2. If a country's growth is biased in favor of its import, this should unequivocally improve its terms of trade and its economic welfare. Discuss.

Answer: Suppose the Japan experiences economic growth biased in favour of its import substitutes. For illustration suppose that Japan imports components and exports final goods except that it experiences a main growth in its components manufacture sector. As Japan is internationally a large country in these markets this would be likely to hurt its component supplier's terms of trade (and help Japan's). Though such a bias in economic growth may likely to lessen the volume of international trade. At a tremendous, Japan may turn into an exporter of components and an importer of final goods. If the result is a reduction of specialization and of the volume of trade after that this effect will lower Japan's welfare associated with gains from trade. If an real change in the pattern of comparative advantage takes place (a possibility) this may cause dynamic displacements whose harm overpowers static gains for a relatively long period of time.