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Trade and Development
Transcript of Trade and Development
2 / When country has lower marginal costs of supply
3/ Specialization/exportation of products where a comparative advantage exists
4/ Can lead to mutually beneficial gains for countries
5/ Complexity of global trade deepens every year
6/ Many countries diversifying exports and seeking to move up the value chain Gains from Trade Finding a Mutually Beneficial Terms of Trade A beneficial terms of trade is an agreed rate of exchange of one product for another than leaves both countries better off from trade
Consider the domestic terms of trade for each country
Without trade, Germany gets 2 extra freezers for every dishwasher that is gives up
Without trade, Italy has to give up 4 freezers for every extra dishwasher it produces
Is there a mutually beneficial terms of trade? Terms of Trade: 3 freezers for 1 dishwasher Trade and Development 1.Economies of scale and scope
2.Competition and market contestability
3.Dynamic efficiency gains from innovation
4.Access to new technologies and ideas
5.Living standards and a reduction in extreme poverty Increased Output from Specialisation Important Simplfying Assumptions Competitive Advantage Stuff Economies produce billions of distinct types of goods — perhaps 10 billion, according to Eric Beinhocker of the McKinsey Global Institute — ranging from size 34 dark stonewash bootcut jeans to beauty therapies involving avocado. Hidalgo and Hausmann on Complexity Development process involves increasing the complexity of exports. Malaysia and Pakistan both exported 104 product types in 2009 Importance of Trade for Developing Countries Export revenues - an injection of demand
Job creation / wealth creation
Earning foreign exchange - financing imports - technology, components, consumer goods and services
External demand helps to scale up domestic production and stimulate capital spending
Spillover effects from trade in ideas and technology Challenges facing Poorer Countries Tariff and non-tariff barriers in rich-nation markets
Infrastructure gaps especially landlocked countries
Difficulties in getting export finance
Limited pricing power in global markets
Constraints / risk from low export diversity
Volatile terms of trade Average Import Tariffs Around the World Cesar Hidalgo (MIT) Malawi has the lowest export complexity of any country in the world A middle income country Why is Pakistan poor and Singapore rich?