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Impact of the International Trade on Economic Growth - Essay Example

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The paper "Impact of the International Trade on Economic Growth" states that policy uncertainty leads to currency uncertainty. This has a profound effect on international trade and economic growth. The openness of trade is helpful to economic growth…
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Impact of the International Trade on Economic Growth
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Download file to see previous pages International trade is promoted through appropriate strategies and strict observation of the trade patterns. This essay seeks to discuss the impact of international trade on economic growth. According to a study by the OECD in 2003, the elasticity of international trade was found to be significant. Results from 73 low and middle-income countries in developing economies indicated that there is a strong correlation between international trade and economic growth (Peacock 2013). Inward developing economies tend to grow at a slower rate compared to outward-oriented developing economies. The average growth rate is significantly higher after the liberalization of trade than the period before the liberalization. International trade involving imports of immediate goods leads to diffusion of technology in an economy (Berdell 2002). Most of the studies tend to support the positive effects of international trade on economic growth. The static impacts of international trade refer to the improvement in social welfare with a fixed resource supply. Opening up the global market offers the chance of trading at international prices (Peacock 2013). Domestic consumers can buy cheaper imported goods. At the same time, producers have the chance to export goods to other markets at higher foreign markets. The comparative advantage in international trade leads to specialization and improved quality delivery. This has caused an increment in social welfare and output. Another impact of international trade on the economy is the dynamic gain. This is the change in the structure of production that can be attributed to the adoption of new technologies (Peacock 2013). This has also led to increased scales of production. Expansion of production through international trade leads to the economics of scale and are mostly based on the comparative advantage. There has been an expansion in production which is a response to the demands in the global market (Berg & Lewer 2007). This expansion has led to a decrease in the cost of production and accumulation of capital (Berdell 2002). This has had an overall effect of increasing employment levels. International trade has been known for its support in the technological spillovers among the economies involved. This has favored productivity. International trade transmits knowledge into the international market. A world renowned economist, Paul Krugman, through an article in The New York Times suggested that competitive devaluation in the 1930s was different from the modern of currency wars and international trade policies. Several countries were dependent on the gold standard at the time. In modern fiscal policies, mutual interventions are hard to accomplish. In the past, gold was worth more than the domestic currencies. The conventional liberal-market interventions are seen to have no effect. Currency interventions are perceived to be accomplishing very little. This has caused major economies to get tempted to devalue their economies by printing more money. International trade affects economic growth. According to Paul Krugman, international fiscal policies affect the incentives offered by the central banks which in turn affect economic growth. According to economist Milton Friedman, the most accepted measure of the fiscal policy is their economic effect and not interest rates. ...Download file to see next pagesRead More
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