Background

Imagine that you work for the World Bank and you have been called to Ghana to aid the new president to come up with a new international trade strategy.

You are told that the new government is interested in moving away from agriculture and into manufacturing. To do so, the government wants to pursuit a policy of import substitution industrialisation (ISI).

You are given a brief about Ghana highlighting the following points:

• About half of Ghana's population depends on agriculture, but Ghana still imports some of its food.
• The majority of Ghana's people live in rural areas and exist on a subsistence way of life.
• Ghana has one of the highest rates of income inequality in the world.
• Nearly half of the population is employed in agriculture.

QUESTION B.1

Why would Ghana trade with a country that is very similar to it? Will trade between Ghana and an almost identical neighbor be governed by comparative advantage?