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Chapter 7: Problem 1

What are the major reasons for the skepticism of many developing nations regarding the comparative-advantage principle and free trade?

Short Answer

Expert verified
The major reasons many developing nations are skeptical about the principle of comparative advantage and free trade are the potential harm to domestic industries, risk of exploitation and uneven distribution of benefits.

Step by step solution

01

Understanding the Comparative Advantage Principle

The principle of comparative advantage is an economic law referring to the ability of a party to produce a particular good or service at a lower marginal and opportunity cost over another. This principle suggests that countries should specialize in producing the goods and services they can produce most efficiently, and trade for those they cannot produce as efficiently. This will maximize economic efficiency and increase global output, fostering mutual benefits.
02

Identifying the Concerns of Developing Nations regarding Free Trade

Many developing nations are skeptical of the comparative advantage principle and free trade due to several reasons. One of them is the fear that free trade may harm their domestic industries which can't compete against more efficient, advanced foreign industries. Additionally, there is concern about exploitation by developed countries, as developing countries often have lower labor, environmental and social standards. These allow them to produce goods more cheaply, but it can also result in significant disparity and unequal distribution of benefits.
03

Formulating the Arguments

Based on these identified reasons - the risk to domestic industries, the potential for exploitation and the potential unequal distribution of benefits, one can formulate the major arguments regarding the skepticism of developing nations towards comparative advantage and free trade.

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