Introduction
The international trade in the US grew much faster after the Second World War. Trade between the United States and the rest of the world has played a significant role in the growth and development of the US economy over the past years. Since the US is a superpower nation, other countries view trade with the country to be quite important.
There are a number of benefits that arise from the trade relationship between the US and the rest of the world. First, the exports and imports of goods and services result in an improvement in the standards of living of the citizens. This comes about because exports generate revenue to the economy while imports increase the amount of commodities available for consumption. This further leads to a reduction in the prices of goods and services.
On the other hand, international trade has a negative impact on the economy in a number of ways. A major drawback is the risk of survival of the domestic industries. Economists claim that international trade results in the reduction of job opportunities and wages. This can be attributed to the fact that an increase in import leads to a reduction in the amount of goods and services produced by local firms. On the contrary, surveys show that the imposition of restrictions on trade does not favor both consumers and the producers.
Aim of the paper
The paper seeks to analyze the impact of export on the US economy. Specifically, the paper will analyze the impact of foreign trade on GDP, standard of living (measured using per capita income), and other variables.
Literature review
There are several studies that have been carried out to analyze the impact of export trade on the US economy. Besides, there has been continuous debate on the trade-off between the positive and negative impact of trade on the US economy. The result of these studies has called for the needs to come up with policies that create a balance between the negative and positive impact of trade. An example of such study was carried out by James Jackson in the year 2013 (Jackson 6b).
In the study, Jackson used the computable general equilibrium model that integrates data on export trade and other economic variables for about 100 countries. The author also made use of the Michigan Model and Estimates as an extension of the computable general equilibrium model (Jackson 16b).
The study was based on cross sectional secondary data. Jackson observed that export and import trade enables countries to use their resource endowment more proficiently. This enables them to maximize the variety of goods and services they provide to their citizens. It also results in an increase in the standards of living (Jackson 11b). The author further stated that the economies of the world engage in trade with an aim of maximizing their national interest.
Jackson further pointed out that nations engage in trade on the basis of comparative advantage. The author stated that individuals within a nation will tend to focus on areas they have strong skills. Based on this, the citizens will focus on the production of goods and services in the areas they have comparative advantage and exchange with countries that produces other goods and services (Jackson 14b). This creates the concept of exports and imports in international trade.
In the paper, Jackson stated that export trade alone does not account for the economic expansion or contraction of key variables in the economy such as income level, output level, wage rate, and distribution of income because exports accounted for only about 14 percent (in the year 2012) of the GDP of the country (Jackson 11b).
However, the author stated that from a production point of view, import and export trade leads to movement of both labor and capital from productive sectors of the economy to less productive sectors. This strengthens specialization and improves efficiency in the economy.
The research conducted by Jackson further reveals that the movement of capital and labor from one sector of the economy to the other results in an adjustment of costs and improvement of efficiency. Jackson had the same findings in the earlier research paper that was published in the year 2008 (Jackson 27a).
The second study was conducted by Robert Krol in the year 2008 (Krol 1). In the study, “the author carried out a review of the empirical studies that evaluate the impact of foreign trade on the US economy” (Krol 3). Specifically, the author focused on the factors that cause an increase in import and export trade, the positive impact of foreign trade, the effect of international trade on employment and wages, and the cost of restrictions on foreign trade. Krol reviewed the work of various scholars and came up with a number of observations (Krol 4).
To start with, Krol observed that the concept of comparative advantage was a key motivator for international trade. This implies that countries still engage in trade on the basis of their comparative advantage (Krol 4). Further, Krol observed that there are a number of factors that explain the growth of import and export trade.
The study showed that the growth of income explains about sixty six percent of growth in foreign trade, trade freedom accounts for twenty five percentage of the growth of foreign trade and a decline in the transportation cost explains the rest of the expansion of foreign trade (Krol 4).
Thus, it can be observed that the three factors explain the growth in international trade. The study also pointed out that a change in government policies on foreign trade had a significant impact on the expansion of foreign trade. A change in any of the factors will result in a change of the volume of international trade. The research further indicated that an expansion of international trade has contributed to a high rate of growth in the economy.
It also contributed to the growth of income in economies that are open. The author has indicated that a unit growth of trade results in a unit growth of per capita income (Krol 4). Further, removal of trade barriers across the world will result in an increase in the growth of world income by approximately $2 trillion. Such action will result in the growth of income of the US economy by about $500 billion.
Further, the research shows that free trade between nations result in significant economic benefits. Further, Krol observed that competition that arises as a result of free trade results in lower prices of goods and services. Besides, such competitions lead to an increase in the variety of goods and services that are being offered to the consumers (Krol 4).
The final research was conducted by Oscar Afonso in the year 2001 (Afonso 1). In the paper, the author attempted to explain the economic theories that explain the impact of international trade on economic growth. In the study, Afonso focused on “the impact of international trade (from a commercial and technological aspect) on physical accumulation and quality of productive factors” (Afonso 1). The author observed that during the classical period, international trade had a positive impact on economic growth.
The research further shows that during the neoclassical period, import and export trade did not have an impact on the economic growth of the nations that were being analyzed. This situation was experienced until the 1960’s (Afonso 27). Further, the author stated that the recent theories have explained better the positive relationship between international trade and economic growth. Afonso also pointed out that there is significant empirical evidence to show that trade liberalization affects economic growth positively.
The author pointed that in developed economies, trade liberalization increases the domestic rates of innovation. Finally, Afonso pointed out that the effect of international trade varies depending on the level of growth and development of the trade partners, the level of technological development, and level of human capital development.
Thus, the author stated that countries cannot achieve equal results from international trade. Based on the literature review above, it is evident that engagement in export trade generates positive results on an economy. Thus, data for the US economy will be collected to verify the above findings
Data
A comprehensive internet research will be carried out as part of secondary research on the available data on export trade on the economy of the US. The data will comprise of export of good and services, import of goods and services, total investment, gross national savings, foreign direct investment, employment, and GDP per capita.
Specifically, the data will be retrieved from the US Bureau of Commerce website (US Department of Commerce 1). The source is reliable because it is updated by the US Department of Commerce on a periodic basis. The data will cover a period of 33 years that is, between 1980 and 2012. The values of these variables are presented in exhibit 1.
Discussion
To analyze the impact of export trade on the economy, it will important to first analyze the degree of association between the variable. This will be measured by the correlation coefficient. The correlation coefficient matrix is presented in exhibit 2.
The correlation coefficient matrix indicates that there is a strong positive association between the export of goods and services and import of goods and services (0.9652), total investment (0.8289), gross national savings (0.7628), foreign direct investment (0.7739), employment (0.9262), and gross domestic product (0.9546). This implies that an increase in revenues from export will result in an increase in the other variables.
Apart from the establishing the degree of association between the variables, the coefficient of the variables can also be established to determine how a change in variable will result in a change of the other variable. This can be achieved by carrying out a regression analysis.
A simple regression will be carried out to determine the effect of exports on the other variables. The result of regression analysis is presented in exhibit 3. The positive coefficients in the regression analysis indicate that an increase in export by one unit results in an increase in the values of import (by 1.4734), total investment (by 0.948), gross national savings (by 0.6161), foreign direct investment (by 0.2009), employment (by 0.0355), and gross domestic product (by 6.3202).
Conclusion
The paper carried out an analysis of the impact of export trade on the economy of the US. Secondary data was collected to analyze the impact of export trade on various economic indicators. The study shows that indeed the export trade has an impact on the economy of the US. Specifically, export trade has a positive impact on total investment, gross national savings, foreign direct investment, employment, and gross domestic product. The results are consistent with the observations in the literature review section.
Exhibits
Exhibit 1 – Data
Source of data – US Department of Commerce 1.
Exhibit 2 – correlation coefficient matrix
Exhibit 3 – summary of regression output
Works Cited
Afonso, Oscar 2001, The Impact of International Trade on Economic Growth. Web.
Jackson, James 2008a, Trade Agreements: Impact on The US Economy. Web.
Jackson, James 2013b, Trade Agreements: Impact on The US Economy. PDF. Web.
Krol, Robert 2008, Trade, Protectionism and the US Economy. PDF. Web.
US Department of Commerce 2013, US Economic Accounts. Web.