Why Do Countries Trade?

countries engage in trade because it is

potentially beneficial to them. International
trade can expand both consumption and
production possibilities for a country.
The Basis for Trade:
Natural Resources- temperate zones,
mediterranean type, tropical lowlands
Product differentiation

cheap vs. expensive,

Differences in Technology

Differences in Demand (taste)

Entrepreneurship

Labor

Comparative Advantage
country can produce that commodity
more efficiently (or at a lower opportunity
cost) than another commodity relative to
another country.
Law of Comparative Advantage countries specialize and export those
goods & services where they have
comparative advantage and import those
commodities where they dont have
comparative advantage or less advantage.

Factors Endowment Theory

Countries differ w/ respect to their
endowments of factors

Abundant factors will be relatively

cheap; scarce ones, relatively dear
Countries export those commodities
that are relatively cheap under
autarky, & import those commodities
that are relatively dear in autarky

www.worlbank.org

Economic Development
vs.
Economic Growth
Growth:
Increase in real GDP &
per capita real GDP
(Melvin & Boyles, 2013)
Determinants of Growth:
1. Labor
2. Capital
3. Land
4. Technology
Development:
more output & changes in the
technical & institutional arrangements
by which the output is produced and
distributed
(Kindleberger & Herrick as cited by Belo et.al, 2012)

GROWTH w/ CHANGE

Human Development Index

(HDI)

POVERTY
the inability to attain a minimal standard
of living.(Melvin & Boyles, 2013)

Poverty line/threshold

composite index showing the average

deprivation using longevity, knowledge &
income as the criteria of development

Poverty Incidence proportion of families

(population) w/ per capita income below the
poverty line.
Monthly poverty thresholds as a Filipino family w/
5 members were:
2000 Php 4,774
2003 Php 5,129
2006 Php 6,274

(World Bank, 2009).

life expectancy

literacy rate

school rate enrollment ratio

income distribution

Source:nscb.gov.ph

HDI 0 to 1
process of extending peoples choices
uplifting level of their well being

Poverty Situation

Top 5 poorest provinces, 2006

Region

Poverty
Incidence

Tawi-Tawi

ARMM

78.9

Zamboanga del Norte

IX

63.0

Maguindanao

ARMM

62.0

Apayao

CAR

57.5

Surigao del Norte

CARAGA

53.2

Province

(%)

Regional Poverty Incidence, 2006

Gender-related Development Index

GDI, a gender adjusted HDI.
UNDP to account for the differences in the
level of attainment of men & women, as
separate groups, on the 3 component values
of HDI.
FYI:

Region

Incidence
(%)

ARMM

55.3

CARAGA

45.5

IV-B

43.7

41.8

VII

40.7

Source: www.nscb.gov.ph

Botswana, the average life expectancy at

birth is 61 yrs. old, 17 yrs. less than U.S.A
Cambodia, only an estimated 65% of the
population has an access to safe water
Ghana, 30% of the population exists less
on than $1.25 day
Chad, only 35% of women and 53% men
between 15 & 24 yrs. old can read
of worlds poorest live in Sub-Sharah
Africa

Source: http://go.worlbank.org

Sustainable Development
theory of sustainable development

preserving the quality & the general capacity

of the natural environment.(Bello et.al, 2012)

Classical Theories of Development

Adam Smith
Division of Labor
Law of Accumulation
David Ricardo
Law of Diminishing Return
Thomas Malthus
Malthusian Theory
Roy Harrod & Evsey Domar
rate of growth in output is dependent on
the current savings rate & the capital-output
ratio.
Robert Solows (neoclassical growth model)
difference in the average income across
countries is explained by the different rates of
savings & population growth.