Why Are Some Economists Concerned About The Proliferation Of Regional Trade Agreements

This is the result of multilateral trade negotiations for certain products. For example, a country reduces tariffs on products that are not sensitive to imports – often because they are not manufactured in that country – more than tariffs on import-sensitive products. In a free trade agreement whose end result is a zero tariff, it would have no effect if the agreement were fully implemented. However, during the transitional period, this could be very relevant for some products. However, beyond this exception, the removal of tariffs or other trade barriers increases trade in the product, and that is the intent of the trade agreement. The world has seen an avalanche of regional trade agreements in recent years. About 100 such agreements are now in force. Some of the most important are listed in Table 7. Some are just agreements to keep talking; others have set specific targets for reducing tariffs, import quotas and non-tariff barriers. One economist described the current trade agreements as a „spaghetti bowl,“ like a map with lines that link all countries to trade agreements. Companies that generate revenue could recruit more labour and perhaps increase dividends paid to shareholders.

This money is distributed several times by the economy, as a result of what economists call the multiplier effect of money, which says that for every dollar an individual receives as income, part is spent (i.e. consumption) and part is saved. If individuals save 10 per cent of their income, 90 cents will be spent on each $1 and 10 cent income. The 90 cents that are then spent are paid for another person, and another 90 per cent of them are spent on consumption. This will continue until there is nothing left of the original $1. Smith and Ricardo considered only work as a „factor of production.“ In the early 1900s, this theory was developed by two Swedish economists, Bertil Heckscher and Eli Ohlin, who took into account several factors of production. [4] The so-called Heckscher-Ohlin theory basically states that a country will export products produced by the factor it has in relative abundance and that it will import products whose factors of production require factors of production where it is relatively less abundant. This situation is often presented in economic manuals as a simplified model of two countries (England and Portugal) and two products (textile and wine). In this simplified presentation, England has relatively abundant capital and Portugal has relatively abundant labour, and the textile is relatively capital-intensive, while wine is labour-intensive.