RUNNNG HEAD: Microeconomics Microeconomics

International Trade

All the countries in the world are dependent on each other nowadays. Countries need natural resources that are not present in their homeland or they may also be in need of some finished goods that they don't produce. This interdependency gives a beginning to trade between countries. The notion of international trade has become quite common nowadays as all the countries are participating in it. In addition to fulfilling the requirements of the country, international trade also increases overall efficiency of the production of a good. As some countries have the resources to produce certain goods at a lower cost than other countries. So, that cost efficient country can be given the chance to produce that good for other countries as well so that the overall cost of that product falls. The decision of international trade is undertaken by economies keeping either comparative or absolute advantage in mind. (Lipsey and Harbury, 1994)

2. Economic Growth

Economic growth is referred to as the increase in the full production potential of a country. This means that a country will have more production and employment options available growth is considered to be a macro and microeconomic issue. It can be shown by an outward shift in the production possibility curve of an economy. This means that an economy can produce more of everything or some products without reducing the production of other goods. Numerous factors can cause economic growth in a country and international trade is one of these factors. (Lipsey and Harbury, 1994)

3. Trade and Economic Growth

Trade and economic growth share a positive relationship. Recently, there has been a visible increase...

This fact is supported by the economic growth of Japan. By the end of 19th century, Japan was one the poorest countries in the world. In the next 100 years, Japan embraced international trade and started to export the goods it was able to produce at a lower cost. As a result, Japan was able to maintain a growth rate of 2.81% each year. This means that Japan was able to increase its producing potential by 2.81% every year and nowadays it has got in line with one of the richest countries in the world. (Andersen and Babula, 2008)
Countries can experience a technological growth as well by the virtue of international trade. Developing countries can exchange goods that they specialize in for capital goods which can then be used to industrialize the economy. As quoted in the research of Andersen and Babula, "When a country exports wheat and imports steel, the country benefits in the same way as if it had invented a technology for turning wheat into steel." (Andersen and Babula, 2008) (Ulasan, 2012)

In addition to that, countries can also benefit from the inflow of investment in the country. It can also harness the potential of existing investment in the country. International trade increases the production possibilities of an economy and thus international investors are attracted towards the country. Moreover, the existing investors in the country may also take initiative and invest more as the economy will be giving more returns. These higher returns are also a benefit that an economy derives from international trade as international trade causes the demand for the economy's product to increase as they enter the international…