The Role of International Trade in Economic Development

Economic development is described as sustained growth in income per capita over a period of time, which usually involves a structural and institutional change in an economy. In addition, economic development includes the reduction of relative and absolute poverty, decreasing infant mortality, increasing employment, and life expectancy; improvements to social welfare. Economic development creates a greater economic and social equality. Per capita income is the most common measurement of development; a country must be able to increase their income in order to achieve economic development, and hence the Gross National Product (GNP) can be used as an indicator of development. Other indicators such as the human development index can be used to determine improvements in social welfare.
International trade effects the economy such that it increases the Aggregate Demand (AD) as well as becoming a source of inputs for production. International trade based on the theory of comparative advantage will improve efficiency in allocating resources, as well as allow firms to reach economies of scale, thereby reaching competitive prices of international markets. When an economy involves itself in trade, under the right circumstances, it is able to shift the Production Possibility Curve (PPC) curve outward, and achieve greater levels of output. …