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Study notes

Economic and Social Benefits from Trade

  • Levels: A Level
  • Exam boards: AQA, Edexcel, OCR, IB

What are some of the broader economic and social welfare gains from trade between nations?

Comparative Advantage and Gains from Trade - revision video
  • Welfare gains: All counties engaged in open trade and exchange stand to gain – although the gains from trade may not be equal – we live in a world of growing trade imbalances
  • Economies of scale – trade encourages firms to exploit scale economies leading to lower average costs that might be passed onto consumers in the form of lower prices
  • Market contestability – trade promotes increased competition particularly for domestic monopolies that would otherwise face little competition. Trade is also a spur for higher labour productivity
  • Dynamic efficiency gains from innovation - trade enhances choice and stimulates innovations bringing better products for consumers
  • Access to new technology and inflows of new knowledge: trade gives countries access to new technologies. Trade is a stimulus to the exchange of ideas and inflow of human capital. Openness to trade allows imports of capital equipment at lower prices
  • Rising living standards and a reduction in poverty - a growing body of evidence shows that countries that are more open to trade grow faster over the long run and have higher per capita income than those that remain closed. Growth through trade directly benefits the world's poor although free trade is not necessarily equitable
Examples of gains from trade
Source: World Trade Organisation

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