Answer to Question #132555 in Microeconomics for Neba

Question

Why country are affiliate of international trade and signed trade policy?

Answer 1

International trade is important because it enriches some factors like like standard of living, employment, consumer pricing, and other economic aspects between the countries. International trade in today’s world has tremendous impact on the country’s GDP since GDP is dependent on the import and export done by the country.

The importance of international trade can be classified as

• Export of raw materials and abundant resource to other countries
• Creating a comparative advantage by leveraging lower opportunity cost
• Providing consumers differentiated products thus offering greater choice
• Create specialization and economies of scale at global level
• Create trading blocks

Policy makers create plans, ideas, rules and regulations which the government or private organizations must abide by. Hence the nature and scope of actions are limited by the guidelines specified by the policy makers.

Policy makers have to rely on International Trade to make their guidelines effective and relevant to the country. The GDP will get impacted so is the governmental revenue if the policies do not help in facilitating international trade.

The WTO (World Trade Organization) is the international body of policy makers who govern the rules and regulations of international trade at a global level. There are well established trade ministries for each country which dictates the terms and policies keeping the national interest in mind. The reasons why policy makers rely on international trade can be summarized using a few generic rules:

• Institutions – Policy making is affected based on which institution/organization they are affiliated to since they want to maximize the benefits from international trade for their own institution.
• Constituent preferences – Traditional trade theories influence policy making. Based on the contemporary trade patterns and consumer preferences the policy makers might formulate laws that encourage the existing status quo.
• Interest groups/lobby parties – For example in USA due to excessive import of services from other countries the anti-immigration lobby has become vocal in changing the rules and regulations pertaining to service sector exchanges