| dc.description.abstract | Why countries trade and the economic activity that makes trade possible have been the subject of innumerable studies throughout the world. Yet countries’ circumstances are continually changing, which means that the trading landscape is fluid – as are the theories surrounding the motivation for, and impact of, trade. Broadly, countries trade because it allows for specialisation and improvement in welfare (Du Plessis, Smit & McCarthy, 1987). Welfare is increased in a number of ways. Firms engaged in trade are able to achieve economies of scale, take advantage of expanded market opportunities and spread their risk. Consumers in turn benefit from cheaper goods and more choice. In the empirical literature, it is a well-established fact that exports are good for growth and development. The rationale for and consequences of trade have been the focus of many researchers throughout history ‒ think Smith, Ricardo, Heckscher-Ohlin, and the like. In these traditional explanations of trade (such as the Heckscher-Ohlin model) trade patterns between countries depend on natural resources, skills and other factors of production. A number of assumptions are made, including that trade occurs in a perfectly competitive and frictionless (precise) world without the complication of distance or geographic features (Salvatore, 1998, 766)1.
In reality, the world is not frictionless, economic activity tends to be clustered and there are a number of impediments to exports. Where economic activity takes place or where exports originate must be taken into account. This implies that distance between markets (and ports) have to be brought into the equation, and distance gives rise to transport costs. | en_US |
