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Unit 4 Macro: Gains from Trade Liberalisation
28th January 2012
One way of expressing the gains from trade in goods and services between countries is to distinguish between the static gains from trade (i.e. improvements in allocative and productive efficiency) and the dynamic gains (the gains in welfare that occur over time from improved product quality, increased choice and a faster pace of innovative behaviour)
Some of the broader gains from free trade are outlined below:
European Union trade as a share of GDP
Data from Timetric.
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EU27 total: International trade in goods and services, Trade (As … from Timetric
Welfare gains: Neo-liberal economists who support the liberalisation of trade between countries believe that trade is a ‘positive-sum game’ – in other words, all counties engaged in open trade and exchange stand to gain.
Economies of scale - trade allows firms to exploit scale economies by operating leading to lower average costs of production that can be passed onto consumers.
Market contestability – trade promotes increased competition particularly for those domestic monopolies that would otherwise face little real competition.
Dynamic efficiency gains from innovation - trade enhances choice and stimulates product and process innovations bringing better products for consumers and enhances the standard of living.
Access to new technology: trade, like investment, is also an important mechanism by which countries can have access to new technologies.
Rising living standards and a reduction in poverty - a growing body of evidence shows that countries that are more open to trade grow faster over the long run than those that remain closed. And growth directly benefits the world’s poor especially when poorer countries have fair access to international markets to allow them to benefit from the gains from specialisation and exchange
Data from Timetric.
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Average tariffs imposed by developed countries on agricultural pr… from Timetric
Geoff Riley
Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.