Economics

QuestionOne

  1. Todaro (2000) Chapter 12 Question 8 (Page 493) Traditional theory of free trade is basically an international exchange that might lead to conclusions about the advantages which may accrue all participants. Give examples of dynamic process in real-world that will tend to assume the advantages of this free trade internationally. Briefly give an explanation of this dynamic process.

Answer

Thisdynamic process mainly exists in theory and not in practice asexpected by many developing and developed countries. The lessdeveloped nations mostly depend on the developed countries for thesale of their productions for monetary gain(Todaro, 2000).Third world countries like Kenya export their resources to Germany.In the early 1960s and 1970s, most countries both developed andundeveloped participated in this practice of free trade. Thisimproved their growth percentage per year.

Developedcountries did not participate in export in the early 1990s despitethe less developed countries increasing the goods produced (Todaro,2000).Goods exported such as minerals, food, raw materials, food productsand fossil fuels account for almost three-quarters of the commoditiesexported to developed nations.

Bigcountries like India and Brazil are not so dependent on freeinternational trade for their growth. This is contrary to nationsfound in Asia and tropical Africa. Less developed nations dependmostly on foreign trade for their growth (Todaro,2000).Countries which have developed like Japan and the United States ofAmerica have the least export which does not exceed ten percent whileless developed countries like Taiwan, their total export mainlyranges between forty-percent and thirty percent.

In1981 and 1995 the rate of export of raw goods from the less developedcountries was at two percent. This was the amount of goodstransported to developed countries. In return, these developedcountries exportation of manufactured goods to the less developedcountries increased to six percent in the same duration. This showsthat exports from less developed countries decreased while that fromdeveloped countries increased.

Inmost nations, there are earnings that are unstable which has led tolower economic growth rate. The most dynamic scenario is betweenKenya and Germany. Kenya exports agricultural products such asvegetables, fruits, coffee, and tea to Germany but on the process,Germany produces electrical appliances, cameras, and automobiles(Todaro,2000).This shows the dynamic difference between these two nations in theform of their exports which enhance their economic growth. Whilecarrying out this form of trade between Kenya and Germany, the mostbenefiting country is Germany because it can export electricalappliances, cars, and manufactured agricultural products. This is oneof the phenomena which give rise to unequal profit among tradingpartners.

QuestionTwo

2)Easterly (2001) presents Chapter 9: Creative Destruction: The Powerof Technology. Please define and discuss the conditions necessary forthe use of technology in successful economic growth in less developedcountries.

Answer

Thereshould be government support. For any nation to be successful intechnological advancement, the ruling government should invest in theyoung majority who has the power of innovation. In early 1992,countries such as Ecuador, Costa Rica, Mexico and Syria had theirtechnology dragging behind. They relayed mostly on the old technologywhich was outdated and needed to be replaced with new ideas. Economicgrowth is mostly more about the creation of new ideas into themarket. Those people who were operating on the ideas of oldtechnology will be replaced by people with new ideas (Easterly,2001).Old commodities will be destroyed so as to create room for new onesto take their turn. A cycle in which old products were replaced withnew ones drove many people from the business market. For example,candles which were the first to be invented were replaced by lampswhich used oil from a whale. Due to continued discovery, the whaleoil lamps were also replaced by kerosene lamps. After using kerosenelamps for decades they were later replaced by electricity whichhelped in lighting.

Developingcountries should encourage the young generation to take the jobopportunities arising in the market (Easterly,2001).The old people were trained on the outdated technology in which theirskills are specifically based on the past innovation done. The younggeneration is trained on new productive technology which manydeveloped countries are using. According to statistics carried out, acountry which has a high population of aged people will have oldpeople trying to push for their technological growth. A country witha young innovative mind as the majority will have a hightechnological revolution(Easterly, 2001).New ideas will be put into practice hence economic growth will bedrastic. After World War two, some countries like Japan, Germany hadtheir old kingpins destroyed and new generations were put in place.This turned these countries into developed machinery.

Countrieslike China was the first to start using electromotive power twocenturies ago. They held their knowledge within themselves. WhenAmerica knew about it, they used this technology to become the mostdeveloped country in the world. Because China never shared thetechnological idea with other countries, its development remainedstagnated and started dragging behind to other nations which haddrastic growth. Small countries like Japan came up and are moresuccessful because their government encourages innovation and ideasharing.

Reference

Easterly(2001) presents Chapter 9: Creative Destruction: The Power ofTechnology

Todaro,M. P. (2000).&nbspEconomicdevelopment(Chapter 12).Reading, Mass. [u.a.: Addison-Wesley.)(Page 493)