The way in which a country grows affects the pattern of trade of a cou

The way in which a country grows affects the pattern of trade of a country. True or false. Discuss.

What will be an ideal response?

ANSWER

Growth causes a country’s PPF to shift out. This has implications for both production and consumption. Since trade is the difference between production and consumption, it will tend to be affected as well. Growth can be neutral, in which case trade volumes increase, but proportionate to initial levels. Growth can be protrade biased, in which case the country tends to trade more relative to its GNP after growth, or trade can be antitrade biased, in which case it tends to trade less. All of these situations depend upon what happens to the country’s overall capital/labor ratio as growth occurs as well as income elasticities of demand.