Question

1-a) Is free trade fair? Why or why not?

1-b) What’s the difference between Heckscher and Ohlin & new trade theory ? Which one has more implications to current international trade patterns?

Answer 1

1-a) Is free trade fair? Why or why not? Discuss!
Ans:.......
Free trade: It means there are no trade barriers between the nations that involve in free trade, but these nations has different level of economic growth & development, regulatory framework and infrastructure. i.e, there is a scope of exploitation, cases of economic rent, infighting and issues related to briber and unethical practices.
These concerns grow when free trade takes place and overseas enterprises try to use it in their favor. It makes free trade by no means to be fair as one country can prevent malpractices due to robust regulatory system, but another participant country can suffer due to the lack of regulations and poor means to fight against these malpractices. It makes free trade to be unfair as the only objective of the free trade, is to use the market of each other and grow in their own country even if it comes at a cost of another economy.
Besides, free trade also works in a scope to prevent trade relations with other nations, outside the area of free trade agreement. It puts additional burden upon the country that could get the better deal if free trade was not in place. Hence, it also adds to the unfairness due to free trade.

1-b) What’s the difference between Heckscher and Ohlin & new trade theory ? Which one has more implications to current international trade patterns?

Ans:.......
Heckscher-Ohlin proposes that all firms are same in all the countries, but new trade theory says that firms are heterogeneous in nature.This model has identified that each country has the same production function and each country can have the same production technology to do so that is contradicted by the new trade theory that says that each country has different competitive advantage and capabilities.
Besides, H-O model does not focus neither on employment nor on firms working in different countries, but firm’s behavior is strongly discussed by the new trade theory.
New trade theory has more implications in the current international trade pattern. As per the existing international trade patterns, one firm can operate in more than one country and produce different goods while opting for the global sourcing. This gives huge importance to the diversity of the firm and firm’s behavior. In the same tune, new trade theory gives more importance to the firms and their objectives while pursuing the international trade of different nature.
Further, network effects and increasing return to scale are proposed by the new trade theory that gets more attention and significance in existing international trade scenario.