Question

Discuss the static and dynamic gains from economic integration

Answer 1

Gains from trade are the benefits which arises when two economies voluntarily trade with each other.It affects and increases the consumer surplus,producer surplus and the national welfare as a result of reducing tariffs and liberalizing the trade.

The gains from trade are grouped into static and dynamic gains from trade.The static gains means the social welfare which arises due to trade as it increases the optimum utilization of a country's natural resources and it's endowments which increases the national output.Dynamic gains from trade are the benfits which happens when the participating countries increases the pace of their economic growth as a result of trade.

Static gains uses the theory of comparative cost adavantage while countries trade with one another,they will look for producing those goods in which they possess greater comparative advantage or east comparative disadvantage. Using this theory,the countries try to use the resources they have, in an optimum manner to increase the output and raise the social welfare of the people in the country.Static gains are reaped immediately in the short run through efficient allocation.It maximizes production,increases welfare,increases national income,reduces costs from economies of scale,increases product variety.

Dynamic gains refers to the economic development of the country which accumulates over a period of time.The country often goes for specialization in this case and uses it to production of those goods in which it is naturally best suited. The specializatiion in such goods will increase the efficiency and increase the quality of such products.It will use this specialization to enter into foreign markets and tries to increase it's pace of economic growth.It efficiently utilises the resources,widens the market,increases saving and investment,the countries involved learns by importing and exporting,increases competition and thus keeps a check on monopolies.