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Final Notes Mine

Final Notes Mine - 1-Sachs and Warner conducted an analysis...

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1. -Sachs and Warner conducted an analysis of world economics in 1995. -They found that growth was substantially higher in economies open to trade as opposed to those closed to trade. In developing countries, the growth is much as three times faster. -They also observed that countries with open economies were experiencing convergence. -They found that the smaller a country, the greater the benefits of trade -In 2000, Stern wrote about how growth from trade liberization is good for the poor -Dollar and Kraay supported stern in 2001. -They concluded that income distribution is unaffected by trade -Thus the poor maintain their position in the distribution of income and also benefit from a share of the growth from trade. -So growth benefits everyone in society proportionally 2. -Main exception to free trade is the protection for an “infant industry”. -Arises when market prices do not account for the social benefit provided by the industry -This argument rests on “dynamic learning effects”, the notion that a nation may achieve a comparative advantage from learning-by-doing. -The best policy to institute in this case would be a subsidy, which would create an increase in the production of output without causing an increase in the cost to consumers.
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