In this survey, we provide a critical overview of the economic theory behind fair trade, describing the potential benefits and potential pitfalls. In this period, america moved from a second rate industrial power. The foreign trade also helps in bringing new technologies and skills that lead to higher productivity. Balance of trade, the difference in value over a period of time between a countrys imports and exports of goods and services, usually expressed in the unit of currency of a particular country or economic union e. It is a theory about political gains from trade of companies, countries and people that arise on account of differences in factor endowments or technological progress. These fairer trading conditions are both a means to the other two fairtrade goals, and the end goal of a fair and sustainable trading system which fairtrade aspires to.
Agent is a juristic or natural person who provides marketing or logistic services to operators, but at no time takes legal ownership of a certified product. Adam smith and david ricardo gave the classical theories of international trade. Fairtrade is a perfect fit for leading fruit and vegetable importer. These challenges include assessing the quality of data on trade and what, if any, additional resources. The fairtrade standard for smallscale producer organizations has four chapters. We have received valuable comments from david atkin, michael hiscox, marc muendler, nina pavcnik, and andrea podhorsky. Fairtrade theory of change fairtrade about fair trade. Political trade is an amalgam of generally accepted views that some american, european, and. Assume that with probability s, the worker and firm will receive an adverse, matchspecific shock that causes them to separate. No 20357, nber working papers from national bureau of economic research, inc abstract. Introduction rationale the term fair trade ft has various meanings.
Abstract fair trade is a labeling initiative aimed at improving the lives of the poor in developing countries by offering better terms to producers and helping them to organize. This paper investigates to what extent fair trade programmes, are indeed fair. Chapter 12 international trade theory and development. Laissezfaire and survival of the fittest on trial the ideas preached by adam smith, charles sumner, and john rockefeller could be backed with some important statistics. Published in volume 28, issue 3, pages 21736 of journal of economic perspectives, summer 2014, abstract. The author provided a critical overview of the economic theory behind the fair trade concepts.
During the great age of laissezfaire, between 18601915, production in the united states increased 1200%. These explanations generally include elements of one or more of three prominent theories of trade. The aim of this article is to provide a critical overview of the economic theory behind fair trade, describing the potential benefits and potential pitfalls. The subject matter of economics or economic theory has been variously defined. Section 3 uses data from a large association of coffee cooperatives in central america4 to test the theory. The economics of fair trade by raluca dragusanu, daniele.
The objective of the factory standard is to increase empowerment, including leadership, economic development, and organization. Despite some theoretical exceptions to arguments for free trade, the data suggest that free trade has worked. Academic interest in fair trade has also grown significantly over the past decade with researchers analysing the model from a wide range of theoretical perspectives. Does fair trade contribute to sustainable development. The essential theme of this essay that economics is a policy science and, as such, the contribution of economic theory to economics should be measured on how well economic theory. The function of the state was to maintain order and security and to avoid interference with the initiative. In this reader, it is used to indicate the fair trade movement, represented in particular by fairtrade labelling organisations international flo and. Although fair tradecertified products still comprise a small share of the marketfor example, fair tradecertified coffee exports were 1. The concept of theorethical international trade and main. Access status full text of the requested work is not available in dash at this time dark deposit. Where workers are present, they must have freedom of association, safe working conditions, and wages at least equal to the legal minimum or regional averages.
The views presented in this paper are those of the authors and do not necessarily represent the views of the copla programme, its partner organisations, including the odi, or its funders. Free trade is the economic policy of not discriminating against imports from and exports to foreign jurisdictions. But as paul rice, ceo of fair trade usa, explains, the future of business is quite the opposite. This comparison is made using comparative cost based models and economies of scale models. In this survey, we provide a critical overview of the economic theory behind fair trade, describing the. The fair trade usa factory standard for apparel and home goods factory standard serves workers in facilities that produce apparel and home goods. With the rise of conscious capitalism and conscious consumerism, businesses will thrive by serving all stakeholders, including the environment and those at the very beginning of the supply chain. Deep connections, shared goals, responsible business, conscious consumption, and. Fairtrade supported peruvian banana producers, workers and trade unions to establish a permanent platform for dialogue, grievances and conflict resolution in the region. The economics of fair trade raluca dragusanu harvard university daniele giovannucci committee on sustainability assessment nathan nunn harvard university paper prepared for the journal of economic perspectives. Effects of fair trade on coffee growers agricultural. According to the theories given by them, when a country enters in foreign trade, it benefits from specialization and efficient resource allocation. These theories gave the early logic that free trade could be advantageous for countries and was rest.
Thats because economic models provide insights about the world that are simply not obtainable solely by discussion of the issues. As a result, consumer awareness of the fair trade certified seal is at 63%nearly double what it was in 2008. Pdf measuring the impact of fair trade on development. These are three apparently distinct strands of economics, yet they have a common motivation. Free trade in economic theories exploring economics. As a certification scheme, our fairtrade standards, which demand minimum commitments and requirements such as on pricing, provide one of our primary and also. Mercantilism was the economic system of the major trading. The economics of fair trade american economic association. Laissezfaire was a political as well as an economic doctrine. Because coffee is the largest single product in the fair trade market see. Neoclassical economics argued that neither institutions nor wealth distribution mattered for efficiency. Effects of fair trade on coffee growers cornhusker economics october 7, 2015 the effects of fair trade on coffee growers two and a half billion cups of coffee are consumed in the world annually making coffee the secondmosttraded commodity after oil and the caffeine contained in it the most widely consumed psychoactive drug. The pervading theory of the 19th century was that individuals, pursuing their own desired ends, would thereby achieve the best results for the society of which they were part.
It is true what they say, that economists do it with models. Overview and policy challenges congressional research service congress faces a number of challenging policy issues relative to trade and the impact of trade agreements on the u. Fortunately, there is now a good deal of data on trade and protection from numerous countries to use in assessing the role of trade in economic performance. The economics of fair trade by raluca dragusanu, daniele giovannucci and nathan nunn. Improving business through fair trade the motley fool. Classical theories of international trade international economics, course 2 1. Fairtrade standard for small scale producer organizations. International trade and main classic theories theorethical article keywords international trade, trade flows, theories of international trade abstract taking into account the major impact that international trade has on the economy and on the peoples lives, and considering its effects on the economic growth, the foreign commerce has to be well. We also provide an assessment of the empirical evidence of the impacts of fair trade to date. The fair trade market is growing because of businesses dedication to fair trade usa standards. Theory and policy is built on steve suranovics belief that to understand the international economy, students need to learn how economic models are applied to real world problems.
Measuring the impact of fair trade on development downloaded by. There has been a lot of controversy among economist about the true content of economic theory or its subject matter. A survey of the economics of fair trade fair trade has spread in developing countries as an initiative aimed at lifting poor smallholder farmers out of poverty by. The impact of our work we support small scale farmers and workers who are marginalised from trade in a variety of ways and carefully monitor the impact of fairtrade on these communities. He demonstrated that if two countries capable of producing. Classical political economy, as well as neoclassical theory, embraces free trade.
It is not just an intellectual pursuit for its own sake, but it plays an essential part in economic research. Fair trade is a labeling initiative aimed at improving the lives of the poor in developing countries by offe. For more information on dark deposits, see our faq. General requirements, trade, production and business and development. The classical trade theory, which forms the basis for economic integration theory, has its origins in the literature on political economy from over two centuries ago. The general requirements chapter sets the requirements related to the certification process and to the scope of the standard. The balance of trade is part of a larger economic unit, the balance of. This is accomplished by comparing fair trade with free trade and protectionist trade regimes on their compliance of the criteria set by the fair trade movement itself.
This is not to argue that such analysis captures the full reality of fair trade but, since the arguments against fair trade are. Fair trade is a labeling initiative aimed at improving the lives of the poor in developing countries by offering better terms to producers and helping them to organize. The economics of fair trade 221 4 working conditions. An interview with mike port, ceo of port international, first fairtrade banana importer to europe. These terms may appear either in this fairtrade trader standard, or in the fairtrade product standards. According to adam smith economics enquires into the nature and causes of the wealth of nations. Over the past 10 years the sales of fair trade goods particularly those carrying the fair trade labelling organizations international flo certification mark have grown exponentially. International trade and its effects on economic growth in. There has been considerable controversy in the literature on the effective ft price premium, ranging from highly.
The heckscher ohlin theory is based on most of the assumptions of the classical theories of international trade and leads to the development of two important theorems a heckscher ohlin theorem and b factor price equalization theorem. Chinese international trade has experienced rapid expansion together with its dramatic economic growth which has made the country to target the world as its market. International trade and its effects on economic growth in china international trade, as a major factor of openness, has made an increasingly significant contribution to economic growth. Chinese trade with other countries, such as india or the us.
Chapter 4 the theory of laissezfaire digital history. In that event, a firm has to find a new employee, and a worker has to find a new employer. Ohlin theory or modern theory of international trade. Although fair trade certified products still comprise a small share of the. Whether fair trade can achieve its intended goals has been hotly debated in academic and policy circles. Buyers and sellers from separate economies may voluntarily trade without the.