Question

<international trade>

<Answer up to 200 words>

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 is likely to improve the average efficiency of Ghana’s farms?

- A good answer has the following components:

- Answer must mention the right theory.

- Theory is correctly applied to the case study.

- Correct conclusions are reached.

p/s: does it relate to the Melitz effect theory? if so, how? if not, then which theory does it relate to?

Answer 1

An.s

- 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. In this case Ghana is the exporter and want to impose the VER. This will be beneficial for Ghana farmers.

- VER consequences for the exporting nation will be as follows :

o The total welfare impact for the nation is found by adding the increases and misfortunes to consumers, producers, and the beneficiaries of the standard rents. The net impact comprises of three segments: a positive terms of exchange impact (c), a negative creation contortion (h), and a negative utilization mutilation (f).

o Since there are both positive and negative components, the net public welfare impact can be either sure or negative. The fascinating outcome, however, is that it tends to be positive. This implies a VER actualized by an enormous exporting nation may raise public welfare.