What are the gains from international trade, and why might countries still decide to trade even if no country has a comparative advantage?

What are the gains from international trade, and why might countries still decide to trade even if no country has a comparative advantage?

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September 14, 2021
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What are the gains from international trade, and why might countries still decide to trade even if no country has a comparative advantage?

Answer and ExplanationSolution by a verified expert

Explanation
Despite many countries have a competitive advantage in the production of certain products, they also experience gains that come as a result of trading that exists among countries. This is because whenever countries are involved in trade with other countries then there will be a wide variety of products availed in each of the involved respective countries. The increases in products available come in with choices made with respect to goods and services considerably. As always known that the consumer tends to prefer choice in respect to products as they provide them with alternatives to choose and what products suit them best by giving them optimal utility hence increasing their welfare. Therefore, international trade has the ability to increase the welfare of citizens of the involved countries and it is being regarded as gains from trade for these countries.

References

Krugman, P. R. (1981). Intraindustry specialization and the gains from trade. Journal of political Economy, 89(5), 959-973.

Answer
Countries that have an absolute advantage mostly specialize in the production and selling specific products that they produce and utilise the funds generated to purchase goods and services from other countries.

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