Export Promotion Measures

The modern version of the Ricardian model and its leave alones are typically presented by constructing and analyzing an economic model of an international economy. In its most innocent form the model assumes two countries producing two levelheadeds using fag go forth as the only factor of production. Goods are assumed homogeneous, crosswise firms and countries. Labour is homogeneous within a country only heterogeneous, crossways countries. Goods after part be transported costlessly between countries. Labour can be reallocated costlessly between industries within a country scarce can non move between countries. Thus each country would merchandise the good in which they submit a comparative utility. flip-flop flows would increase until the price of each good is equal across countries. In the end, the price of each countrys export good, go out rise and the price of its import good forget fall. The high price received for each countrys comparative advantage good would lead each country to specialize in that good. To accomplish this, labour would have to move from the comparative single out industry into the comparative advantage industry. One striking result here is that even when one country is technologically skipper to the other in two industries, one of these industries would go out of business when opening to free trade.

Thus, technological superiority is not enough to guarantee continued production of a good in free trade. A country must have a comparative advantage in production of a good, rather than an absolute advantage, to guarantee continued production in free trade The movement to free trade generates an improvement in welfare in both countries both individually and nationally. specialization and trade will increase the set of consumption possibilities, and will make possible an increase in consumption of both goods; nationally these gather gains are often described as improvements in production and consumption efficiency. Free trade raises aggregate world production efficiency because...

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