GDP vs.

GNP
GDP and GNP are two of the most commonly used measures of a country's economy. Both
represent the total market value of all goods and services produced over a certain period.
However, they are calculated in slightly different ways.
Gross domestic product (GDP) is the value of the finished domestic goods and services produced
within a nation's borders. On the other hand, gross national product (GNP) is the value of all
finished goods and services owned by a country's citizens, whether or not those goods are
produced in that country.
These metrics reflect different ways of measuring the scope of an economy. While GDP limits its
interpretation of the economy to the geographical borders of the country, GNP extends it to include
the net overseas economic activities performed by its nationals

Gross Domestic Product (GDP)

Gross domestic product is the most basic indicator to measure the overall health and size of a
country's economy. This metric counts the overall market value of the goods and services
produced domestically by a country. GDP is an important figure because it gives an idea of
whether the economy is growing or contracting.
Calculating GDP includes adding together private consumption or consumer spending,
government spending, capital spending by businesses, and net exports—exports minus imports.
Here's a brief overview of each component:
Consumption: The value of the consumption of goods and services acquired and consumed by
the country’s households. This accounts for the largest part of GDP.
Government Spending: All consumption, investment, and payments made by the government for
current use.
Capital Spending by Businesses: Spending on purchases of fixed assets and unsold stock by
private businesses.
Net Exports: Represents the country's balance of trade (BOT), or the difference between exports
and imports. A positive number indicates that the country exports more than it imports.
Because it is subject to pressures from inflation, GDP can be broken up into two categories—real
GDP and nominal GDP. A country's real GDP is the economic output after inflation is factored in,
while nominal GDP does not take inflation into account. Nominal GDP is usually higher than real
GDP because inflation is almost always positive.
Nominal GDP is generally used to compare different quarters in the same year because inflation
will usually not be a significant factor. The GDPs of two or more years are compared using real
GDP.
GDP can be used to compare the performance of two or more economies, acting as a key input
for making investment decisions. It also helps the government draft policies to drive local
economic growth.
When the GDP rises, it means the economy is growing. Conversely, if it drops, the economy is
shrinking and may be in trouble. But if the economy grows to the point of reaching full production
capacity, inflation may start to rise. Central banks may then step in, tightening their monetary
policies to slow down growth.2 When interest rates rise, consumer and corporate confidence
drops. During these periods, monetary policy is eased to stimulate growth.
To draw a parallel, if a family earns $75,000 a year, their spending should ideally remain within
their earnings range. It is possible that the family’s spending may overshoot their earnings once
in a while, like while buying a house or a car on loan, but then it returns to the limits over a period
of time. Longer periods of negative GDP, indicating more spending than production, can cause
big damage to the economy. This can lead to job losses, business closures, and idle productive
capacity.
Gross National Product (GNP)
Gross national product is another metric used to measure a country's economic output. Where
GDP looks at the value of goods and services produced within a country's borders, GNP is the
market value of goods and services produced by all citizens of a country—both domestically and
abroad.
While GDP is an indicator of the local/national economy, GNP represents how its nationals are
contributing to the country's economy. It factors in citizenship but overlooks location. For that
reason, it's important to note that GNP does not include the output of foreign residents.
For example, a U.S.-based Canadian NFL player who sends their income home to Canada, or a
German investor who transfers their dividend income to Germany, will both be excluded from the
U.S. GNP, but they will be included in the country's GDP.
GNP can be calculated by adding consumption, government spending, capital spending by
businesses, net exports (exports minus imports), and net income by domestic residents and
businesses from overseas investments. This figure is then subtracted from the net income earned
by foreign residents and businesses from domestic investment.
Examples of GDP and GNP
A quick look at the absolute GDP and GNP numbers of a particular country over the past two
years indicates they mostly move in sync. There is a small difference between GDP and GNP
figures of a particular country depending upon how the economic activities of the nation are
spread across the world.
GDP and GNP Figures for Select Countries

Country GDP GNP GNP/GDP (%)

United States 20,953 21,287 101.6

United Kingdom 2,760 2,723 98.7

China 14,722 14,618 99.3

Israel 407 402.9 98.9

India 2,660 2,635 99.1

Greece 188.8 188.0 99.6

Saudi Arabia 700.1 715.6 102.2

Hong Kong 346.6 365.7 105.6

(All Figures in Billions of USD)

Data Sources: World Bank DataBank.
For instance, many American businesses, entrepreneurs, service providers, and individuals who
operate across the globe have helped the nation secure a positive net inflow from overseas
economic activities and assets. This bumps up U.S. GNP, making it higher than the GDP of the
U.S. for the year 2021.66
Saudi Arabia is another instance of a country where GNP is higher than GDP. The Kingdom is a
major oil exporter with enterprises and businesses spread around the globe. The income from
these enterprises tends to be higher than the income lost due to foreign citizens and businesses
operating in Saudi Arabia.
Other nations like China, the U.K., India, and Israel have lower GNP compared to corresponding
GDP figures. This indicates these nations are seeing a net overall outflow from the
country.78 Citizens and businesses of these countries operating overseas are generating lesser
income compared to the income generated by the foreign citizens and businesses operating in
these countries.
The percentage figures in the table above (GNP/GDP-%), which represents GNP as a percentage
of GDP, indicate that the absolute difference between the two figures is usually confined within a
range of plus or minus 2%. Hong Kong is a notable exception to this rule: as a highly export-
oriented economy, many of the city's business operations are located overseas.9
When Is GNP More Useful Than GDP?
Gross National Product, or Gross National Income, records the net income from foreign sources
owned by a country's citizens. This metric may be useful to scholars measuring the effect of
overseas businesses or remote workers on a country's economy.
What Is the Difference Between GNP and GNI?
The 1993 System of National Accounts replaced the term "Gross National Product," or GNP, with
the new term "Gross National Income," or GNI. Both represent a country's domestic output plus
net income from the businesses or labor of a country's citizens abroad.
Is GDP or GNP Better?
While there is no objective basis for saying that one metric is better than the other, Gross
Domestic Product is the most popular metric for the overall productivity of a country's economy.
GNP was formerly the default measure for a country's economic production but it fell out of favor
by the 1990s.
How GDP is calculated
GDP of a country is defined as the total market value of all final goods and services produced
within a country in a given period of time (usually a calendar year). It is also considered the
sum of value added at every stage of production (the intermediate stages) of all final goods and
services produced within a country in a given period of time.
The most common approach to measuring and understanding GDP is the expenditure method:
GDP = consumption + investment + (government spending) + (exports – imports), or,
GDP = C + I + G + (X-M)
How GNP is calculated
There are various ways of calculating GNP numbers. The expenditure approach determines
aggregate demand, or Gross National Expenditure, by summing consumption, investment,
government expenditure and net exports. The income approach and the closely related output
approach sum wages, rents,interest, profits, non income charges, and net foreign factor income
earned. The three methods yield the same result because total expenditures on goods and
services (GNE) is equal to the value of goods and services produced (GNP) which is equal to
the total income paid to the factors that produced the goods and services (GNI).
Expenditure Approach to calculating GNP:GNP = GDP + NR (Net income from assets abroad
(Net Income Receipts)).
Applications of GDP and GNP numbers
GDP and GNP figures are both calculated on a per capita basis to give a portrait of a
country's economic development. GDP (or Gross Domestic Product) may be compared directly
with GNP (or Gross National Product), to see the relationship between a country's export
business and local economy. A region's GDP is one of the ways of measuring the size of its
local economy whereas the GNP measures the overall economic strength of a country. These
figures can also be used to analyze the distribution of wealth throughout a society, or the
average purchasing power of an individual in the country etc.
Increase in exports of a country will lead to increase in both GDP and GNP of the country.
Correspondingly, increase in imports will decrease GDP and GNP. However, sometimes increase
in exports might only lead to increase in GDP and not GNP. The exact relationship will depend
on the nationality status of the company doing the export or import. E.g. if Microsoft Corporation
has a 100% owned subsidiary in India, and that office exports US$2 Billion worth of services out
of India, then US$2 Billion will be added to the GDP of India. However, it will not be added to the
GNP figure since the export is done by a US company and not an Indian company.

Formula for Calculation
GDP
GDP = consumption +
investment + (government
spending) + (exports −
imports).
GNP
GNP = GDP + NR (Net
income inflow from assets
abroad or Net Income
Receipts) - NP (Net payment
outflow to foreign assets).
 Country with Highest Per Qatar ($102,785) Luxembourg ($45,360).
Capita (US$)
Country with Lowest Per Malawi ($242). Mozambique ($80).
Capita (US$)
Country with Highest USA ($17.42 Trillion in 2014). USA (~ $11.5 Trillion in
(Cumulative) 2005).

The Bottom Line

Gross National Product and Gross Domestic Product are among the most popular metrics for the
productivity of a country's economy. Both measure the value of a country's economic activity. The
main difference is that GDP measures productivity within a country's geographical boundaries
and GNP records economic activity by that country's citizens and businesses, regardless of
location. Although GDP tends to be the more popular of the two, their values tend to be about
equal.

Balance of Payments
What is the Balance of Payments (BOP)?

The Balance of Payments (BOP) is a summary of the economic transactions of a country with the
rest of the world for a specific period. It serves as an accounting statement on the economic
dealings between residents of the country and nonresidents.

Who are the residents of the country?

Nationality is not a basis for determining an individual’s country of residence. A person is

considered a resident of a country when he has stayed or intends to stay in that country for one
year or more. Thus, an Overseas Filipino (OF) can remain a resident of the Philippines or can
become a non-resident depending on the length of the job contract abroad.

Similarly, a business enterprise is considered a resident of a country if it engages, for a year or

more, in the production of goods or services in a significant scale in that country. Branches and
subsidiaries of foreign companies are treated as residents of countries where they operate their
business. However, a liaison or a representative office of a foreign company, regardless of the
length of its stay, does not qualify as a resident enterprise. Its presence in a country is not for
operating a business but only for providing auxiliary services to the parent company. It remains
as an integral part of the foreign parent’s operations and thus, is treated as a nonresident where
it is located. Government instrumentalities like embassies, consulates, and
military establishments stationed abroad remain as residents of the country they represent.
What economic transactions are engaged in by residents of a country with non-residents?

Economic transactions are grouped into three major categories: (1) current account, (2) capital
account, and (3) financial account.
What are current account transactions?

The current account covers trade in goods, services, primary income, and secondary income.
Trade in goods—exports and imports—is the first component of the current account. The
country’s exports include manufactures (such as electronics), mineral products, and agricultural
products. Meanwhile, imports consist of raw materials and intermediate goods, mineral fuels and
lubricant, capital and consumer goods.

Trade in services is another component of the current account. Technical, traderelated and other
business services form part of the country’s exports of services. These comprised largely of
business process outsourcing (BPO) services. Other trade in services transactions with the rest
of the world include exports of services on physical inputs owned by others in manufacturing,
transport, travel, maintenance and repair, telecommunications, computer and information,
construction, insurance and pension, financial, charges for the use of intellectual property, other
business, personal, cultural and recreational, and government services.
The primary income sub-account records as receipts earnings of resident OF workers, as well as
the profit of Philippine investments abroad.1 Disbursements include interest payments to foreign
creditors.
Remittances of non-resident OFs are lodged under the secondary income subaccount together
with other current transfers such as gifts, grants and donations to and from abroad. Current
transfers can be in cash and in kind.2

What does the Current Account Balance signify?

When total exports/receipts exceed total imports/payments, the current account is in surplus. It is
in deficit if the reverse is observed.
If the current account balance is in surplus, the country is a “net lender” to the rest of the world in
the amount of the surplus or the excess in the current account transactions. Net lending occurs
when the national saving is more than the country’s investment in real assets. If in deficit, the
country is said to be a “user of funds” and thus, is considered as net borrower from abroad in
order to fill in the shortage. In this case, the country invested more than what its national saving
can finance.
What are the transactions in the capital account?
The capital account consists of capital transfers and acquisition and disposal of nonproduced,
nonfinancial assets between residents and nonresidents. This also includes grants and donations,
the intention of which is for investment (i.e., machinery and equipment, buildings and structures).
This is in contrast with grants and donations lodged under secondary income which are intended
for consumption (i.e. food, clothing, supplies and materials).
What are the transactions in the financial account?
The financial account consists of direct investments, portfolio investments and other forms of
investment. Direct investment refers to capital participation in a company in which the investor
has a significant degree of influence on management of the company. By convention, this is
manifested by ownership of at least ten percent of the company’s equity.
Portfolio investment is usually referred to as “hot money” since the investor’s motive is short-term
as opposed to a direct investor’s significant degree of influence in a company. A portfolio investor
will buy or sell a financial instrument at anytime there is an indication of immediate gain or loss.
Portfolio holdings may be in the form of stocks, bonds and notes, and money market instruments,
which are tradable in the market and thus can easily be acquired or disposed of. In the case of
stockholdings, a portfolio investor is differentiated from a direct investor if he owns less than ten
percent of a company’s total equity. Other forms of investments are financial derivatives, loans
(trade and non-trade), holdings of currency and deposits, and other investments.
What are international reserves? Who holds or manages the country’s international
reserves?

International reserves, technically referred to as Gross International Reserves (GIR), are foreign
assets of the Bangko Sentral ng Pilipinas (BSP) held mostly as investments in foreign-issued
securities, monetary gold, and foreign exchange. These are supplemented by claims to the
International Monetary Fund (IMF) in the form of Reserve Position in the Fund and Special
Drawing Rights.
Being the lender of last resort, the BSP holds international reserves for the foreign exchange (FX)
requirements of the country in case the supply of FX from domestic commercial banks falls short
of the total demand. As the term connotes, GIR serves as stand-by fund to finance the deficit that
may arise from the combined current and capital and financial transactions. Consequently,
financing the deficit reduces the level of reserves. On the other hand, the BSP builds up its
international reserves by the amount of the net inflow of foreign exchange resulting from surpluses
in external transactions.
International reserves can also be measured on a net basis. Net International Reserves (NIR) can
be derived by deducting from the GIR the BSP’s short-term foreign liabilities and borrowings from
the IMF.
Is there an ideal level of GIR which the BSP has to maintain?

Due to its intended use, the GIR should be adequate enough to cover external payments on the
assumption that no other source of foreign exchange could be tapped. In extreme conditions when
there are no export earnings or foreign loans, the GIR should be able to pay for the country’s most
immediate obligations— imports and debt service. By convention, GIR is viewed to be adequate
if it can finance at least three-months’ worth of the country’s imports of goods and payments of
services and primary income. Another indicator of reserve adequacy is for the level of GIR, as of
a particular period, to at least provide 100 percent cover for the payment of the country’s foreign
liabilities, public and private, falling due within the immediate twelve-month period.
What is the currency composition of the country’s GIR?

In terms of currency composition, the country’s GIR (excluding gold) are held in U.S. Dollars,
Japanese Yen, Euros and other foreign currencies. Historical data show that the bulk of the BSP’s
GIR (excluding gold) has been consistently held in U.S. Dollars.
What is the overall BOP position? What are Net Unclassified Items?
The overall BOP position is a summary measure of the performance of the country’s external
transactions. This can be estimated using two approaches:

a. the change in net international reserves due to transactions, or

b. the sum of the balances of the Current Account and Capital Account, less the balance
of the Financial Account (excluding assets/liabilities of the BSP)

Net inflows in the current and capital accounts are denoted in positive terms. By contrast, net
inflows in the financial account are presented as a negative balance using the “assets (outflows)
less liabilities (inflows)” approach under the sixth edition of the Balance of Payments and
International Investment Position Manual (BPM6). The balance in the financial account is
therefore deducted from the sum of the current and capital account balances to arrive at the
overall BOP position.
In practice, the two methods for computing the overall BOP position do not yield the same results
due to data limitations particularly in the second approach. The discrepancy between the two
approaches is termed as “Net Unclassified Items” or “errors and omissions”. Since the level of
international reserves is based on a more rigid book accounting, the overall BOP position is
determined by the first approach.
Thus, to maintain the equality of the two approaches, the following equation is adopted in the
BOP:

Current Account Balance

+ Capital Account Balance
- Financial Account Balance
+ Net Unclassified Items
= Overall BOP Position
= Change in NIR due to transactions

The compilers refer to the first four items as “above the line” and the change in NIR as “below the
line”.

What is the International Investment Position (IIP)? How does it compare with the BOP?

The IIP is a companion framework to the BOP statistics. The BOP is a flow estimate since it
records transactions within a given period. Meanwhile, the IIP is a stock estimate as it records the
country’s foreign financial assets and foreign financial liabilities outstanding as of a certain period.
The stock is the result of all the past flows plus adjustments such as exchange rate movements
to account for the value of the financial asset/liability as of date of reporting.

What are the main components of the IIP?

The IIP links with the financial account in the BOP. Similar to the BOP, the accounts in the IIP are
direct investments, portfolio investments, financial derivatives, and other investments. Assets and
liabilities are presented separately. International reserves also form part of the country’s assets.

What does the IIP measure?

The balance in the IIP, that is, assets less liabilities or the Net IIP, measures the country’s financial
standing with the rest of the world. A net asset position reflects net claims of residents on non-
residents and thus may indicate some degree of stability.
Meanwhile, a net liability position reflects net exposure of residents to non-residents and thus to
some extent, vulnerability. However, the quality of foreign liabilities is a major consideration in
determining vulnerability. If foreign direct investments and long-term loans dominate the liability
side, a country’s net liability position may not be of immediate great concern.

What are the uses of the BOP and IIP?

The BOP and IIP are important tools for national and international policy formulation as countries
have increasingly become interdependent. Policymakers are guided by the analysis of sources of
imbalances as presented in the BOP and IIP and therefore become better equipped in
determining and implementing adjustment measures. For instance, the deficit in the current
account may have stemmed from lower exports of goods compared to imports. Given this
scenario, national development programs could be directed towards increasing the
competitiveness of local products in the global market and/or developing new industries that will
produce import substitutes.
The use of the BOP and IIP is enhanced when taken together as they provide a glimpse of the
relationship between flows and stocks. One example is the link between trade in goods and direct
investments, as this would reveal how dependent export earning potential is on foreign capital
and technology. In another instance, external debt problems may be traced to chronic current
account deficits. Likewise, links are established between exchange rates and the strength or
weakness of the current and financial accounts.
How often are these statistics compiled?
The BOP is compiled quarterly but with a monthly breakdown. It is released to the public
electronically, i.e., via the BSP’s website within eleven (11) weeks from the end of the reference
quarter accompanied by a press release.

Starting September 2014, the IIP is compiled and disseminated on a quarterly basis in compliance
with the IMF’s recommendation of enhancing the Special Data Dissemination Standard (SDDS)
to improve the availability and timeliness of compiling and disseminating IIP data. It is likewise
released to the public electronically within three (3) months from the end of the reference quarter
accompanied by a press release.

Meanwhile, data on international reserves (IR) are published monthly to the public in the BSP’s
website. The preliminary end-month IR data are released every 7 th day of the month (or the
working day before the 7th day of the month if it falls on a weekend or is a non-working holiday).
The international reserves and foreign currency liquidity template data are released within one
month after the end of the reference month.

How often are these statistics revised?

Data on all BOP/IIP components released to the public during the reference quarter are treated
as preliminary, and may be revised in any quarter of the reference year. Prior year’s data may be
revised coinciding with the release of the second quarter report in September of the current year
and the fourth quarter report in March of the succeeding year. Historical revisions are carried out
in case of significant changes arising from the introduction of new classifications, compilation
frameworks and methodologies.
The revised or final end-month IR data are released every 19 th day of the month (or the nearest
working day to the 19th if this falls on a weekend or is a non-working holiday).

What guidelines are used in compiling the BOP and IIP statistics?

The International Monetary Fund (IMF) recommends the use of the sixth edition of the Balance of
Payments and International Investment Position Manual (BPM6) as the standard framework for
compiling statistics on BOP and IIP. The IMF introduced the revised edition in 2008 and
recommends that countries fully adopt the new framework by 2014. The BSP has started the
implementation of the BPM6 framework in March 2013 with the release of the full-year 2012
Balance of Payments (BOP) report. In March 2014, the BSP fully implemented the shift of the
BOP compilation to BPM6 framework in compliance with the recommendations set out in the BOP
manual. Meanwhile, the compilation of IIP data based on BPM6 framework was completed last
September 2014 with the simultaneous release of the quarterly IIP data as of end-March 2013 to
end-June 2014, Following the implementation of the BPM6 compilation framework, the BSP
released the backtracked BOP monthly data series from 2005-2010 (with accompanying technical
notes) in the BSP website in March 2014. Apart from the conversion to BPM6 format, the revisions
to the backtracked BOP data series mainly reflected the use of new data sources and estimation
methodologies to generate more accurate and reliable BOP statistics. Meanwhile, backtracked
IIP data series (annual 20062012) and (quarterly 2013) were posted in the BSP website in
September 2014. The BSP provides more information on the shift in the framework through the
primer and BSP economic newsletter published at the BSP website. The BSP also conducts
several information dissemination activities on BPM6 for BOP data users.
What were the revisions to the BOP and IIP when BSP adopted BPM6?

The shift to BPM6 entailed various changes including the adoption of the institutional sector
classification based on the System of National Accounts (SNA) and revision of statistical
treatment and coverage of some international accounts.
The details of these changes are presented in a separate primer - BSP Implementation of the
Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6)
Compilation Framework.

Do other countries compile BOP and IIP?

Most countries compile the BOP and IIP because of their importance to national planning. For
international comparability, the IMF has set guidelines on the compilation of these statistics which
member countries are encouraged to comply with. Countries subscribing to the IMF Special Data
Dissemination Standard (SDDS) are mostly compiling their respective BOP and IIP statistics
based on BPM5 and BPM6. Meanwhile, not all countries subscribing to the IMF General Data
Dissemination Standard (GDDS) are strictly complying with the prescribed frameworks.
Compilation manuals undergo periodic updating to keep abreast with the developments in the
market. As a consequence, data series are likewise subjected to revisions to conform to the latest
manual.

Trade
What Is Trade?
Trade refers to the voluntary exchange of goods or services between different economic actors.
Since the parties are under no obligation to trade, a transaction will only occur if both parties
consider it beneficial to their interests.
Trade can have more specific meanings in different contexts. In financial markets, trade refers to
the purchase and sale of securities, commodities, or derivatives. Free trade means international
exchanges of products and services, without obstruction by tariffs or other trade barriers.
How Trade Works
As a generic term, trade can refer to any type of voluntary exchange, from the exchange of
baseball cards between collectors to multimillion-dollar contracts between companies.
Used in macroeconomics, trade usually refers to international trade, the system of exports and
imports that connects the global economy. A product that is sold to the global market is an export,
and a product that is bought from the global market is an import. Exports can account for a major
source of wealth for well-connected economies.
International trade not only results in increased efficiency but also allows countries to benefit
from foreign direct investment (FDI) by businesses in other countries. FDI can bring foreign
currency and expertise into a country, raising the local employment and skill levels. For the
investor, FDI offers company expansion and growth, eventually leading to higher revenues.
A trade deficit is a situation where a country spends more on aggregate imports from abroad than
it earns from its aggregate exports. A trade deficit represents an outflow of domestic currency to
foreign markets. This may also be referred to as a negative balance of trade (BOT).
Benefits of Trade
Because countries are endowed with different assets and natural resources, some countries
may produce the same good more efficiently and therefore sell it more cheaply than other
countries. Countries that trade can take advantage of the lower prices available in other
countries.

This principle, commonly known as the Law of Comparative Advantage, is popularly attributed to
English political economist David Ricardo and his book On the Principles of Political Economy
and Taxation in 1817. However, it is likely that Ricardo's mentor James Mill originated the
analysis.
Ricardo famously showed how England and Portugal both benefit by specializing and trading
according to their comparative advantages. In this case, Portugal was able to make wine at a low
cost, while England was able to manufacture cloth cheaply. By focusing on their comparative
advantages, both countries could consume more goods through trade than they could in isolation.
The theory of comparative advantage helps to explain why protectionism is often
counterproductive. While a country can use tariffs and other trade barriers to benefit certain
industries or interest groups, these policies also prevent their consumers from the benefits of
cheaper goods from abroad. Eventually, that country would be at an economic disadvantage
relative to countries that do trade.
Criticisms of Trade
While the law of comparative advantage is a regular feature of introductory economics, many
countries nonetheless try to shield local industries with tariffs, subsidies, or other trade barriers. .
One possible explanation comes from what economists call rent-seeking. Rent-seeking occurs
when one group organizes and lobbies the government to protect its interests.
For example, business owners might pressure their country's government for tariffs to protect their
industry from inexpensive foreign goods, which could cost the livelihoods of domestic workers.
Even if the business owners understand the benefits of trade, they could be reluctant to sacrifice
a lucrative income stream.
Moreover, there are strategic reasons for countries to avoid excessive reliance on free trade. For
example, a country that relies on trade might find itself dependent on the global market for key
goods.
Some development economists have argued for tariffs as a way to help protect infant industries
that cannot yet compete on the global market. As those industries move up the learning curve,
they are expected to reach the point of becoming a comparative advantage.
How Does the WTO Promote Global Free Trade?
The World Trade Organization (WTO) is an intergovernmental institution that supervises and
enforces trade agreements between different countries. Its main purpose is to help mediate or
adjudicate disputes between countries alleging unfair trade practices. For example, if one
country's laws make it difficult to sell foreign products in that country, the WTO might be called
upon to settle the dispute.
Is Trade Good for Jobs?
There are winners and losers in international trade because some industries benefit from global
prices and others will struggle to compete. Overall, since trade allows businesses and consumers
to access the best prices and redirect the savings to other economic activities, trade is expected
to be a net benefit for employment in most cases.

Searched and Compiled by:

JENO G. GONO
Masterand

Submitted to:

DR. VICENTE S. BETARMOS JR.

Professor

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