Why does jamaica trade with other countries

Most agreed that although there had been substantial trade liberalisation in the last 20 years, growth had not been as strong as expected in some cases. A large variety of explanations were proposed.

In a essay titled Trade, Growth and Poverty: A Selective Survey , Anne Krueger and Andrew Berg conducted a selective literature review that surveyed recent contributions to the debate and concluded that: "Evidence from a variety of sources Moreover, trade openness does not have systematic effects on the poor beyond its effect on overall growth.

Trade policy is only one of many determinants of growth and poverty reduction. But the report also stressed that the national and international policies that can facilitate this must be rooted in a "development-driven approach" to trade rather than a "trade-driven approach" to development.

Other researchers have tried to assess the potential impact on poverty of further trade liberalisation at the multilateral and regional level.

In Trade and Poverty in Latin America published in , Paolo Giordano and his colleagues at the Inter-American Development Bank approached the same topic from a hemispheric perspective. Allan Winters and Xavier Cirera had also emphasized that although "trade liberalization ultimately helps poverty alleviating by stimulating growth, … it needs complementary policies in areas such as transport, education, and financial services to ensure that the poor benefit".

The relationship between trade, growth and poverty reduction has also been analysed within the context of the Caribbean. In a study published jointly by the World Bank and the Organization of American States in April and entitled Caribbean: Accelerating Trade Integration the authors discuss policy options for sustained growth, job creation and poverty reduction.

In a report to the UN Security Council in January , the economist Paul Collier highlights the importance of international trade on reducing poverty in Haiti. Trade policy encompasses all the tools that governments may use to encourage or restrict imports and exports.

These can take the form of tariffs taxes collected on imported goods , quotas limitations on the quantity of goods allowed to be imported , and voluntary export restraints restrictions set by the exporting government on the quantity to be sold to a foreign country.

Domestic regulations, such as mandatory health and safety standards, can also serve as trade policy tools, if they are utilised to prevent or encourage goods or services to be brought into the domestic economy. Subsidies, payments by the government to encourage the production of certain products, can be considered trade policy tools, particularly if directed at encouraging exports. Trade policy also includes the approach taken in trade negotiations. Throughout the twentieth century, the trade policy debate has been characterised by the opposition between proponents of protectionist and liberal approaches.

While the former argued that a country would be better off if the government erected high cost barriers to foreign products seeking to compete in the domestic market in order to increase or maintain domestic production; the latter camp countered that government intervention would lead to higher prices for consumers, rent-seeking by domestic producers, and high inefficiencies due to low competition - particularly in smaller economies.

Much research has supported the assertion that more open economies experience a higher rate of growth. It is recognised that open trade policy is not sufficient to foster or sustain growth, ensure a welfare-enhancing distribution of the benefits of growth, however, it must work in tandem with other economic policies in order to accomplish these goals.

Throughout the latter years of the twentieth century and into the twenty-first century, most countries in the Americas have followed trade liberalising policies. For example, tariffs in Latin America have fallen from an average of 40 percent in the mids to about 12 percent in the mids. Unilateral tariff reductions have been complemented by participation in regional integration initiatives, including the establishment of free trade agreements and customs unions and the revamping of existing agreements, such as, for example, the revision of the CARICOM Treaty of Chaguaramas.

Classic instruments of trade policy include tariffs and quantitative restrictions. Trade negotiations, both at the multilateral level and through regional and bilateral trade agreements, have traditionally focused on eliminating tariffs and non-tariff barriers to trade.

This section will explain some of these basic instruments of trade policy and their impact. Classic trade policy instruments include: Tariffs Quotas Voluntary Export Restraints Export Taxes Export Subsidies Trade liberalisation, through unilateral policy measures as well as through negotiated reductions in trade distortions through the WTO and in regional free trade agreements, has diminished the importance of some of these tools.

Trade policy is focusing more and more on the direct and indirect impacts of domestic regulatory regimes on international trade and investment flows. Some of these new policy tools are also described below.

Tariffs : A tariff is a tax on imported goods. Three main types of tariffs are: ad valorem tariff: this is the simplest and most frequently used tariff type, under which the rate is expressed as a percentage of the value of the goods. This type of tariff is often used for agricultural goods. The effect of a tariff is to raise the price of imported goods, thus making them generally less competitive within the market of the importing country. Tariffs also have the effect of raising the price of domestically produced goods.

This is due to the fact that when a tariff is imposed, the foreign-produced good is more expensive, so consumers will buy the domestically-produced good assuming that the goods are the same, or homogeneous. The extra demand for the domestically-produced good will allow domestic producers to raise their output and prices to the market-clearing price the price at which consumers are willing to buy and producers are willing to sell.

Tariffs can be used to accomplish various trade policy goals. The main goals are to raise revenue for the government. If the goal is the latter, a tariff can be set so high that no imports will enter. This is called a "prohibitive tariff". Tariffs can also be set much higher than needed to protect the import-competing industry. The imposition or removal of a tariff has an impact on consumers, producers, the government and the country as a whole.

For a simplified analysis of the impact of a tariff, we will look only at the importing country and assume that it is a small country that is, that it cannot affect the price of a good by buying or selling that good on the world market. The supply and demand curves for the importing country are shown in the diagram below.

The diagram illustrates the impact of imposing a tariff. In a free trade situation, the country is consuming QD 0 units at a price of P 0 , the world free-trade price represented by the blue price line, P FT. At this price, domestic producers sell QS 0 worth of the good, and QD 0 -QS 0 is purchased from the other country, or imported.

The large blue bracket underneath the graph represents the amount of imports in free trade. When a tariff of t is imposed, the price goes up by the amount of the tariff. At the new price, P 1 -- the free-trade price plus the amount of the tariff, represented in red, consumers will reduce their consumption of the good to QD 1. Domestic producers see a higher profit level, and increase their production to QS1.

Imports fall to the level represented by the red bracket, which is the difference between QD 1 and QS 1. The impacts of the tariff: As seen in the graph, the tariff will change the consumption patterns on consumers and the production patterns of firms.

The overall effects of this tariff are: Consumers: Consumers of the product in the importing country suffer a reduction in well-being as a result of the tariff, which increases the price of the good they previously purchased at price line P0. The increase in the domestic price of both imported goods and the domestic substitutes reduces the amount of consumer surplus in the market. Producers: Producers in the importing country experience an increase in well-being as a result of the tariff.

The price increase of their product on the domestic market increases producer surplus in the industry. Producer surplus is the difference between the price for which producers are willing and able to supply a good and the price they actually receive.

Looking at the graph, producers gain the area in which they would otherwise not sell: the area. Government: The government receives tariff revenue as a result of the tariff. Who benefits from the revenue depends on how the government spends it.

Revenue from import taxes help support government spending programs which either will benefit the general populace in the country, as is the case with public goods, or is targeted at certain groups. Government revenue is represented in the graph by rectangle c. This represents the loss of producer efficiency resulting from domestic firms producing in an industry in which they are not the most efficient producers as a result of the higher price, and the loss of consumer efficiency, as consumers pay a higher than the free market price.

Tariffs, particularly in the developed countries, have been significantly reduced through unilateral tariff cuts, eight rounds of tariff elimination at the multilateral level through the GATT and then the WTO, and regional and bilateral trade agreements. While many tariffs are now quite low, some products considered sensitive continue to have very high tariffs.

These are known as "tariff peaks". Another phenomenon of note, one that particularly impacts developing countries, is that of tariff escalation. Tariff escalation occurs when a tariff on a product increases as that product moves through the value-added chain.

Low tariffs are set on primary goods with higher tariffs on finished products. An example would be a five percent tariff on soybeans and a ten percent tariff on soy oil.

This type of a tariff structure serves to protect domestic industry by allowing the import of basic raw materials tariff-free or at low rates, but with higher rates of protection on the results of value-adding processes.

Quotas : Another trade policy tool that can be used to manage the level of imports is an import quota. Import quotas are limits on the quantity of goods that can be imported into a country during a given time. In order to restrict imports, import quotas are typically set below the free trade level of imports.

This is referred to as a binding quota; a non-binding quota is a quota that is set at or above the free trade level of imports, thus having little effect on trade. There are two main types of quotas: absolute quotas and tariff-rate quotas. Absolute quotas limit the quantity of imports to a specified level during a specified period of time.

Sometimes these quotas are set globally and thus affect all imports while sometimes they are set only against specified countries. Absolute quotas are generally administered on a first-come first-served basis. Tariff-rate quotas TRQs allow a specific quantity of a good to be imported at a reduced tariff rate during the specified quota period.

Any quantity higher than that amount is subject to a higher tariff rate. The impact of a quota: The welfare effects of quotas are similar to that of tariffs: if a quota is set below free trade level, the amount of imports will be reduced.

A reduction in imports will lower the supply of the good on the domestic market and raise the domestic price. Domestic price will rise to the level where import demand meets the value of the quota.

Consumers - Consumers of the product in the importing country will be worse-off as a result of the quota, as they were with the tariff. The increase in the domestic price of both imported goods and the domestic substitutes reduces consumer surplus in the market.

Producers - Producers in the importing country are better-off as a result of the quota. The increase in the price of their product increases producer surplus in the industry. The quota case differs from the tariff case, in that box C does not automatically go to the government. It goes to the holder of the quota. The distribution of the quota rents depends on how the quota is administered. There are several possibilities: If the government auctions the quota rights for their full price, then the government receives the quota rents.

If the government gives away the quota rights then the quota rents accrue to whomever receives these rights. Typically they would be given to someone in the importing economy which means that the benefits would remain in the domestic economy. If the government gives the quota rights away to foreigners then people in the foreign country receive the quota rents. In this case the rents would not be a part of the importing country effects.

The country as a whole- The aggregate welfare effect for the country is found by summing the gains and losses to consumers, producers and the domestic recipients of the quota rents. The net effect consists of two components: a negative production efficiency loss b , and a negative consumption efficiency loss d. The two losses together are referred to as "deadweight losses. Voluntary Export Restraints VERs : A voluntary export restraint is an agreement among two governments to set a limit on the quantity of goods that can be exported out of a country during a specified period of time.

VERs establish a type of informal quota on exports that is enforced by the country that is voluntarily restraining their exports. These economic complexity rankings use 6 digit exports classified according to the HS96 classification. To explore different rankings and vary these parameters visit the custom rankings section.

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