Comparative Advantages, Poverty and Trade

Comparative Advantages, Poverty and Trade
Student’s Name
Institutional Affiliation
Comparative Advantages, Poverty and Trade
Literature review
In the inquiry of the cause of the wealth and poverty gaps between nations, Adam Smith gave us ideas on why some countries are rich while the others are poor. In more than 200 years after the Adam Smith publication of the book “wealth of nations,” the poverty gaps continue escalating between the wealthy and the developing nations in the globe. The original question asked by the economist Adam Smith “why some countries are poor and others are rich and what can be done about it” continues up to the present day to disturb the economists. In general, defining the richness or poverty is very simple. For us to compare the wealth of two or more different countries, we use the gross domestic product (GDP) and the per capita income (PI) as the economic indicators to measure the wealth and the wellbeing of a country. The GDP estimates the total value of the country's resources which has been produced by that country's citizens. In other words, the country's gross domestic product is the yearly income that belongs to that nation. The per capita income is the average income that is available to every individual in a country. The per capita income is the gross domestic product divided by the number of people in a country. It helps in determining the quality of life of people in a country.
The economic growth of a country is the sustained and gradual rise in the value of the goods and services produced by a nation. It helps to reduce the poverty gap between the nations. Many factors influence the country’s economic growth. Two of the strongest pillars of constant economic growth are strong institutions and trade (Olson & Mancur, 2016). Financial institutions provide capital and incentives to the producers. The producers are therefore motivated to produce more goods and services which can export to earn the foreign exchange income. The continuous increase in this income is what contributes to the country’s growth and development. Secondly, a nation has to be well conversant with international trade for it to prosper economically (Mutreja et al., 2014). Trade is a broad term since a country only produces and exports the product which it derives a comparative advantage. Comparative advantage is the advantage that a state has in making goods and services over another country. If it is cheaper to create products and deliver services to the state as compared to another, the comparative edge emerges in the cheap production and delivery.
Scholars have agreed that there is always a significant relationship production of goods, export, and economic growth. The relationship is that exportation of manufactured goods creates wealth to a nation and hence the economic growth and not the vice versa. There are empirical studies that support the position that product exports increase wealth for the government, which is so essential for economic growth (Frank et al., 2018). A country which puts more emphasis on exports helps to harness its resources to the most productive sector of the economy and hence the economic growth. The production efficiency further increases because when a country exports goods, it is forced to reduce the production costs and thus a better international market competition (Filipe et al., 2012). Trade also helps the country to focus on the economies of scale and therefore increasing the profitability of local industries. It is these local industries that contribute to the growth of the economy since they create more job for its citizens and help to improve the standard of life of the citizens. For a country to prosper is international trade, it has to observe comparative advantage and produce goods at relatively low costs.
For this paper, we are going to analyze ten countries and compare their poverty gaps based on economic tools such as comparative advantage, poverty gaps and the level of trade. The states selected belong to both the developing and the developed countries category. These countries include Austria, Belgium, China, Cyprus, Egypt, Ethiopia, Kenya, Malaysia, Russia, and Zambia. The analysis is based on the country's imports and exports to determine the level of the comparative advantage.
Austria
In the year 2016, the value of the exports from Austria was 144.7 billion dollars, which were a decrease of 0.4% from the previous year’s export. The imports to the country were 150.0 billion dollars, which were a slight increase of 1.4% of the prior year. That means that Austria had a trade deficit of 5.3 billion dollars (2017 International Trade Statistics Year Book, 2019). From the table below, it shows that Austria’s top three exports are motor cars, medicaments, and motor vehicle spare parts. With the given expert statistics, it is an indication that they have a comparative advantage in producing motor cars. Austria's poverty gap is low because it creates the products that most of the country especially the poor cannot create. Most of the export from Austria is consumed by the developing countries, meaning that they have a comparative advantage over the others.
The table below shows the exported products and their value from Austria.
Exported productThe value in a million US$Medicaments5241.9Motorcars for transport purposes4720.5Non-specified commodities4621.4Motor vehicles spare parts and accessories4525.6Internal combustion parts of car engines2611.5Human and animal blood for therapeutic uses2735.7Line telephony electrical equipment1934.9Spark ignition for motor engines1980.7Water with added sugar1930.7Furniture fittings and bases for furniture.1814.9
Belgium
In the year 2017, the value of Belgium's products exports considerably increased by 8% to reach an amount of 430.0 billion dollars. The imports also rose by almost a similar margin to reach 406.4 billion dollars, which were an estimated increase of 9%. Therefore, Belgium had a trade surplus of 23.6 billion dollars (2017 International Trade Statistics Year Book, 2019). This data shows that Belgium had a positive value of economic growth, which has helped to reduce the level of poverty gap. The three most exported products by Belgium was, motor cars remained designed for the transport sector, medicaments, petroleum oil, and the crude oil products. It shows that Belgium has a comparative advantage in the production of the product which most of the countries in the world cannot produce. This fact makes Belgium be among the developed countries in the world with a high GDP. The surplus in trade contributes to the growth of the GDP and hence reducing the poverty gap.
The table below shows the top ten exports by Belgium
Exported productThe value in billion US$Motorcars for transport purposes26531.9Medicaments25532.4Petroleum and crude oil products15262.9The diamond which is not mounted14181.1Animal blood prepared for beauty purposes10952.0No-specified commodities7663.3Nitrogen-containing compounds7099.4Surgical dental and veterinary equipment6494.7Hydrocarbon and petroleum gases5874.7Primary form polymers5789.0China
In the year 2017, the total value of exports for China was 2263.4 billion dollars, which were an increase of 7.9 % from the previous year. The imports of their merchandise were 1843.8 billion dollars, which were a relative increase of 16.1%. China had a trade surplus of 468.6 billion dollars, which means that the Chinese economy grew by a substantial amount in the year 2017 (2017 International Trade Statistics Year Book, 2019). Considering the Chinese exports, their main products for export were electrical apparatus, electronic data converting and processing machines and electronic integrated circuits. China is a manufacturing powerhouse accounting the majority of the country’s exports to the sector, thus giving the country a significant competitive edge globally. This data shows that China is capable of producing products that others cannot. The export of these products to the international market helps their GDP to grow since there is increased efficiency in the manufacture of these products. The poverty gap in China as provided by the UN is 7.8 meaning that China economy is doing well thus reducing the poverty gap among its citizens.
The table below shows the main export by China
Export productThe value in billion US$Telephony electrical apparatus219.2Automatic data processors142Electronic integrated circuits67.2Lamps and lighting apparatus28.5Liquid crystal displays28.5Accessories for machines34.0Television reception apparatus31.5Motor vehicles parts and accessories31.5Semiconductor devices26.6Furniture and fittings26.6Cyprus
In the year 2017, Cyprus had its export rise by 75.4% to reach a maximum value of 3.4 billion US$. The number of imports also increased substantially by 40% to reach a merchandise value of 9.3 billion US$. This translates to a trade deficit of 5.9 billion US$. Cyprus also recorded a surplus trade for its services of 4.5 billion US$. The most exported goods and products for Cyprus were petroleum and other petroleum products, medicaments, cheese and curd among other exports (2017 International Trade Statistics Year Book, 2019). The poverty gap between Cyprus and other countries rose to zero due to the comparative advantage that they derived from the export of products. From the previous year's data, it can be seen that Cyprus improved significantly in 2017. The reason for the improvement is due to manufacturing products that give a comparative advantage. From the look of data, Cyprus is proliferating, and its primary objective is to compete with the giants in the international tr...