Why does trade between countries help prosperity?

Many people might say that the answer depends on your politics.  But the most open trading economies in the world do tend to be comparatively wealthy.  Most of those which seek to cut themselves off from the rest of the world (I won’t name them but you know which countries I mean) tend to be comparatively poor.

If you look at what happened to Japan or China after they liberalised their economies and started trading globally you can see the effect.

This matters to Turkey because, as in many countries, concerns are sometimes expressed that “foreign” companies may be seen as less good for the country than, or should be treated differently from, “home-grown” companies or those which set up manufacturing bases here.

In fact, things are not that simple.  The figures show that companies operating internationally often maintain competitiveness by buying products where the price/quality mix offers the best value and moving them across borders.

Since I’ve been in Turkey I’ve been struck by two great examples of this.  One is the British company JCB, which manufactures some of the best construction machinery in the world and exports it around the globe.  Turkey is an important market for JCB and I enjoy watching their products at work around Istanbul.  But in fact JCB exports more goods from Turkey – around TL 300 million a year – than it imports into Turkey – around TL 280 million.  So net JCB exports from Turkey are around TL 20 million a year – helping to cut Turkey’s current account deficit.

Another interesting example is the company Tesco Kipa.  Tesco is based in the UK and operates in 13 countries.  In Turkey, Tesco Kipa now has more than 180 stores in 24 cities and around 10,000 employees.  But it actually imports into Turkey fewer goods (value: around £27 million) than it exports from Turkey (value: around £115 million).  This means Tesco Kipa has net exports from Turkey of around £88.3 million (TL 253 million) per year – again, helping the current account deficit.  Indeed, Tesco sources a number of products in Turkey, such as hazelnuts and clothing, which are exported to many markets.

Britain has thrived for centuries as a relatively open economy prospering through trade.  Companies such as JCB and Tesco show why such trade is beneficial to all the countries concerned – especially, in this case, Turkey.

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