What did Abraham Lincoln once said about buying rails from England? Explain the
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What did Abraham Lincoln once said about buying rails from England? Explain the fallacy in his logic. Who benefits from imports? Who gets hurt? Is overall effect of imports positive or negative? Who benefits from exports? Who gets hurt? Is overall effect of exports positive or negative? List two arguments for restricting trade. Using examples, explain the fallacy of these arguments. In your own words explain what "poverty trap" is? Why is it difficult for developing countries to get out of poverty trap? In your own words explain the "human capital trap" and the "brain drain" problem. How do developed nations benefit when underdeveloped nations become richer? How can developed nations help poor countries to improve their economic conditions? Why do we say that sometimes foreign aid can become foreign harm? Explain. List several policies that governments of poorer nations may need to implement in order for their countries to increase their country's standard of living.Explanation / Answer
PART : A
3.Export is defined as the act of a country shipping goods and services out of the port of a country. In international trade, an export refers to the selling of goods and services produced in the home country to other markets (other countries) . The seller of the goods and services is referred to as the "exporter. "
Exporting allows a country's producers to gain ownership advantages and develop low-cost and differentiated products. It is viewed as a low-risk mode of production and trade. Exporters also experience internationalization advantages which are the benefits of retaining a core competence within a company and threading it through the value chain instead of obtaining a license to outsource or sell the goods or services.
Disadvantages of exporting are mainly the result of manufacturers having to sell their goods to importers. In domestic sales, manufacturers sell directly to wholesalers or even directly to the retailer or customer. For exports, manufacturers face and extra layer in the chain of distribution which squeezes the margins. As a result, manufacturers may have to offer lower prices to the importers than to domestic wholesalers in order to move their product and generate business.
Entering an export business requires careful planning, some capital, market know-how, access to quality product, competitive pricing strategy, management commitment and realizing the challenges and opportunities without them it is almost impossible to succeed in the export business. While there are no hard-and-fast rules that can help companies make decision to export and to become successful, understanding the advantages and disadvantages of exporting can help smooth entry into new markets, keep pace with competition and eventually realize profit.
4.Promote an infant industry
When production of a commodity rst begins in a country, the rms producing it are often small, inexperienced, and unfamiliar with the technology they are using. Workers are also inexperienced and less efcient than they will become in time. During this breaking-in stage, costs are higher than they will be later on, and infant rms in the new industry may need temporary protection from older, established rms in other countries. So runs the infant-industry argument for tariff protection.
Thus stated, the infant-industry argument is analytically persuasive. It does not conict with the principle of comparative advantage. In terms of our earlier analysis of trade, the argument is that the country’s present production-possibility curve does not reect its true potential. Given time to develop an industry that is now in its infancy, the production-possibility curve will shift and a potential comparative advantage will be realized. Also, note that the infant-industry argument takes a global perspective: in the long run, world economic welfare is improved because tariff protection enables a potential comparative advantage to become realized and a more efcient utilization of resources to be achieved. Thus world output is increased.
This argument has great appeal for countries in an early stage of industrialization who are eager to develop a modern industrial sector. They fear that their attempts to develop new industries will be defeated by vigorous price competition from already established rms in advanced industrial countries such as the United States, Germany, and Japan. Early in American history Alexander Hamilton forcefully advocated the infant-industry argument in his Report on Manufactures.[i] It served as a rationale for the protective tariffs imposed in 1815 after Britain lifted the blockade of the United States that it had imposed during the war of 1812. Industries that had sprung up during the war feared the ravages of competition with the more advanced industries of Europe. Friedrich List made similar arguments in favor of a protective tariff in the United States and in Germany; later in the century, as Bismarck unied the separate German states and sought to expand their industrial capacity, he granted protection to the iron, steel, coal, and textile industries.
(ii)Avoid adverse effects on income distribution
For trade based on the factor endowments theory, relatively scarce factors of production are likely to favour the imposition of trade barriers. For unskilled and semi-skilled workers in industrialized countries, the fact that free trade would increase total national income is irrelevant, because they end up worse off. In Europe, reductions in existing trade barriers would likely add to the already high unemployment rate of unskilled workers, while in the United States such a policy would likely reduce the real wage rate of unskilled workers. Labor unions and others representing the interests of labor understandably try to restrict imports of labor-intensive products in order to preclude the effects of the factor-price equalization process.
Could a policy of taxes and transfer payments to compensate unskilled workers for their losses shift part of the gains from trade experienced by skilled labor, capital and land in industrial countries? In that way a country could enjoy the benets of freer trade without having to accept an undesired shift in the distribution of income. How such compensation might be provided is not a straightforward question, however. Trade Adjustment Assistance (TAA) is a US program intended to provide cash payments, retraining, and relocation assistance to individuals who lose their jobs as a result of trade. It was initially created in 1962 with the proviso that assistance be provided to those who could demonstrate that they lost their jobs because of a change in trade policy agreed to under the Kennedy Round negotiations. So few workers qualied under that standard that the link between greater imports and a change in trade policy was dropped in 1974. Primary recipients of assistance in the 1970s turned out to be auto workers affected by imports of fuel-efcient cars; little adjustment in helping those workers move to other industries occurred, because their high wages in the auto industry made it more logical for them to await recall in that industry.[ii] If TAA did not promote adjustment, at least the payments did represent a form of compensation. However, the long-run Stolper Samuelson result, that all unskilled workers will be adversely affected throughout the economy, means that only a small proportion of those who lose from greater trade actually receive any compensation. Additionally, retraining and relocation programs are of less benet to older workers, and an early sample of workers who received TAA benets showed that 40 percent never found another job.[iii] A new feature of the TAA program adopted in 2002 provided wage insurance, to encourage workers to find another job quickly, even if they had to accept lower wages. This provision was limited to workers older than 50, although benets were extended to workers who supply trade impacted industries.
Trade economists and politicians generally view TAA as a useful and necessary step to support a more open trade policy, but labor economists have been perplexed by the attention given to just one group of workers. They point out that a better adjustment program for all the unemployed would be desirable. The higher cost of a comprehensive program makes it less likely to be adopted, however.
PART B
1. Poverty Trap may be defined as Situation created by tax laws and income related social security benefits that prevents people from climbing out of welfare dependency. If these people strive and earn more, they move into higher tax brackets and end up having even less disposable income than before. After trying several times, they generally give up and may accept the situation as their fate.
Poverty trap can be broken by planned investments in the economy and providing people the means to earn and be employed. A series of poverty alleviation programs can be enforced to raise individuals out of poverty by providing monetary aid for a period of time.
But if the plan fails, people will become dependent on such programs forever and may even go deeper down in the poverty spiral. However, poorer countries find this to be difficult, leading to the over-exploitation of natural resources and land.
2. Human capital flight, sometimes called brain drain, refers to the emigration of intelligent, well-educated individuals for better pay or conditions, causing their places of origin to lose skilled people, or "brains." Typically, such emigrating individuals have learned English and have moved to the United Kingdom, the United States or some other English-speaking country. Brain drain is common in developing nations, particularly in former African colonies of the United Kingdom,[1] the island nations of the Caribbean,[2] and in centralized economies such as the former East Germany and the Soviet Union. China and India have recently topped the list of those nations experiencing an exodus of skills and intelligence through human capital flight.
Brain drain has also been used to refer to situations in which individuals fail to complete given tasks as a result of extreme stress or burnout.[3]
3. To start, there is the question of market access. Currently, the international trade system is full of inequities. Rich countries place their highest tariffs on imports important to developing countries -- garments and agriculture, for example. The tariffs escalate as the level of processing increases, discouraging industrialization in the poor countries. In addition, multilateral trade negotiations lack transparency and often exclude developing countries from the real action. Using WTO procedures to settle trade disputes requires money and technical expertise, both of which poor countries lack.
But to say that these flaws seriously hamper development in struggling economies would be to overlook the remarkable success in the last two decades of Vietnam and China in exporting manufactured goods, of Chile in exporting wine and salmon, and most recently of India in exporting services. These countries have achieved success in exporting, despite the impediments. And barriers on manufactured exports from developing countries were even higher when the Asian "tigers" first arrived on the scene in the 1960s and 1970s.
Many argue that agricultural tariffs in particular represent an impediment to poor countries' economic growth. The World Bank and organizations such as Oxfam argue that doing away with agricultural subsidies and protectionism in industrialized nations would significantly reduce poverty in the developing world. European cows, the famous example goes, are richer -- receiving $2.50 a day each in subsidies -- than one-third of the world's people.
Yet the reality is that liberalizing agricultural trade would largely benefit the consumers and taxpayers of the wealthy nations. Why? Because agricultural subsidies serve first and foremost to transfer resources from consumers and taxpayers to farmers within the same country. Thus, citizens of developed countries would derive the most benefit from having those subsidies cut. Other countries are affected only insofar as world prices rise. But the big, clear gainers from such price increases would be countries that are large net exporters of agricultural products -- rich countries, such as the United States, and middle-income countries, such as Argentina, Brazil, and Thailand.
What about the poorer countries? For one thing, many poor countries are actually net importers of agricultural products, and so they benefit from low world prices. An increase in prices may help the rural poor, who sell the agricultural goods, but it would make the urban poor -- the consumers -- worse off. Net poverty could still be reduced, but to what extent depends in complicated fashion on the working condition of roads and the markets for fertilizer and other inputs, on how much of the gains are captured by poor farmers versus intermediaries, and on the poverty profile of each country.
Regardless of whether agricultural liberalization increases or decreases poverty, the impact would not be significant. Most studies predict that the effect of such liberalization on world prices would be small. The International Monetary Fund (IMF) estimates that world prices would only rise by 2-8 percent for rice, sugar, and wheat; 4 percent for cotton; and 7 percent for beef. The typical annual variation in the world prices of these commodities is at least one order of magnitude larger.
As the crusade against communism waned, foreign aid programs had to find new reasons for existing, which is not easy. Though the public wants the government to help end poverty and injustice, it increasingly doubts that aid really helps. Powerful global financial institutions like the International Monetary Fund, hitherto indulgent of aid agencies and their micro-projects, today prefer to act at the macro level: they want to fix the rules by which poor and "transitional" countries manage their entire economies and workforces, run their governments, and take their places in the world system.
Criticism of foreign aid is not new, but it is now getting acrimonious. More intensive efforts to steer the debate have been coming lately from ideological heavy-hitters like the OECD Development Center in Paris and the World Bank in Washington, as well as from ex-volunteers and ex-staff at aid agencies
5 Policies that affect sustainability are of five types :
· General economic and social policies intended to influence overall economic growth, trade, price levels, employment, investment and population, attained chiefly by utilizing monetary and fiscal instruments.
· Policies relating to agricultural and rural development. Policies of this type are usually intended to influence such factors as the agricultural resource base, agricultural production, consumption of agricultural products, agricultural price levels and variability, rural incomes and the quality of food. They are usually implemented via instruments such as taxes and subsidies, direct government production and provision of services, and direct control through regulation.
· Policies relating to markets, including the establishment of market institutions and rules, and circumscription of property rights.
· Policies aimed at establishing a democratic and participatory process designed to involve all interested groups in decision making and implementing SARD.
· Policies designed specifically to influence natural resource use and protect the environment. These policies utilize: (i) command and control (effected, for example, by prohibiting or limiting certain resource uses or establishing limits on emissions, with penalties for non-compliance); (ii) economic incentives such as taxes and subsidies; and (iii) persuasive measures such as education and advertising.
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