chapter  12
29 Pages

International trade and economic growth

As we indicated in Chapter 1, most of the world’s population is concentrated in the developing countries. In various other chapters, we have touched on some of the relationships between international trade and factor movements with respect to the developing countries. However, up to this point most of our focus and analysis has been concentrated on the developed countries. As we discussed in Chapter 1, this focus on developed countries made sense because most of the world’s trade and investment occurs among the developed countries. In this chapter, we turn our attention to how international trade affects economic conditions in the developing countries. This is an important topic for two reasons. First, improving the standard of living in the developing countries is arguably one of the most important topics in all of economics. Approximately 5.3 billion people or 85 percent of the world’s population live in the low-or middle-income countries (i.e., developing countries). As a result, the sheer magnitude of people living in poverty makes this an important topic. Second, the relationship between international trade and economic growth has been a controversial subject over the years. Fortunately, in the last two decades economists have learned a lot about the relationship between the two. Armed with this new knowledge, we can now explain the linkages in a straightforward manner.