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Why Do Nations Trade?

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Maxine A

on 16 February 2014

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Transcript of Why Do Nations Trade?

Why Do Nations Trade?
by: Maxine Almanzor
Comparative Advantage
Desire for economic growth
Expand the variety of available goods & services
To increase local competition
Foster good relationships with other nations
Ideal geographic locations
Positive Effects
More efficient utilization of resources
Incentive to produce higher quality goods
Lower opportunity cost
Negative Effects
Higher interdependence between nations
More goods are subjected to imported inflation

Positive Effects
May lead to better trade agreements
Maintenance of peace
Encourages FDI
Loosen customs borders (e.g. visa requirements)
Easier access to international aid (e.g. loans, military)
Encourages innovation which leads to better products
Discourages monopolies
Positive Effects
Drives prices down, which creates a higher consumer surplus
Negative Effects
Lower prices mean lower incentive for local businesses to invest
Local small businesses may be crowded out
Jobs are relatively easier to outsource between nations, which leads to a lower GDP & fewer resources
Positive Effects
Lower shipping costs
Shorter lead time in getting goods
Can unify neighbouring nations and help them develop similar economic goals (e.g. through a common currency)
Easier to formulate mutually beneficial trade agreements (e.g. NAFTA)
May create high dependence and local complacency (e.g. decrease locally produced goods & rely more on imports
Negative Effects
Consumers get a wider array of choices

Gain access to products not locally available (e.g. through trade, Canadians are able to get bananas all-year round)
Negative Effects
To some extent, more choices mean higher opportunity costs
Positive Effects
Stimulates the business cycle
Creates more jobs
More foreign investors = higher demand for our currency = higher currency value = lower exports
Crowd out local investors
Negative Effects
Positive Effects
Higher government tax revenues
Creates more jobs, which decreases spending on EI. Therefore, the government can allocate more spending towards economic growth.
Increases nation's standard of living and decreases poverty

Higher incomes lead to inflation
Full transcript