International Trade Promotes Economic Growth
EXPLAIN THE WAYS IN WHICH INTERNATIONAL TRADE PROMOTES ECONOMIC GROWTHDISCUSS THE ARGUMENTS FOR TRADE LIBERALISATION AND AUSTRALIA'S STANCE ON THIS TOPICEXPLAIN THE PRINCIPLE OF COMPARATIVE ADVANTAGE AND ITS LIMITATIONSInternational trade promotes economic growth through higher levels of real income, greater consumption and higher living standards. It can expand a nation's consumption possibilities by providing access to other countries' production through imports. In addition, the exports of a country allow payment for the imports a country needs to enjoy a high standard of living. International trade also permits specialization, economies of scale, increased productivity and higher real incomes. For these reasons and many others, there is a strong link between international trade and economic growth.International trade benefits nations because:· Every country lacks some vital resource which they can on
Therefore, Japan has the lower opportunity cost in the production cloth over Australia. For example if:COUNTRY UNITS OF WHEAT TO UNITS OF CLOTHAUSTRALIA 4 : 1JAPAN 2 : 1 In order to produce 1 extra unit of cloth, Australia sacrifices 4 units of wheat while Japan only sacrifices 2 units of wheat. Australia is also beginning to understand that by reducing trade barriers net employment increases and real incomes rise. Another limitation of this model is the unrealistic assumption that resources could be transferred from one industry to another without any costs. International trade is based on the theory of comparative advantage and competitive markets. Protection causes inefficient industries to benefit at the expense of those that are competent as resources are allocated away from efficient sectors. For example, during the years of 1950-1973 when world exports were increased by 8% the world GDP had increased by 5. Australians are now beginning to understand the burden that high protection imposes on the Australian economy. In this way, exporting what can be produced efficiently adds to a country's production, and by importing goods and services that another country can produce at a lower opportunity cost adds to consumption. Comparative advantage refers to a country's advantage in producing a good in relation to another country. Industries benefit from exporting in terms of greater output and employment, and consumers gain from imports in terms of a greater variety of goods at lower prices. The WTO (World Trade Organisation) and the GATT (General Agreement on Tariffs and Trade) both deal with the promotion and liberation of world trade by helping lower trade barriers. Obviously the resources used to make wheat is different to that used to make clot. In the real world, transport and storage costs are an important factor influencing trade decisions because it can affect a country's comparative advantage. Thus Japan will gain if it specialises in cloth and imports wheat from Australia, and Australia will gain if it specialises in wheat and imports cloth from Japan.
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