Question

Background

Imagine that you work for the World Bank and you have been called to Ghana to aid the new president to come up with a new international trade strategy.

You are told that the new government is interested in moving away from agriculture and into manufacturing. To do so, the government wants to pursuit a policy of import substitution industrialization (ISI).

You are given a brief about Ghana highlighting the following points:

• About half of Ghana’s population depends on agriculture, but Ghana still imports some of its food.
• The majority of Ghana's people live in rural areas and exist on a subsistence way of life.
• Ghana has one of the highest rates of income inequality in the world.
• Nearly half of the population is employed in agriculture.

QUESTION

Explain if the VER (voluntary export restraint) is likely to improve the average efficiency of Ghana’s farms?

Answer 1

Answer:-

> A voluntary export restraint is similar to a quota but is imposed by the exporting country.

>Trade restrictions (or trade protection) are government policies that limit the ability of domestic households and firms to trade freely with other countries.

> Examples of trade restrictions include tariffs, import quotas, voluntary export restraints (VER), subsidies, embargoes, and domestic content requirements.

> Tariffs are taxes that a government levies on imported goods.

> Quotas restrict the quantity of a good that can be imported into a country, generally for a specified period of time.

Importing Country Consumers - Consumers of the item in the importing country endure a decrease in prosperity because of the VER. The expansion in the homegrown cost of both imported merchandise and the homegrown substitutes decreases the measure of consumer surplus in the market. Allude to the Table and Figure to perceive how the extent of the adjustment in consumer surplus is spoken to.

Importing Country Producers - Producers in the importing country experience an expansion in prosperity because of the VER. The expansion in the cost of their item expands producer surplus in the business. The cost increments likewise actuates an expansion in yield of existing firms (and maybe the expansion of new firms), an increment in work, and an expansion in benefit as well as installments to fixed expenses. Allude to the Table and Figure to perceive how the size of the adjustment in producer surplus is spoken to.

The total welfare impact for the country is found by adding the gains and misfortunes to consumers and producers. The net impact comprises of three parts: a negative terms of exchange impact (C), a negative utilization mutilation (D), and a negative creation bending (B)

Since every one of the three segments are negative, the VER must bring about a decrease in public welfare for the importing country.