Contribution of foreign trade to economic development, Microeconomics

Contribution of Foreign Trade to Economic Development:

Foreign trade contributes to economic development in a number of ways. 

•  It provides flow of technology which allows for increases in total factor productivity, and some short-run multiplier effects for countries with unemployed labour.  

•  It generates pressure for dynamic change through: (i) competitive pressure from imports, (ii) pressure of competing for export markets, and (iii) a better allocation of resources. 

•  Exports allow increased exploitation of economies of scale, separation of production patterns from domestic demand, and increasing familiarity with absorption of new technologies. 

•  These, in turn, help increase the profitability of the domestic business without any corresponding increase in price. 

•  Foreign trade increases most workers' welfare. It does so at least in four ways: (i) larger exports translate into higher wages; (ii) because workers are also consumers, trade brings them immediate gains through cheaper imports; (iii) it enables most workers to become more productive as the goods they produce increase in value; and (iv) trade increases technology transfers from industrial to UDCs and the transferred technology is biased in favour of skilled labour. 

•  Increased openness to trade has been strongly associated with the reduction of poverty in most developing countries, as the historian Arnold Toynbee said 'civilisation' has been spread through 'mimesis': simple copying.

Posted Date: 11/15/2012 12:15:10 AM | Location : United States

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