Trade Openness

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The relationship between trade openness and economic growth is under constant dispute causing continued controversy among economists. Trade openness refers to the policies put in place by a country which either restrict or assist inter-country trade and its definitive effects on economic growth are unresolved. As International trade continues to increase, this relationship and its effects become more prevalent. This essay is going to discuss the association between the two by examining relevant theories and the empirical evidence in order to interpret whether the relationship is positively or negatively correlated.

This essay is divided into several sections, each offering an analysis on the topic. To begin, the relevant theory of Comparative
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Resting at the core of neoclassical theory, it is one of the most influential concepts in International Trade Theory. It is based on the hypothesis that trade openness promotes greater economic growth elaborating on Adam Smith’s proposal that free trade could be advantageous to all countries by introducing the idea of specialisation.

Previously, countries aimed to produce everything which they needed domestically while imposing heavy taxes to keep out foreign goods. Ricardo proposed the idea of specialisation as a way to persuade countries that inter-country trade was mutually beneficial and was the most efficient way of promoting economic growth. In other words, a country gains by specialising in the production of the goods which cost them the least and exporting the surplus produce to other countries in exchange for goods with higher production costs for them. The theory states that “countries have a comparative advantage in those goods that can be produced at a lower opportunity cost than in other countries” (Sloman et al, 2015,
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It is impossible to regard it as a simple relationship especially when economists continue to find and discuss more and more influential factors on its linearity. This section of the essay will analyse the nature of the relationship by studying the most important factors in order to decide whether there is a positive or negative correlation between openness and growth. Although there are several factors influencing the level of control that trade openness has on an economy’s growth, this essay will discuss the three most relevant ones which are; financial development, technological development and trade
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