=lin;dataMin=0.1401;dataMax=0.9376$map_y;scale=lin;dataMin=0.1102;dataMax=234$map_s;sma=49;smi=2.65$cd;bd=0$inds=

11. Protectionism and Trade Liberalisation

12. Why Do Countries Limit Trade? Protect domestic business interests or employment Health, safety or environmental concerns Support infant “sunrise” industries Avoid overspecialization Prevent dumping Raise revenue Protect strategic industry To improve terms of trade

13. Protect domestic business interests or employment

14. Health, safety or environmental concerns

15. Support infant “sunrise” industries Protect strategic industry

16. Avoid overspecialization

17. Prevent dumping

18. Raise revenue

19. Why Do Countries Trade Freely? Allocate resources more efficiently Avoid trade war Protectionism is a corruption magnet Domestic complacency causes higher costs Higher import costs

20. Allocate resources more efficiently Domestic complacency causes higher costs

21. Avoid trade war

22. Protectionism is a corruption magnet

23. International Cooperation Recent trends have been toward lowering trade barriers and increasing trade through international trade agreements. In 1948, the General Agreement on Tariffs and Trade (GATT) was established to reduce tariffs and expand world trade. In 1995, the World Trade Organization (WTO) was founded to ensure compliance with GATT, to negotiate new trade agreements, and to resolve trade disputes.

24. Major Trade Organization Members ATLANTIC OCEAN PACIFIC OCEAN PACIFIC OCEAN INDIAN OCEAN EU CARICOM MERCOSUR APEC NAFTA & APEC Global Trade Agreements Many nations have formed regional trade organizations. These trade organizations establish free-trade zones, or regions where a group of countries has agreed to reduce trade barriers among themselves.