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TRADE AND DEVELOPMENT

   A trade within the confines of a particular country is known as internal trade International trade is the trade that takes place outside the confines of a country. use of local currency. . ie trade b/n two or more countries The distinctions has to do with within. These are all for internal trade. factor mobility. goods can easily move. common national language. the economic environment is the same.

1.Because people and countries want to take advantage 2. ie when there is the same prices of the goods traded both internal and international. Also due to price differentials-ie due to the differences b/n supply and demand supply side: blessed with natural resources demand side: different taste and preferences and different income levels International trade will come to a halt when there is price-equalization. .

3.1. . The pattern of demand have shifted to goods with a relatively low import content of primary commodities Technological change has led to the development of synthetic substitutes for raw materials Developed countries have pursued protectionist policies that have retarded the growth of imports of both primary and manufactured goods from developing countries. 2.

E. international investment. .Static gains: those which accrue from international specialization according to the doctrine of comparative advantage 2. Dynamic gains: those which result from the impact of trade on production possibilities at large. transmission of technical knowledge also trade can provide a vent for surplus commodities 1.g economies of scale.

barriers to trade are brought down within the area but there is no CET. Therefore CU creates trade but also divert it from lower-cost suppliers outside the union .   The essence of customs union is that it frees trade b/n members and impose a common external tariff (CET) on imported goods from the rest of the world In free trade area (FTA). Countries are free to impose their own specific tariff on goods from outside the area.

It is composed of two parts: 1. A consumption effect consisting of the gain in consumer surplus from cheaper goods  . A production effect which consist of the substitution of cheaper “foreign” goods for domestic goods from with the union 2.

The substitution of higher-priced goods from within the union for goods outside the union The loss of consumer surplus that it entails . 2.1.

The classical and neo-classical trade models are based on ten basic assumptions 1. The system of barter trade 10. Zero transport costs 5. Full employment and perfect competition 8. Easy and quick production transformation 6. Labour theory of value 3. Factor mobility 7. Constant returns to scale 4. 2 countries. 2 commodities 2. Free trade 9. The static world economy  .

. 2. To protect the domestic economy 3. and non-tariffs barriers like exchange control. To protect the local mkt 2. Natural restrictions: geography and distance Man-made: tariffs. To restrict imports which leads to reservation of foreign exchange. ECOWAS Reasons for imposing tariffs: 1. quota system. health and sanitation restrictions. regional blocs-EU. administrative.1.