f a large number of developing nations, while the other group is of the view that trade had adversely affected economic growth of developing nations in particular. Over past few decades, extensive work has been done in this field by employing various statistical models and has been criticized on grounds of assumptions and validity.
Therefore, purpose of this paper is to investigate the positive developments to economic growth arising from trade and the reasons for which these gains are often not realized. This paper first analyzes positive impacts to economic growth that could be directly attributed to trade. Then, the paper studies empirical evidence from a host of nations in order to verify whether or not these advantages are effectively realized. The aim is to see whether trade always accrues benefits for nations, thereby contributing to their economic growth.
The existing literature points out that there a large number of benefits that can be derived from trade. Researchers have also differentiated between static and dynamic impacts, which could be achieved from trade between nations. Static gains are related to improvement in social welfare with fixed amount of input and dynamic gains from trade refer to change in the production structure due to adoption of new technology (Didier & Pinat, 2013). Firstly, trade helps in alleviation of poverty by increasing opportunities for commercial investments. It also helps in development of the private sector by boosting their sales from increased demand. Secondly, trade helps in enhancing competitiveness of developing countries by reducing the cost of inputs and adding value to their products. Rising trade brings in more investments for countries, which in turn improves infrastructure and quality of lives of individuals. Thirdly, trade has also been identified as a major vehicle for export diversification that can be achieved by developing countries.