2.2. Neoclassical Trade theory This is also known as Comparative Advantage. (David Ricardo1817) stated that even if one country has an absolute advantage in producing two products over another country, trading with that other country will still yield more output for both countries than if the more efficient
This economic school of thought focuses on the money supply in determining the price level and nominal GDP and therefore determining the overall growth of the economy. The founder of this theory is Milton Fremon who disagreed with Keynesian beliefs. Their basic theory was based on a mixture of theoretical ideas, policies, and philosophical beliefs. Most important part of this economic thought is The Quantity Theory of Money, the equation used for exchange (MV=PY). This theory was unpopular with most Keynesian because of their belief that velocity was unstable and the economy would not return to potential output without help.
[44,pp 242-3] The standard case for free trade is based on a number of assumptions and simplifications. Much of the literature ignores the macroeconomic context. For eg. Kaldor argues that the ricardian rationale for free trade is dependent on the assumptions of constant returns to scale. However, the existence of economies of scale in manufacturing means that a nation that is successfully competing in foreign trade can expect that the advantage of an expanding market will increase it competitiveness.
He offered an idea that how a country might play a game strategically and could be successful in extracting great levels of revenues from trade, by implementing new trade theories. The comparative advantage theory of Ricardian gained a new aspect as Porter emphasized on development of comparative advantage or innovativeness by improving to sustain greater shares of market. Therefore, the idea of productivity that can be work to attain greater levels of international competitiveness (IC) emerged [Porter (1990)]. Indices based on productivity are extensively used in the measurement of competitiveness. As per Porter point of view productivity is the most valuable thought in international competitiveness.
His stance is in opposition to the position of Richard Posner. And as we know, Richard Posner presents his overall disposition more so in the stance of economic liberalism. He has been very clear about his belief that the best economic decision is one in which the total earning capacity of the economy is maximized even when that earning capacity is mainly held by a single individual. Posner would have strongly argued against the ruling, claiming that an increase in overall profits due to the proposed structural changes of Penn Station would provide a longer-term and greater total benefit to the economy (Leiter 1). Expanding on the benefit of the economy, he suggests that the increase in total earning capacity of the individual owner of Penn station is a better economic investment than the retention of less profitable, albeit more historical, landmarks in the community (Leff, 1).
Some countries produce more than their own requirement. They sell this surplus production in other countries and avoid the occurrence of deflationary pressures in the domestic economy. (v) International Trade encourages countries to compete with each other in the production of different kinds of goods at low cost of production. Competitiveness stimulates productivity. (vi) It widens the extent of market.
CHAPTER ONE 1. INTRODUCTION 1.1 Background of the Study Governments make use of different macroeconomic policy instruments such as fiscal and monetary policies to stabilize the macro-economy and brig about growth to their respective countries. The efficiency of these instruments is still a source of ongoing arguments. The extremity in the debate is to the level that some economists arguing ineffectiveness of fiscal and monetary policies in all countries. There is another group who regard them as important policy tools, while they agree that their effectiveness might depend on different conditions in the economy.
Introduction It is often professed that the growth of a country’s economy is vastly dependent on its political stability. Such a contention remains a debatable one amongst economists, politicians and the public at large. This essay undertakes to critically discuss how politics influences the economy and the extent, if any, of such influence. This will be done by looking into the how politics influenced the South African context by highlighting recent events that took place in the country. This essay will set the scene by giving a detailed background of such events and an illustration of how decisions that politicians take tends to influence the economy.
Free trade agreement allows the agreeing nations to focus on their comparative advantages and to produce the goods they are comparatively more efficient at making, thus increasing the efficiency and profitability of each country. 4. OBJECTIVE OF FTA Free trade agreements typically concern on import & export terms imposed by both agreeing countries. For instances, Import tax, it is one of the critical tariffs, it can impact the market directly, making the imported goods more expensive. Thus, the existence of FTA is to negotiate with partnering country to lower their import tax.
The GDP or GDP per capita actually helps to identify the market size of the respective sectors. Artige and Nicolini (2005) at least think so regarding market size. In the econometric study, the GDP per capital act the core determinants of the FDI. On the other hand, Jordaan (2004) thinks that, FDI flows becomes smooth where there are possibilities of expanding the market, the purchasing power of the people is relatively high, and return on investment is also high. These factors determine the flows of FDI in the country for the economic benefits of the country.