To what extent does a country engaging in more international trade lead to a higher rate of economic growth in that country?

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Engaging in international trade can greatly promote a country's economic growth. Economic growth is defined as "an increase in the capacity of an economy to produce goods and services, compared from one period of time to another" (investopedia.com).

In other words, a country must find ways to obtain more goods and services than before to grow economically. In order to conceptualize the extent to which international trade can aid in this growth, it will be beneficial to examine a greatly simplified, fictitious scenario:

Say two countries called Greensville and Icetown open up their borders to trade with each other. Greensville can produce 100 bushels of wheat in an hour and only 20 snowcones per hour. Icetown, on the other hand, can produce 20 bushels of wheat per hour and 100 snowcones per hour. Let's say there are 8 hours of work available to these countries per day. If both countries were to spend 4 hours producing each good per day, Greensville would end up with 400 bushels of wheat and 80 snowcones per day, while Icetown would have 80 bushels of wheat and 400 snowcones every day.

If Greensville were to only produce wheat, while Icetown produces snowcones, they would have 800 bushels of wheat and 800 snowcones respectively. At first glance, this may seem like an issue, since now each country only has one good. This is where international trade comes in: Let's imagine that Greensville decides to trade 400 bushels of wheat for 400 of Icetown's snowcones. At the end of this transaction, each country now has 400 of each good. Let's compare the economies of these two countries with and without trade:

                        

                                             Without Trade

                         Greensville                                    Icetown

Wheat:                  400                                              80

Snowcones:           80                                              400

                     

 

                                              With Trade

                           Greensville                               Icetown

Wheat:                     400                                        400

Snowcones:             400                                        400

 

Clearly, engaging in international trade has made both Greensville and Icetown substantially better off. The same concept can be applied to the global economy, where some countries may not have the resources to produce one good as efficiently as another. By specializing in goods for which they have a comparative advantage and then trading their excess goods, countries can greatly increase their rates of economic growth.

I hope this helps!

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