Effects Of Trade Liberalization On Development

Published Date: 02 Nov 2017

Nowadays, with more and more voices about globalization, trade liberalization has become a controversial topic in the world. There is no simple answer to judge whether free trade is good for development or not. In terms of free trade, developing countries may prefer it because they can gain profit and benefit from export based on comparative advantages. On the other hand, developed countries may worry about the competitions from developing countries; as a result, they set tariff and quota on import to prevent free trade. With China becoming the biggest export country, Liu Qiang (2008) pointed that exports have caused a huge amount of energy resource consumption and carbon emission and added pressure to the country for a sustainable growth. Meanwhile, based on Krugman (2006), trade may intensify inequality among countries and industries. From the positive side of free trade, Shafaeddin (2005) illustrated that trade liberalization is essential when an industry reaches a certain level of maturity. Free trade also can promote the competitions among companies and use of efficient technology. In terms of economic growth and poverty problem, Dollar and Kraay (2001) asserted that free trade contributes to rising incomes and falling poverty and enabling some of the poorest countries in the world to catch up with richer countries. From my perspective, free trade is a tool to quicken poor countries’ economic development based on extensive productions and effective using of resources. In addition, it is also an opportunity to study from developed countries and reduce the gap between them. Although environmental and inequality problems are serious in developing counties caused by trade, the examples of East Asia and South America can reflect more advantages of trade liberalization to development undoubtedly.

Inequality is the biggest problem of developing countries that social conflicts will happen and poverty will not be recognized in further development. Anti-globalization people assert that free trade creates an unequal distribution of income between developed and developing countries. In open economy situation, many foreign companies gained many profit from foreign direct investment on developing countries. However, the local labor people just gain a little salary from production compared with developed countries’ labor force. Then, income distribution was unequal by free trade. Just like Todaro and Smith (614) said in textbook that enclave economy in developing countries, citizens were hard to get benefit from free trade and multinational companies; meanwhile, a number of incomes went to rich countries which own these foreign direct investments. Unequal distribution of income also existed among different industries. Many export orientation industries have more bargaining power than other sectors that government subsidize and offer good welfare to these export industries for encouraging export. Workers are better paid in export and foreign-funded firms than in local enterprises (Jiang, 2009). By free trade, export orientation industries are easy to enter developed counties’ market. With a new demand group, export industries can gain a big profit than other sectors. Unbalanced income distribution will deteriorate poverty and inequality of developing countries by free trade.

Meanwhile, free trade makes local bad environment and let developing countries have unsustainable development of resources using. Liu Qiang (2008) said that foreign buyers enjoy the product welfare, but the extra social costs of production are borne by the local people in China. In Africa and Latin America, they exported labor-intensive and energy intensive products to developed countries. As a result, resource exports and exports of labor-intensive products devastate both economies and environments of Latin America and Africa (Guruswamy & McNeely, 2010). Overuse of land and unrenewable resources can hurt local living conditions and environment. Faced with sustainable development, environment is the most serious problem of developing countries because many of them have dropped into the cycle of poverty and bad living condition without any helps.

However, many developing countries have got benefit and make an impressive economic growth in the world. With the Asian four tigers’ rapid economic growth based on outward-orientated development strategy, they have better performance in terms of export, economic growth and employment than others (Gereffi, 1989). Their trade liberalization promote volume of trade enlarge and improve productivity and efficiency. Meanwhile, China, India and Brazil’s exports have accounted for large percentage of GDP. Their cooperation and interdependency has experience success by trade with a big income. We can’t neglect a fact that middle developing countries have more exports than least developed countries. China’s trade helps to decrease the poverty and increase income per capita. It eases the pressure of limited per-capita resources (Jiang, 2009). Meanwhile, resources can be distributed effectively based on comparative advantages of local economy. More and more employment opportunities are generated by trade because of more benefit and profit there. In terms of some oil countries especially the members of OPEC, they need to trade oil as resource advantages to improve native economy, to get out of control of developed countries as soon as possible. In Gonzalo and Ataman’s (2006) paper, they thought that trade liberalization has been followed by an acceleration of growth in investment, exports of goods and services, and manufacturing exports. Free trade also can absorb more foreign qualified experts to lead local economy to start technological innovation and industrialization for more competitive power in international market.

An effective and competitive market is the goal of every country. Trade liberalization can incent developing countries to have more competitive industries. In the process of industrialization of developing countries, every company needs to study developed countries’ technology to increase efficiency. Opening-up enables to introduce and learn from international experiences, rather than starting from scratch (Jiang, 2009). Meanwhile, free trade can make every sector compete with foreign companies without government special protection. Effective competition can improve the speed of reform of industry. Meanwhile, without intervention of government, a fair atmosphere helps companies have more motivations to invest in production and reform for higher efficiency. With all sectors to engage into production, a fast economic growth and income from trade can benefit every citizen. As a result, every citizen improves living qualification and gets out from poverty by free trade. As a result, poor countries should open trades initiatively for further development and encourage competitions among every industry for economic development.

In conclusion, admittedly, trade liberalization may hinder development of developing countries because of bad environment and inequality. However, with more and more developing countries such as Asian four tigers and China have experienced successful economic growth by export-orientation strategy, free trade can help developing countries to have more competitive powers and bargaining powers in international market. Compared with benefit from free trade of many countries, many poor countries did not open trade initiatively; instead, they just wait for international aid. As a result, they can’t get benefit if they do not make some changes for free economy. Meanwhile, they need to find their comparative advantages and avoid from overuse of unrenewable resources in sustainable development way. At last, interdependency and globalization become more and more important to every country because no country can separate from global level in a collective economy nowadays. Poverty, environmental problem, inequality can be better-off under international aid and free trade. Meanwhile, rich countries need to wipe barriers of trade as role model to better help poor countries out of bad cycle.