Lecture 6: Trade and Development

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International Development Studies
Leslie Chan

IDSA10 PROFCHEN101911LECTURE SIX TRADE AND DEVELOPMENTLecture By Professor Albert BerryTrade is called barter when it occurs bw 2 ppl mr X exchanges a cow for mr Ys horse Trade occurs all over the country You specialize in a service trade sell that skill to a person in need of you expertise for money Why is there so much trade between people in a given country Why doesnt everyone produce everything they need The Logic of Specialization The basis of trade is specialization one firmcountry gets better at producing one good and another firmcountry gets better at producing something else because you need skills and you learn to get better by practice Genetics and PracticeTraining determine what you will specialize in Economies of Scale Lower cost on average if you as an individualfirm if you produce a lot of something than if you produce less Increase productivity as size of production goes up not the case with agriculture Big farms only exist because they are subsidized in some way or another Under what circumstances does a person engaging in barter actually lose Nuance you could have gotten it for a better price Imperfect Information you didnt have full information of the product Quality of the product is lower than what you expectedWhen one of the partners is forced into a trade BullyVictimWe expect a country that engages voluntarily in trade to provide full information of the product they are promoting But in international trade full information is hard to get because full information includes the long run impact of a particular trade International Trade vs Interpersonal Trade WinWin if both parties are happy with full information disclosureWhen any country engages in International Trade there are people WITHIN the country who have lost ie Canada exporting wheat to a banana producing country Wheat producers and surrounding industries in Canada are the winners Guatemala banana producers are happy because they have expanded their industry Losers in Canada Industries that consume wheat on a large scale If wheat price in Canada increases Guatemalans will be losers if banana prices go up
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