Question

1. What is the relevance of the vent-for-surplus theory of international trade to the current development experience of low-income economies?

Answer 1

The vent-for-surplus theory of international trade expresses that when a country produces a surplus,specifically when it produces a larger quantity of goods or services than it consumes. The lack of consumption by such a country is then alleviated by international trade with another country, to "vent off" the surplus. This is done to maximize production. The relevance is similar to the sturdy export bias concept of the Mercantilist theories. In the absence of international trade, low-income economies might have underutilised resources viz. labor, domestic markets,etc. The issue for development of that low-income economy is that the surplus production might be balanced off domestically, but that would mean paying huge prices and slow development. Thus, it is relatively easier for international trade to balance off this surplus by means of exportation of this surplus produce,thereby creating an effective demand for the product of low-income economies.