How does resource distribution affect trade?What are the differences between absolute and

comparative advantage?What are the major imports and exports of the

countries of the world?How does trade affect employment?

WHY NATIONS TRADE

Lower PricesDifferent Factor EndowmentsEconomies of Scale Increased variety/choiceAbility to acquire needed resourcesCompetition aiding efficiencyPolitical BenefitsGrowth and development

ADVANTAGES TO TRADE

• Each country of the world possesses different types and quantities of land, labor, and capital resources.

By specializing in the production of certain goods and services, nations can use their resources more efficiently.

Specialization and trade can benefit all nations.

RESOURCE DISTRIBUTION/FACTOR ENDOWMENTS

As firms get larger the specialization of their workforce and the introduction of technology improves productivity.

ECONOMIES OF SCALE (AND LOWER PRICES/INCREASED EFFICIENCY)

ACQUISITION OF NEEDED RESOURCES

INCREASED VARIETY/CHOICES

Flaws in Theory ofComparative Advantage

Doesn’t address winners and losers in the country

Assumes factors within the country are perfectly mobile

Static model - doesn’t address potential for changes

Ignores externalities – positive and negative

Ignores economies of scale

Ignores national security and issues of inter-dependence

Many others….

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GROWTH AND DEVELOPMENT

PROTECTIONISM AND TRADE

LIBERALISATION

Why Do Countries Limit Trade?Protect domestic business interests or employment

Health, safety or environmental concerns

Support infant “sunrise” industries

Avoid overspecialization

Prevent dumping

Raise revenue

Protect strategic industry

To improve terms of trade

Protect domestic business interests or employment

Health, safety or environmental concerns

Support infant “sunrise” industries

Protect strategic industry

Avoid overspecialization

Prevent dumping

Raise revenue

Why Do Countries Trade Freely?Allocate resources more efficientlyAvoid trade warProtectionism is a corruption magnetDomestic complacency causes higher costsHigher import costs

Allocate resources more efficiently

Domestic complacency causes higher costs

Avoid trade war

Protectionism is a corruption magnet

INTERNATIONAL COOPERATIONRecent trends have been toward lowering trade

barriers and increasing trade through international trade agreements.

In 1948, the General Agreement on Tariffs and Trade (GATT) was established to reduce tariffs and expand world trade.

In 1995, the World Trade Organization (WTO) was founded to ensure compliance with GATT, to negotiate new trade agreements, and to resolve trade disputes.

Major Trade Organization Members

EUCARICOMMERCOSURAPECNAFTA & APEC

PACIFIC OCEAN

ATLANTIC OCEAN

INDIAN OCEAN

PACIFIC OCEAN

GLOBAL TRADE AGREEMENTSMany nations have formed regional trade organizations. These trade organizations establish free-trade zones, or regions where a group of countries has agreed to reduce trade barriers among themselves.