Why do nations trade? Outline changes to world trade as a result of globalisation. Discuss any justifications for restricting trade.
Various nations participate in world trade for a variety of reasons. Three major factors which motivate nations to trade are factor endowments, absolute advantage and comparative advantage. There are also many other benefits, which can be gained from world trade. These include increased production resulting in increased GDP and higher rates of economic growth, higher standards of living and also increased employment. The vast increase in globalisation has resulted in many countries becoming more efficient in specialised industries. Despite all of the above-mentioned benefits, nations still restrict trade to protect their domestic producers.
Each country has a different availability of resources. This is known as having different factor endowments. These differences exist for:
A country will trade with another country to allow for greater access to those goods and services that it cannot produce efficiently and at a reasonable price.
If a country can produce more of a good or service, using the least re
(Higher incomes mean better living standards)
(Due to increased competition, domestic producers are forced to be more efficient)
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