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2.1.1 Gains from Trade


Academic Research paper and Study of the Economy of Romania and Romanian Business

Trade is advantageous for all parties involved. But except for the obvious cases where coun­tries provide each other with goods hardly available to the domestic economies (such as oranges in most northern countries and wood in many southern countries), trade was often (or sometimes still is) believed a zero-sum game (cf. Mar­kusen et al.; 1995: 61): the gain of the one is the others’ loss. David Ricardo was the first, who laid the theoretical foundation for a theory of trade that considers mutual benefits for all trading partners (cf. ibid: 69).

 

 

Gains from trade arise from two different sources: first, the gains from exchange and second, the gains from specialization (cf. ibid: 66). Gains from exchange simply refer to the mutual benefit rea­lized by partners exchanging goods relatively scarce in the own economy but vastly available in the other economy (such as the orange-wood example). To the reci­pients, the received good is at least equal or even more valuable than the good given in ex­change and vice versa. If both sides were not better off through trade, it simply would not oc­cur at all. The Edgeworth box gives a great illustration of this idea. Gains from specializa­tion might be less obvious but not less striking.