International Trade & World Institutions Essay
According to Mian (2008), “the countries of Pakistan and Taiwan, although with a share in International trade that runs in billions of dollars, do very little trade amongst themselves” (P. 25). In view of this assertion made through dedicated quantitative and qualitative research on the lack of trade between Pakistan and the South East Asian and Far East countries, this paper would intend to build on traditional theories of international trade and explain how opportunities for greater trade between these two countries can be achieved including the role of international institutions.
The Case For International Trade – Factor Endowment, Absolute advantage and Comparative Advantage Pakistan is located in south Asia and shares borders with India to the east, China to the northeast, and Afghanistan to the northwest and Iran to the west. To the south lies the Arabian Sea. Primarily an agricultural economy with a growing number of agro based industries, the country recorded annual exports of USD 18. 1 billion and imports of USD 28. 8 billion in 2008. Taiwan is an island located of the straits of Taiwan, a waterway dividing the island from Mainland China.
Although no major country recognizes the island as a sovereign state, the island is
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This difference in natural factor endowment (the quantum and quality of land, labor, capital and entrepreneurship available to a country) forms the basis of international trade. According to Grant (2002), “land is obviously immobile in a geographical sense. Barriers of language and custom and restrictions on immigration restrict the international mobility of labor. Capital is more mobile geographically but it only crosses international boundaries when favorable conditions exist.
Since it is difficult to move resources between nations, the goods and services that represent these resources should move” (P. 452-453). Thus, according to Irfan (2008), “nations with an abundance of land relative to labor would concentrate on land intensive processes such as cotton crop. On the other hand, countries with an abundance of labor relative to land, would concentrate on labor-intensive processes such as manufactured goods such as Televisions.
These countries will then exchange these goods for each other’s produce” (P. 40). Apart from differences in factor endowment, a wider basis for international trade exists in the theory of absolute advantage, which, according to Grant (2002) states that, “each country can produce one commodity better than the other and when each concentrates on what he does best, the overall world output is maximized” (P. 454). An example would help explain this point:
Suppose there are only two products in the world, cotton yarn and television and trade only takes place between Pakistan and Taiwan. Each country has ten resources and it takes Pakistan one resource to produce 100 metric tons of cotton yarn and 2 resources to produce 10 televisions. On the other hand, it takes Taiwan one resource to produce 10 televisions and 5 resources to produce 100 metric tons of cotton yarn. Assuming resources in each country are evenly allocated, world production stands at: