This paper looks into international trade theory and trade policy analysis. International trade theory is a field of economics that analyses international trade patterns and origins. Trade policy analysis is a tool that enhances the ability of developing countries to analyze their trading patterns of goods and services. Government experts who engage in trading activities need this tool for research and trade-related study.
international trade theory and trade policy analysis
IMPORTANCE OF INTERNATIONAL TRADE THEORY
For most developing countries, international trade theory is important. It allows countries to specialize in the production of goods and services in which they are good at. The trade policy analysis allows for the economics of scale which reduces the cost of production. This reduction of cost is advantageous because the country can effectively meet its domestic demand. The theory brings the spirit of competition. Countries strive to produce goods that will not only satisfy their local consumers, but also the foreign market. International trade theory provides an opportunity for job creation locally and internationally, therefore, reduces the unemployment rate.
importance of international trade theory
IMPORTANT APPROACHES TO TRADE POLICY ANALYSIS
There are various important approaches to trade policy analysis. Potential equilibrium is the best approach to trade policy analysis. Soft wares like SMART, TRIST, and GSIM use this approach. This method gives an output that shows the change in imports and exports which is a component in international trade theory. Potential equilibrium also gives a change in prices, quantity, and quality of goods and services. Computable general equilibrium is another approach to trade policy analysis. This approach gives output on the effects of tariff reduction on individual and related markets.
important approaches to trade policy analysis
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