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IPEfinaldoc - International Trade Definition a process that...

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International Trade Definition: a process that occurs when goods and services cross national boundaries in exchange for money or the goods and services of another nation Significance: international trade ties countries together and generates economic, political and social interdependence—and tension o There is a tension between the desire for material benefits of an open system and pressure to promote/defend state and/or particularistic interests Liberal perspective : advocate Laissez-faire policies emphasizing that states need to agree upon regulations that will maximize the gains from trade in a competitive, interdependent and globalizing political economy Law of comparative advantage : (cost of producing an item ourselves vs. the availability and costs of buying it from others) free trade increases efficiency making everyone better off o When people and nations produce goods and services they give up something else they could have produced, but that would have been more expensive to make than the goods they actually created o Opportunity costs- cost of producing an item ourselves with the availability and costs of buying it from others and to make a logical and efficient choice between the two o Why has trade failed as an engine of growth ? Market failures- weak demand, weak linkages, weak adaptive capacity problem of weak demand – meant that the stimulus to growth was much smaller countries before they develop have little or no industries – their industries are normally extracting industries they can export these until they can develop other industries but the problem or developing countries is that the demand for what they can produce is relatively weak after WWII- much of the growth was in services that do not require raw materials; also in growth in technology countries that would have expected to benefited to benefit from exports suffered because of the creation of synthetics- less important to import the natural materials o problem of export enclaves: in many poor countries the export sector was an export enclave – benefits that are earned go to the foreign countries and foreign workers rather than spreading it out in the economy o domestic economies have been resistant to change (weak adaptive capacity)- variety of cultural and social reasons
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Realist Perspective- trade as a foreign policy tool protectionist policies and protection of infant industries is needed to achieve national independence and security States duty to protect society and its businesses from negative effects of trade Trade protection is associated with fear of becoming too dependent on other nations on certain goods especially items of food and related to defense—can lead to exploitation of dependent state There is no guarantee of security – who is to hold states accountable to free trade and not engage in protectionism - states must act in their own self interest Why has free trade failed as an engine of growth
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