We may now briefly enlist the gains resulting from international trade:

1. International specialisation and geographical division of labour lead to optimum allocation of

world resources making it possible to have the most efficient use of them.
2. Increase in the exchangeable value of possessions, means of enjoyment and wealth of each
trading country.
3. As Ohlin states, the disadvantage of disproportionate geographical distribution of productive
resources are mitigated by international trade. In other words, the loss attributed to the
immobility of factors is overcome by the product movements between the trading countries.
4. Foreign trade for a country widens the size of market and thereby, helps in reducing the risks
involved in huge investments undertaken for the growth of home industries. It also enlarges the
scope for large-scale production. The economies of scale so realised would reduce the cost of
production, consequently goods may cheaply be available to domestic consumers than otherwise.
5. Under international trade each country will get more of each variety of goods, more varieties
and qualities of goods to consume.
6. International trade causes enlargement of world's total output.
7. International trade thus, leads to an increase in the world's prosperity and welfare of each
trading nation. The living standards of trading countries in turn improve. Hence, the world at
large becomes a happy world.
Sources of Gain:
According to the classical theory, specialisation based on the principle of comparative costs
advantage is the major source of gain from international trade. An additional source is the
possibility of exploiting economies of scale when the size of the market is extended through the
free foreign trade of a country.
Adam Smith's dictum is "Division of Labour is limited by the size of markets." Obviously, when
the size of the market expands as a result of international trade, the scope for large scale
production and thus for complex division of labour and specialisation, increases. Under
economics of large scale, when specialisation occurs, the output per unit of input may rise so that,
costs per units of output fall. This is a further source of gain from international trade which
makes goods cheaply available.
The theory implies that comparative costs are different in different countries because the
abundance of factors which are necessary for the production of each commodity does not bear
the same relation to the demand for each commodity in different countries.
Thus, specialisation based on comparative costs advantage clearly represents a gain to the
trading countries in so far as it enables more of each variety of goods to be produced cheaply by
utilising the abundant factors fully in the country concerned and to obtain relatively cheaper
goods through mutual international exchange.
Further, the principle of comparative cost-difference of gains in international trade should not be
looked upon merely as a possibility theorem, but as a positive hypothesis relating to the real
world.
The doctrine of comparative costs predicts that in the real world, there will be gains from trade in
terms of increased world production. As such, each trading country will gain by getting relatively
more and cheaper goods and no one will lose by having less to consume than it would have if it
were self-sufficient.

Though, the validity of the theory of comparative costs has not been conclusively proved, its
general hypothesis that production and consumption in the real world and in each country would
be higher under international trade than what it would be without it if all countries were forced to
be completely self-sufficient, cannot, for obvious reasons, be rejected even by any empirical tests.

Export-Led Growth Theory-Explained!

Article shared by Uttam Mehra

Meaning:
Export-led growth is a policy strategy and a process by which a country aims at
accelerating its rate of economic growth by relying upon an expansion of its exports.
Its objective is to derive several growth-related benefits from export expansion, such
as providing employment to its hitherto unemployed and underemployed resources,
higher rate of capital accumulation, up gradation of technology through greater
imports, and so on.
Theory tells us that economic development of a country can be stimulated by several
factors. And amongst others, a central role is played by

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i. An increase in the quantity and quality of its productive resources; and
ii. Their more productive utilisation.
The strategy of export-led growth is devised to strengthen these two contributory
factors. In this strategy, a country tries to specialise in those products in which its
factor endowment imparts it a comparative advantage.
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This means that the said country tries to increase employment of its unemployed or
under-employed resources.
Viewed from another angle, it is a strategy of more productive allocation of its
productive resources and thereby acceleration of its economic growth.
It is also in the nature of things that international trade, together with other economic
contacts that are associated with it, provides a profitable channel for the inter-country
transfer of technology. The benefits of research and development undertaken in one
country tend to spread to its trading partners as well.
International trade stimulates growth of trading countries both by what may be
termed demand motoring and supply motoring.
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This means to say that international trade brings into operation a continuous
interaction between demand and supply forces and helps them accelerate their
growth rates. For example, trade adds to employment of their resources.
This strengthens the demand of both traded and domestically consumed products.
The resultant increase in production enables the producers to take advantage of the
economies of scale, cut costs and prices, and stimulate demand still further.

Evaluation:
The debate is still inconclusive as to whether a country can rely upon a strategy of
export-led growth.

International financial institutions like the IMF, the World bank, and the Asian
Development Bank, as also several economists like Sachs and Werner, have been
forceful advocates of export-led growth.
In support of their claim, they cite the cases of those East Asian countries which
have successfully pursued this course of action.
In contrast, there is an equally strong view that there is no guarantee that the
strategy of export-led growth will always succeed; it can be of help only if overall
circumstances are favourable to this approach.
For example, the growth economist, Hla Myint believes that a relentless pursuit of
export promotion by a country runs the risk of producing a dual economy; that is,
an economy which is characterised by some patches (also termed enclaves or
purple spots) of economic growth surrounded by underdeveloped areas.
Similarly, some economists think that the consumers of an open, trade promoting
economy (and more so those of a country pursuing export-led growth strategy) face
a higher risk of demonstration effect which can retard its rates of saving and capital
accumulation.
Some economists point out that, in the very nature of things, exports of poor
developing countries tend to suffer from deteriorating terms of trade, so that a major
portion of the benefit of growth in their productivity is appropriated by the richer
countries.