REM 621 TOPIC 16: TRADE AND ENVIRONMENT. Basic Trade Theory Concepts Absolute advantage - "with the same level of inputs a country can produce more of a given output than another country“ An example:. The Theory of Comparative Advantage.
Basic Trade Theory Concepts
Absolute advantage - "with the same level of inputs a country can produce more of a given output than another country“
Comparative advantage – "when the opportunity cost of producing something is less for one country relative to its competitors"
An example [Note: price of wheat & dairy is $2/unit]:
Gains from trade – “comparative advantage suggests that specialization of production and the resulting trade will increase the value of total output and, if trades are voluntary, be mutually beneficial.”
Source: Martin & Winters 1996
(e.g. agriculture and land degradation)
Source: Barbier (1988)
Notes:(*) calculated in terms of percentage contributions of 33 most important commodities to value of total merchandise exports; (**) figures in brackets are contribution to value shown in second column
Source: Roose (1977)
a/ Measured per unit of erodability defined for a standard bare plot of soil
Over 11,500 Maquiladoras,, are located along the 2,100 mile border with the United States.
Final thoughts: Trade and Environment
Pro Free Trade
“Trade agreements and the resulting trade foster economic growth, which provides resources for environmental clean-up and can be designed to ensure environmental protection”
Con Free Trade
“Trade agreements and the resulting trade are harmful to the environment and society because free trade today primarily serves the profit-maximizing needs of multinational corporations and international financial capital, eroding or preventing local environmental protection, capital formation, political control and social development.”