If trade increases world GDP by 1% per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint: To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount the additional increase in global incomes due to trade and compare that number to Sri Lanka’s GDP.

Part1

World GDP increases by 1% every year is given for the next 10 years.

Let us assume we begin with the current GDP being $ 100 Billion.

Part2

World GDP (2020)- $ 84,747 Billion

Sri Lanka GDP (2019)- $ 83.991 Billion

GDP increases by 1% globally every year.

Hence, after 10 years- Global GDP would be increased by-

${(1+0.01)}^{10}$

= 1.105 times of what we began in the first year.

i.e. GDP in the 10th year would be

$ 100 Billion * 1.105

= $ 110.5 Billion

Part2-

Current (2020) World GDP- $ 84,747 Billions

So, in 2021, the gains from trade to GDP is 1%, hence,

1% of $84,747 Billions

i.e. $ 847.47 Billions

The addition in income due to trade for 2021 would hence be-

=$\frac{IncreaseinworldGDP\hspace{0.17em}for2021}{SriLankaGDPin2021}$

= $\frac{\$847.47Billions}{\$83.991Billions}$

= 10.09 times