International Economics Theories and Principles in the UK
Before the application of the theory and principles of International Economics to the case study of the UK, it is necessary to have a brief look at these theories.
For the last hundred years, industries have appealed the governments for protection, and societies have debated the advantages and of free and open trade. For the last century and a half, an important argument used against protectionism was the theory of comparative advantage. Probably the best-known discussion on the issue of free trade took place in the British parliament in the early years of the nineteenth century. At that time, the landed gentry means the landowners controlled the parliament. For a number of years the imports and exports of grain had been subject to a set of tariffs, subsidies and restrictions collectively called the Corn Laws. Designed to discourage the imports of grain and encourage the exports.
The purpose of this law was to keep the price of food high and it clearly worked to the advantage of those in power (landlords). After the industrialization revolution, David Recordo, a businessman, economist, Member of Parliament and one of the fathers of modern Economics introduced the theory of “Comparative Advantage”. This theory was against the so called Corn Laws. According to this theory specialty and free trade will benefit all trading partners (real wage will rise), event those that may be absolutely less efficient producers.
This will lead to another idea that the advantage in the production of a product enjoyed by one country over the other when that product can be produced at lower cost in terms of other goods than it could be in the other country. Another concept of Absolute advantage also emerged. According to this theory the advantage in the production of a product enjoyed by one country over the other when it uses fewer resources to produce that product than the other country does.
These are the conservative and liberal trade theories in international trade. In the results of these theories the countries lead to specializing in goods and services in which they enjoy comparative advantage, with jointly helpful in efficiency gains that, in turn, give confidence in the development of countries.
Research showed different theories which declared that trade liberalization is necessary for any economy nowadays and “increased openness to trade is beneficial to economic growth and efficiency. It gives confidence to specialization in consistency with a country’s relative advantage, economies of scale due to the broadening of markets, improved management methods, better utilization of productive capacities and greater interest for innovation and technical progress in response to foreign competition.
It was the case in the United Kingdom in 1992. In the result of trade liberalization in UK, the scale efficiency increases were slight, while market-share effects were usually significant, as manufacturing shifted towards the more proficient plants. The gains linked with rising interior proceeds to scale have almost certainly been largely overcooked, while the effects of rationalizing of production divided among firms which have been undervalued. Heterogeneity among firms may also be significant in array to know the connection between international trade and labor skills. It showed that “augmentation in services at exporting plants in UK add heavily to the experimental increase in relative demand for capable labor in production sector. It is a matter of fact that growing experimental proof highlights and documents the significance of UK Company’s heterogeneity as a determinant both of trade and of its consequences.
For trade accords made with just one or a not many other countries by UK (bilateral or local agree¬ments), the effects are more compound and typically less beneficial than for multiparty accords. These accords are based on the theories of International Economics which evolved with the pessag of time.The possible gains of UK trade are lesser since the range of the liberalization is lesser, because there are potentially harmful effects due to ‘trade diversion’ and from raising the costs of trading. To enclose the benefits of any regional or bilateral accord, UK takes the advantage of globalization which adds to the likelihood that any manufacturing sequence will comprise inputs from more than one country. (Henry and Winter, p.02, 2006)
The equilibrium spatial sharing of UK economic actions depends on the equilibrium among agglomeration and spreading forces. The UK companies that situated in big marketplaces take advantage from being lock to their customers and dealers. They have an advantage from demand and supply connections.
The increasing interdependence of countries in the world economy has made the problems facing policy makers more difficult. We use to be able to think of United Kingdom as a relatively self sufficient region. In the past, economic events outside the United Kingdom borders had relatively little effect on its economy. This is no longer true because of globalization and free trade agreements like GATT (General Agreement of Trade and Tariff) and WTO (World Trade Agreement) in consequence of GATT. If the events of the past have taught us anything, it is that the United Kingdom is now a part of a global economy and more precisely says that it is one of the major players in the global economy, so the economy of UK is heavily dependent on events outside its borders. Trade Liberalization is going to be a reality.