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IB economics commentary (Section 5 - Development Economics) - Essay Example

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This is creating a friction over the decisions some countries are making concerning their international trade policies. For many years countries have been pushing to promote free trade…
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IB economics commentary (Section 5 - Development Economics)
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"IB economics commentary (Section 5 - Development Economics)"

Download file to see previous pages Protectionism is the practice of protecting domestic goods and service industries from foreign competition with tariff and non-tariff barriers (Answers). This economic commentary discusses the article ’Buy American’ feud exposes European double standards.
During tough economic times it seems that countries become more conscious of the needs of its local industries. The European Union recently brought back its subsidies program to protect the nation’s dairy industry. A subsidy is a form of financial aid given to a business or industry by the government (Varian). It is considered the opposite of a tax. In Europe other more subtle measures are occurring that are not good for free trade. Some European nations such as Greece are forcing developing nations which are beneficiaries of their aid programs to purchase goods and services from them (Polack). Despite the help Greece is providing the agreements hurt the economic growth of developing nations by limiting their options and increasing their costs of doing business. The Greek contracts being tied to financial aid increases the costs of goods and services by 20%. This implies that actually value of the financial aid is deflated due to the loss of purchasing power as a consequence of inflated contract prices. Two of the factors that are causing the prices of these contracts to go are consultant fees and expensive materials. According to ActionAid the average costs of consultants working in developing nations is $1000 per day (Polack).
Bilateral agreements are a common international occurrence that can have both positive and negative impacts on the nations involved in the treaties. A bilateral trade agreement is pact in which two countries in which the countries agree to lift most tariffs, quotas, and other trade barriers. The good thing about these agreements is that it promotes free trades which increases business activity between the nations. ...Download file to see next pagesRead More
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