Free Trade

Read through the following article: What do they argue causes changes in trade patterns? What do they argue increases trade? What are the trade patterns of mentioned countries/ trading blocs? What do you think protectionism is? What impact is it having?

Benefits of free trade… Why do we trade? opics/trade/free_trade.htm opics/trade/free_trade.htm s_free_trade/ s_free_trade/

What is Free Trade? Trade free from artificial barriers Trade reflects the impact of specialisation and exchange – Specialisation: specialisation of scarce resources – Exchange: in part based on comparative advantage in supplying different goods and services

The concept of an open economy In an open economy, one nation trades openly with other – Trade in goods – Trade in services – Free flow of financial capital – Free flow of labour resources An economy integrated with and connected to the world economy

World Trade Time period Volume of world trade 7.7 Real GDP (world) Volume of world merchandise exports and gross domestic product, , annual % change

Exports of Goods and Services

Potential Advantages from Trade (1) Increased competition for producers – Increased market contestability – Pressure on suppliers to keep prices down – Improved allocative & productive efficiency Prices closer to their factor cost Pressure on unit costs to fall / scale economies (2) Better use of scarce resources – Exploitation of comparative advantage – Benefits from specialisation – Trade can be an important source of economic growth and development

Potential Advantages from Trade (3) Dynamic Efficiency Gains – Trade speeds up the pace of technological progress and innovation – Transfer of ideas / technology spill-overs – World Bank – “dynamic globalisers have achieved the fastest growth over the last twenty years” – Greater choice for consumers

Potential Advantages of Trade (4) Economies of scale – Increasing returns to scale from selling to larger markets e.g. BRICs or the EU single market – Falling LRAC / lower real prices – Gains in producer & consumer surplus (5) A stimulant to growth / recovery – Exports – an injection of AD into circular flow – Boost to exports will have multiplier and accelerator effects on national income – Supply-side improvements from investment and greater factor mobility between countries

Export Potential to BRICs & Beyond Jim O’Neill “By the end of the decade, Britain’s trade with the BRIC countries of Brazil, Russia, India and China, will account for 17pc of total exports.” Jim O’Neill “By the end of the decade, Britain’s trade with the BRIC countries of Brazil, Russia, India and China, will account for 17pc of total exports.”

Gains from External Trade? Reduction in extreme poverty Increased market competition Access to new technologies Inflows of knowledge Economies of scale Better use of scarce resources

Export Patterns: Rwanda?

Export Patterns: Malawi?

Export Patterns: United Kingdom?

WTO Have a look at the following and answer the questions.. pe/country_profiles/ stm 1.What is the role of the WTO? 2.For what purpose was it founded? 3.What are the benefits of the WTO? 4.What are the criticisms?