Dynamic Gains from Trade

Economics assessment questions often ask students to analyse and evaluate the potential gains from trade. A key idea that you might want to include in your answers is that of “dynamic gains from trade” – we’ll explore this idea in this short revision video.

Dynamic gains from trade make a domestic economy more productive. Dynamic gains from trade, are those benefits which accelerate economic growth of participating countries.

Examples of dynamic gains from trade

1. Knowledge diffusion between businesses and countries – the transfer of ideas and knowhow can improve a country’s capabilities via deeper specialisation
2. Learning economies of scale – encourages best practice across borders
3. Increased competition between suppliers – drives product differentiation & choice
4. Increased market contestability incentivises local producers to improve their productivity which then increases long run aggregate supply