International Trade

Question 1

Theories on Trade - Ricardo

Answer 1

• Theory- better off trading with each other rather than producing it themselves
  
  • Ricardian trade theory makes a case for freedom of trade: countries should produce goods for which it has a comparative advantage, not necessarily an absolute advantage

Question 2

Theories on Trade – Heckscher-Ohlin

Answer 2

• Essentially more sophisticated version of Ricardo model that takes into account factor endowments
  ○ In short, the model predicts that countries export products that use their abundant and cheap factors of production, and import products that use the countries’ scarce factors

Question 3

Discuss the pros of Fair Trade,

Answer 3

• Pros
○ Improves human labour rights
○ Access to agricultural services + premium market
○ Framers get additional income due to Fairtrade
○ Compete with larger companies
○ Improve community- due to more funding
○ Small businesses more internationally competitive
○ Environmental improvements
§ Greater understanding + need for sustainable growing practices
§ E.g. water waste, fertilisers
§ Less pollution

Question 4

Discuss the cons of Fair Trade,

Answer 4

○ High joining fees
§ E.g. farmers pay tax to be part of it
○ Products are more expensive
○ Big buyers more interested in purchasing cheaper products
○ Limited customer base
○ Some cooperatives were illegally sourcing goods that aren’t Fairtrade as part of their Fairtrade product
§ Exploiting the system
○ Price- producers less willing to improve their products as guaranteed certain price
○ If maintain their level wont be removed the cooperative, if fall below quality will be removed
§ May cause stagnation, and less development

Question 5

Future of Trade?

Answer 5

• International trade costs declined by 15 per cent between 1996 and 2014. New technologies will help to further reduce trade costs
○ WTO projects that trade could grow yearly by 1.8 to 2 percentage points more until 2030 as a result of the falling trade costs
• The importance of services in the composition of trade is expected to increase. WTO predicts the share of services trade to grow from 21 per cent to 25 per cent by 2030
• Regulation of intellectual property rights, data flows, and privacy as well as the quality of digital infrastructure are likely to emerge as new sources of comparative advantage.