Analysis Of Trade And Specialization

Running head: ANALYSIS OF TRADE AND SPECIALIZATION
Analysis of Trade and Specialization
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ANALYSIS OF TRADE AND SPECIALIZATION1
Introduction
Trade and specialization go hand in hand because a country that specializes in a product
also trades in it. It means that the country produces surplus of that product and exchange it with
another product, surplus of which is produced by another country that specializes in it. This
exchange of goods leads to globalization. Globalization boost the sectors of countries in which
they are specialized in (Cosar and Fajgelbaum 2016). Thus, the productive efficiency increases
due to trade and specialization. .However, there is an argument that states along with benefit,
trade and specialization leads to creation of winners and losers with in a country. This essay thus
studies the validity of the statement by examining different aspects of trade and specialization.
Focuses is given on wage inequality, unemployment, income inequality and domestic sectors.
Benefits from trade and specialization
Every country has some advantage in production of certain goods over other goods and
thus if the good in which a country has advantage in is produced then the country would have
gained more than producing other goods. For example, Australia and the United States share
trade relations with each other (Yoe 2019). The US exports machinery, vehicles, medical
instrument, aircraft, dairy product, pork, fresh fruit and tree nut to Australia. On the other hand,
Australia exports optical and medical instruments, machinery, different types of meat, wine and
beer, essential oils, raw beet and cane sugar. It is evident from the fact that countries export those
product in which they are specialized (Bos, Economidou and Zhang 2019). Under free trade,
countries are able to import goods from other countries at lower price in which they do not have
any specialization. Thus, trade improves productive efficiency. Trade and specialization boost
the export sector of a country and thereby increases employment in those sector. With
continuous growth in the export, sector the wage of the employees increase. Consumers benefit

ANALYSIS OF TRADE AND SPECIALIZATION2
from cheaper import products. With induced effect of cheap imports, the disposable income of
consumers increase and due to that consumers are able to consume more amount of domestic
goods (Moon 2018). Thus, the domestic goods which are not exported but faced demand surge
have absorbed benefits of the trade and specialization. With rise in benefits of employees in
respect of income, the standard of living increases as employees related to the export sector are
able to afford more
Negative impact of trade and specialization
The benefits of trade and specialization are mostly the interest of discussion in most of
the topics but negative impacts of the same are discussed in rare cases. It has been observed that
the negative impact of the trade and liberalization mostly impact the domestic industrial or
agricultural sector that compete with the products that are imported from various countries
(Dewan and Suedekum 2017) These sectors suffer decline in growth and thus the profit of the
sectors suffer due to cheap price of import products. Consequently, the demand for such
domestic products fall. The employment in these sectors thus fall and in addition to that, the
wages of employees is reduced. Therefore, the sectors become more uncompetitive and pushed
to the verge of shut down (Santos-Paulino 2017). Therefore, with the benefit of rise in
employment in export sector there are rise in unemployment in other sectors that compete with
the import sector.
Winners and Losers
From the above discussion of benefits and negative impacts of trade and specialization it
can be observed that there are sections of people who got benefit from the trade but on the other
hand there are people who deprived of job and income and thus standard of living falls
(Hoekman and Sheperd 2017). Hence, part from increasing the income of a country trade and