Economics doubt

Do you think free trade can boost the economy?????
Actually i have a little doubt....
GDP=C+I+NG+NX
THEN increasing exports may boost economy.
But we also should reduce imports.to reduce imports...we must focus on home grown production....that would increase the investment.so I would be up....a massive home grown production could give massive power to export.so country should be more focused on home grown production....rather than signing free trade agreement

Reply 1

MindMax2000

Universities Forum Helper

Original post by username6109051

In principle and practice, free trade can boost economies (probably why there are quite a number of them around).

However, reducing imports is complicated in various matters. It's something you come across in game theory (a branch in economics).
For any country export to any goods, the receiving country must be willing to import those goods. If no country is willing to accept any import, there can be no exports. Why would a foreign country accept your exports if you're not willing to accept theirs? It's a political matter, as well as an economic one.
Simple supply and demand for individual goods alone might not be a good enough reason, and governments should be savvy enough to recognise that they are being taken advantage of in such scenarios. It's a similar problem with currency and exchange rates.

Also in the age of multinational corporations and where you can almost take full advantage of globalisation, you don't always need to focus on 100% home produced goods i.e. you can import raw materials and parts of a product, assemble it in one, then export the finished product in another. This takes full advantage of the comparative advantages in each individual country whilst maximising the producer surplus in any given market.
In other words, you won't even likely need the raw materials and produce everything from the ground up in just your own country to produce net exports. In fact as practice clearly shows, you can't. For a complicated finished product that uses various components, you can't source everything from any one country (no country has all such resources) e.g. computer components, modern cars, or high-tech goods.