The Terms Of Trade, Comparative Advantage And Economic Growth

As the foundation of the international trade theory, the theory of comparative advantage has had a far-reaching influence on the externally oriented economy. But the traditional trade pattern always ends in the vicious circle of "comparative advantage trap". The terms of trade, which is an index of a country’s welfare in trade, can reflect the gains from international trade. In this paper the comparative advantage and terms of trade are combined innovatively with consideration of static trade benefit index, in order to make a comprehensive analysis of Zhejiang’s foreign trade status. Currently, the foreign trade in Zhejiang province gradually shift to the quality of development from the pursuit of speed.The current international environment changes, especially the international financial crisis bring Severe challenges on the development and transformation of foreign trade, therefore it is necessary to clear up accurately the foreign trade situation of Zhejiang province.This paper basis on related theory, analysis the existing comparative advantage and the terms of foreign in Zhejiang province, then try to find out the relationship among the comparative advantage, terms of trade and economic growth by applying appropriate method of measurement. The major conclusion in this paper are as follows:(1) Analysis on comparative advantage trap:In the foreign trade of Zhejiang province it is only labor-intensive products maintain a high comparative advantage,.There is no clear appearance of general characteristics of the "comparative advantage trap", but do not rule out the risk in some industries. Despite the labor-intensive products, such as textiles and clothing, have a strong comparative advantage while the net barter terms of trade did not present an improving trend, hence this kind of goods is still in the risk falling into "comparative advantage trap ".More attention should be paid.(2) The relationship between net barter terms of trade and the regional economic growth:There is a long-run equilibrium relationship, the economic growth of Zhejiang Province has a significant impact on the terms of trade. Besides, the study find that the terms of trade have a influence on the trade balance, there also exists a long-term equilibrium relationship between them. And it’s a negative correlation between the volatility of terms of trade and economic growth,which means a bigger volatility is very likely to lead to a regional economy falling into the trough of economic growth.