The Importance Of International Trade

The global economic crisis of 2008 resulted in the decline of industrial production and international trade (United Nations Conference on Trade and Development, 2009). International trade quickly recovered from the aftermaths of the crisis and has modestly grown since 2011. Between the years 2011 to 2013, trade grew at a rate of 2% per year, which happened to be below the growth of 5% per year prior to the crisis (UNCTAD, 2014). In recent times, developing countries have also started to engage in international trade but at a slower rate. Meanwhile, developed countries have remained the major players in international trade as of 2013. Over the past three decades the flows from international trade have increased drastically. This increase can …show more content…
Some of these are the differences in technology, which makes production cheaper in one country than another, differences in resource endowment, proximity of trading countries among others (Feenstra & Taylor, 2011). Based on these reasons, models such as the Ricardian Model, Specific Factor Model and Heckscher-Ohlin Model evolved to explain the reasons for trade with various assumptions. Countries that engage in international trade stand to benefit from specialization, increased standard of living and increase in purchasing power (Ekmekcioglu, 2012). In this light, this paper will employ the Ricardian Model in testing the hypothesis that “developed countries have nothing to gain by trading with developing countries”.

The proponent of the Ricardian Model, David Ricardo, used this model to show that countries benefitted from international trade using the theory of comparative advantage. In his view, a country can have an absolute advantage in producing two goods than another country but might not be relatively efficient in these productions. Hence the need for international trade, which benefits both countries as, predicted by the Ricardian …show more content…
Since the world relative price for television is low as compared to the country’s relative price in the absence of trade, labor will move to the kola nuts industry since wages there are higher leading to the specialization of kola nuts production. Like France, Nigeria’s utility also increases from A* to C* in fig. 2 with trade. In so doing both countries benefit from trading internationally with each other as predicted by Ricardo.

In conclusion, the Ricardian Model with its assumptions has nullified the hypothesis that “developed countries have nothing to gain by trading with developing countries”. Using France as the developed country and Nigeria as the developing country it is evident from this essay that both parties stand to gain from international trade in the aspects of specialization, increased utility, income and a high standard of living of the workers in the economy. Thus, international trade mutually benefits both parties be it developed or not hence should be

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