Bilateral Trade Agreements Term Paper Example | Topics and Well Written Essays - 2000 words

Bilateral Trade Agreements - Term Paper Example Using the production possibilities frontier, Ricardo was able to prove this, achieving a significant breakthrough in the field of international economics. Practically, Ricardo believes that given the situation, both countries can still gain by having the less efficient country specialize in the production and exportation of the commodity in which its absolute disadvantage is smallest and import the product in which it has its greatest absolute disadvantage. The commodity in which one country has the least absolute disadvantage can be thought of as one in which it has a comparative advantage. The gains are realized as both countries specialize in the production of the commodity in which it has the least opportunity cost (Mankiw). In a high-income and low-income country comparison, the book, Making the International: Economic Interdependence and Political Order highlighted that in a two-commodity example of food and pills, specialization will benefit both countries as each will be producing the commodity with the least opportunity cost, simply saying that trade can help increase income even for the low-income countries (Mackintosh). In recent years, there is an observed rise in the number of bilateral trade agreements between countries. Experts say that for a powerful country like the USA, "smaller FTAs accomplish the goal of liberalization and the expansion of markets for U.S. goods" in the absence of a broader agreement like the Doha round (MacMahon). On the part of the smaller countries, bilateral trade agreements increase the local employment and provide a better climate for investors from powerful nations (MacMahon).It is generally accepted that open economies which engage with the outside world do better than economies that are inward looking.