|Type of paper:||Research paper|
|Categories:||Macroeconomics International relations Foreign policy|
Free trade is the economic concept that entails the exportation and importation of goods and services by foreign nations within a country whose government does not interfere with this trade. Developing countries engage in free trade to keep abreast with the rest of the world markets. It means that the governments of these countries do not impose any limitations, export/import bans, embargoes, or tariffs. In the long run, there are various benefits than demerits that accrue to the developing counties that allow free trade within their borders (Liapis, 2013). This paper explores how free trade helps developing nations around the world.
Free trade agreements enable developing countries to have a platform through which they can increase their natural resources. Developing nations with scarce economic resources can acquire extra land, capital, or even labor in other countries to advance their economic interests. This also serves as a catalyst for economic growth because the developing country can manufacture consumer goods and services. The exchange of goods and services between different countries stimulates various sectors of the economy that witness growth and development over time. A relatively progressive economic development of a develop country creates a competitive edge in the global trade.
Free trade allows the importation of goods and services that the developing country lacks. The importation of goods that are in shortage creates a constant flow of goods and services for the local market. The citizens of these countries explore their options and preferences according to the variety of goods and services imported to their country. This eventually leads to an improved quality of life among the citizens of the developing country (Morton & Tulloch, 2012). Equally beneficial to these countries is the high rate of employment brought about by the influx of foreign entities. The foreign companies move in their operations thus creating job opportunities.
The contemporary world is grappling with the threat of terrorism and other extremist groups. Developing countries have borne the brunt the conflict brought by the actions of such groups because these countries serve as hiding dens or bombing sites. Developing countries get protected from these international threats by partnering with powerful countries through free trade agreements. Free trade benefits the developing nations by improving their foreign relations with other international players in the global geopolitical scene. It eventually improves the diplomatic stand of the developing countries with other developed countries that can safeguard the national security interests of the developing countries.
Free trade is helpful to the developing country because it enhances the production efficiency of these nations. This is evident in the areas where the developing country excels in manufacturing various goods or services. It, therefore, means that they have to improve on the production process and the quality of goods that they produce in abundance. It is through free trade that these countries get to perfect their manufacturing procedures due to the exchange of ideas with other developed nations. Obtaining the latest information on the most recent technological advancement or production process helps the developing countries to compete efficiently (Tarzi & Emami, 2014).
The lack of technology and exploitation of cheap labor are some of the reasons that drive developing countries into using child labor in most of their manufacturing plants. Free trade intervenes by allowing the importation of production machines and the employment of citizens in developing nations. Companies that set up their operations in developing nations bring in manufacturing equipment while they also pay the local employees relatively better wages. A combination of these factors saves children from being used for labor and instead they get enrolled to schools. Free trade eliminates child labor that destroys the future of children.
Besides bringing in foreign companies by opening up the domestic market, developing nations also benefit from free trade by selling their surplus products and services to foreign markets. They are able to acquire new customers for their products and services by accessing new lucrative markets in foreign countries. Industrious businessmen and start-up entities from developing countries are able to compete as well as explore the latest technologies due to the absence of barriers like tariffs and trade bans. They can tap new markets and sell their goods freely without restrictions; besides continuously innovating to keep up with the global competitors ad demand.
The removal of trade restrictions and the lack of government intervention in free trade agreements attracts foreign investment to the developing country. The influx of foreign direct investment ensures that the economy benefits from higher levels of investment capital that triggers an increases cycle of productivity. All facets of the economy experience the benefits of high capital flow including the crucial banking sector that anchors the economy through more lending and capital investment. A high number in investors flocking in a developing country raises the profile of the country in question hence increasing investor confidence, which subsequently brings even more foreign investors.
Another beneficiary of the economic growth and development brought about by free trade is the increment in the life expectancy of the citizens of a developing country. The start experiencing lower number of the sick and hungry people thanks to a better standard of living that enables them to afford proper meals and medical care (Gruni, 2018). The majority of the developing nations' citizens can access preventive healthcare services that include timely vaccinations and routine medical check-ups. A large number of people, starting from the young children, attend school regularly and are educated. These factors increase the lifespan and minimize infant deaths.
The importation of production machines not only enhances the production efficiency of developing countries but it also facilitates the transfer of technology. Multinational corporations bring the latest technological advances and train the local employees hence enabling a transfer of professional and technical skills (Upendra, Edirisuriya, & Swarup, 2013). The foreign entities also possess the expertise required to exploit the majority of natural resources found in developing countries. Local individuals and firms benefit from working hand in hand with multinational entities to maximize the benefits of their natural resources. This includes different economic sectors that range from mining, manufacturing, to even oil drilling.
However, there are counterarguments to the benefits that developing countries accrue from free trade due to the disadvantages involved. Developing countries benefit from free trade agreements by venturing into foreign territories and establishing new plants that operate to serve the new customer base. They do this through sourcing raw materials and labor from the market in which they operate. This effectively means that they increase unemployment by outsourcing job opportunities to foreign markets. The domestic industries are also forced to trim their labor force or fire all their employees due to the influx of cheap imports (Hunter-Wade, 2015). Free trade contributes to the job losses in domestic manufacturing plants.
The stealing of intellectual ideas by developed nations from developing countries is another negative of free trade that hurts developing nations. Developing nations get exploited through the theft of their ideas because they lack or have weak laws governing issues to do with patents, copyrights, new processes, and inventions. To make matters worse, the developing countries have weak systems to enforce the laws they have protecting intellectual properties. Foreign multinational entities take advantage of this situation to steal the intellectual ideas of individuals and other local firms under terms that only favor the foreign companies. Developing countries end up losing this way.
Another counterargument against the benefits of free trade agreements to developing countries lies in the fact that they undergo massive environmental degradation at the hands of foreign entities (Devadoss, 2015). Their natural resources are exploited in the most environmentally harmful ways that may be detrimental to the health and climate of the developing country's citizens. The matter is further exacerbated by the lack of clear environmental protection laws that would facilitate the conservation of natural resources like indigenous forests. Developing countries suffer substantial losses in mineral resources like minerals, lumber, oil drilling sites etc. This eventually leads to strip-mining and deforestation that are environmentally harmful.
Free trade also impacts developing countries negatively by killing off the local manufacturing industries (Fletcher, 2012). Developing countries comprise of nascent industries that are small or medium-scale in nature. This makes them unable to compete with the established brands in the form of foreign entities from developed countries. As such, the free trade agreements tend to favor the foreign corporations because they eventually crowd out the budding manufacturing plants found within a developing country. Even sectors that propel the economy of these countries like the farming sector are adversely affected by the influx of foreign agri-businesses that are sub-subsidized by their governments.
In a nutshell, the above discussion provides compelling evidence that free trade helps developing nations more than it hurts their economy. Free trade agreements are beneficial in various ways although there have been some noted limitations attached to this economic concept. The biggest win for developing countries is the economic stimulation brought about by the foreign direct investment. This is because this creates employment thus empowering the local residents to have a purchasing power that ultimately raises their living standards. However, free trade agreements also expose the developing nations to environmental degradation, loss of jobs that are externally outsourced, and crowded out industries.
Devadoss, S. (2015). Why do developing countries resist global trade agreements? The Journal of International Trade & Economic Development, Volume 15, Issue 2, Pages 191-208. doi: 10.1080/09638190600690895
Fletcher, I. (2012, May 25). Free trade isn't helping world poverty. The Huffingpost.
Gruni, G. (2018). The EU, world trade law, and the right to food: Rethinking free trade agreements with developing countries. Portland, Oregon: Hart Publishing.
Hunter-Wade, R. (2015, August 10). Why free trade has costs for developing countries. Financial Times.
Liapis, P. S. (2013). Preferential trade agreements: How much do they benefit developing economies? Paris: OECD Publishing.
Morton, K. & Tulloch, P. (2012). Trade and developing countries. Routledge.
Tarzi, S. M. & Emami, A. (2014). Developed vs. developing countries and international trade liberalization: A comparative analysis. The Journal of Social, Political, and Economic Studies, Vol. 39, No. 1.
Upendra, D. R., Edirisuriya, P., & Swarup, A. (2013). Regional economic engagements and the free trade agreements: Analytical insights and policy options. Singapore: World Scientific.
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