Trade and Growth

Free trade = the act of trading between nations without protectionist barriers, such as tariffs, quotas or regulations.

• world GDP increases, since output increases when countries specialise, therefore living standards increase, resulting in economic growth
• trading blocs have led to trade creation between members since there is free trade within the bloc
• protectionist barriers are often imposed on countries who are not members of the specific trading bloc
• the WTO (World Trade Organisation) promotes world trade through reducing trade barriers and policing existing agreements ans settles trade disputes
• as of 2015 there are 161 member states in WTO

• Developing countries have gained an advantage in the production of manufactured goods, due to low labour costs, so production shifted abroad
• the deindustrialisation of countries such as the UK has meant the manufacturing sector has declined (manufactured goods have shifted to countries like China, and the UK focuses more on services)
• this has led to industrialisation of China and India
•  HOWEVER China's population is now ageing, their wage competitiveness has fallen

• countries can specialise in the production of certain goods and countries trade to get the goods and services they can't produce
• countries can exploit there comparative advantage (which means they can produce a good at a lower opportunity cost to another)
• absolute advantage-occurs when a country can produce more of a good with the same factor inputs

Advantages:

• greater world output, so there is a gain in economic welfare
• lower average costs, market becomes more competitive
• an increased supply of goods

Disadvantages:

• less developed countries might run out of non renewable resources
• countries could become dependent on the export of one commodity and if there are poor weather cinditions or the price falls then the economy could suffer

Free trade is the act of trading between nations without protectionist barries.

Benefits of free trade:

• countries can exploit their comparative advantage, which leads to higher output using fewer resources and increases world GDP. This improves living standards
• Free trade increases economic effciency by establishing a competitive market. This lowers the cost of production and increases output
• trade creation becuase of fewer barriers. More consumption and large increases in economic welfare
• more exports could lead to higher rates of economic growth
• specialisng means countries can expolit economies of scale, which will lower their average costs

FDI = the flow of capital from one country to another, in order to gain lasting interest in an enterprise in the foreign country

• FDI can help create employment, encourage the innovation of technology and help promote long term sustainable growth, providing LEDCs with funds to invest and develop
• the flow of capital and FDI across international borders has increased. China and Malaysia have financed their growth with capital flows