The Dilemma of Trade and the Nexus of Benefits and Costs (Trade or No Trade)

Abstract

Many economists and governments are now of the view that promoting trade in general and exports, in particular, are the solution to poverty reduction and balance of payment problems and eventual development. In the modern era, most economies have adopted the theory of comparative and specializing in goods for which they have comparative advantage and trading for much needed foreign exchange earnings. While most studies have evaluated the impact and benefits of international trade, few have focused on the costs associated with the trade. This paper reviews both benefits and costs associated with trade, in order to strike a balance and provide a complete overview of trade for, especially developing economies. A model of cost and benefit analysis of trade (MCBAT) is subsequently developed. In order to achieve the objectives of the study, the paper uses an empirical method of study and uses empirical data for costs and Granger causality tests, error correction models, Least squares (Gauss-Newton / Marquardt steps) and Wald tests in Eviews statistical software to determine impact. Theoretical and empirical analysis prove that has both benefits and costs, and whilst trade provides quality, cheaper and variety of goods, and may promote economic growth, it may harm developing economies in terms of deficit balance of payments and debts, resource depletion and domestic industries.