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Does Trade Benefit Everyone?

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Introduction

Does Trade Benefit Everyone? We live in an increasingly international world, nations are trading more and more with each other and in the words of Marshall McLuhan, "interdependence recreates the world of a global village." Using this image of a global village, will more trade lead to a world in which everybody is better off or are we to have a village in which there are still "slums". To find out the answer to the question we must look at both the theory behind trade and also the evidence that the world has produced to arrive at a balanced opinion. The theory will hopefully provide us the basis with which to argue and the evidence will hopefully show if this basis is true or false. The theory on which trade is based dates back to Ricardo who explained his principle of comparative advantage (Principles Of Political Economy, Ricardo). Comparative advantage is derived from the most fundamental reason for trade, the diversity of conditions between countries. For example, the UK is more efficient at producing cars than Brazil, however Brazil is better in coffee production. ...read more.

Middle

By specialising countries increase their output and this coupled with increased market size allows the firms to take advantage of internal economies of scale. This is particularly important for smaller countries who gain more from enlargement of their markets. External economies of scale may also occur. The increase in trade may lead to improvements in the infrastructure of the country that could then bring bigger long-term benefits to trade by reducing transport costs. Increased competition between countries promotes efficiency and cost reduction, encourages investment by firms and also reduces monopoly power, all of which benefits the consumer. By trading more, world integration is taking place and this will lead to a more rapid spread of technology which will in turn lead to new technologies being produced. There are however some slight dynamic disadvantages associated with trade. With free trade becoming more and more common between countries, i.e. the removal of all money tariffs and non-tariff barriers, resources like labour and capital may flow from less efficient and less developed countries to the more developed ones. This hinders the development of the lesser countries. ...read more.

Conclusion

also had the greatest growth in GDP, correlation seems to exist. Within the limitations of this essay I would agree with the theory that free trade does benefit all parties involved. Having said this however, there are many aspects that I have not explored. These include how MNC's may abuse the resources of developing countries and not put it in the investment they deserve and also the weighting of exports due to MNC's. I have also been unable to look at the effect of free trade on world markets and if standard of living has increased in countries due to trade. Increases in standards of living are surely the best way to measure if trade has been beneficial. So to answer the question of whether in the global village we have "slums" I would have to say yes. The GDP figures show increases in all countries and no clear evidence that LDC's are catching DC's and thus this leaves me to conclude that the gap between the richest and the poorest still exists and that we are far away from a truly equal world. 1119 words. ...read more.

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