Does free trade help or hinder the development of the world’s poorest nations?

Over the recent past, evidence of how trade has become an imperative component of economic growth development, as well as making positive impact in people live has emerged.  Besides, debate on free trade has increased considerably. In fact, global integration has been able to lift millions of people from poverty (Bhagwati & Srinivasan 2002).  Therefore, I agree that free trade help in developing the world’s poorest nations. One of the ways how free trade helps in developing these nations is through foreign direct investment. One of the reasons why world’s poorest nations are not able to develop economically is because of lack of technology and manufacturing capability. However, with free trade developed countries can invest in these nations which may help in creating employment in the country and help in development and economic growth.  For instance, when China entered the World Trade Organization, it opened ways for Anglo-American institution to enter China and do business thus creating a form of market-liberal (McNally 2012).  Besides, China opened to foreign direct investment especial to Europe who used China’s coastal areas for manufacturing. This was possible because of a freer trade that allowed FDI. The benefits of FDI in China have been evident. This means that a free trade trigger FDI, which in turn can enhance economic growth of a country. As previously stated poorest country lacks manufacturing capability hence allowing FDI through a more freer trade help the countries to acquire the technology and knowledge used by the foreign investors, which in turn is used to increase productivity and economic growth.

 Another way that free trade helps in developing world’s poorest nations is by forcing the domestic firm to shape up and improve their efficiency, which improves the productivity.  Contrary to the common belief that free trade destroys domestic firms, a freer trade could trigger these firms to become more efficient in order to compete with the foreign firm.  When firms are not protected by high import tariffs they tend to improve their productivity.  Besides, when the firms that are most efficient are expanded to export market they tend to become more efficient and in turn, leads to development as well as the growth of the country. For instance, the China export model has been favoured by its entrance in the WTO in 2001 (McNally 2012). This means that most of the firms could access the export market and hence they expanded which impacted the economic growth of the country. This is the case with the poorest countries across the world. When free trade is made possible, they are able to access the export market, which increases the return to their countries. For instance, a country may be able to access export market in a product which they are efficient in producing. This means that the overall return of such a nation will increase due to ready export market.  In addition, a more freer trade help in shifting the market from less efficient to more efficient producers, which in turn improve the aggregate productivity.

 Free trade characterized with lower trade tariff can enable the country in accessing cheaper yet sophisticated inputs from abroad.  This is a crucial aspect as it can enhance the manufacturing sector of the poorest country.  In this light tariff-free trade enables these nation to import from other countries and they can use the import to enhance their productivity, which in turn increases economic growth.  Besides, through its growth model, China has been able to incorporate foreign technology and this has been possible through a freer trade with other nation (McNally 2012). This, in turn, has enabled it to produce more products and export, which has increased the overall return to the country. In the advent of technology, it is critical to be more engage in free trade so as to have access to the world’s most advanced technology especially the most advanced manufacturing technology.  Therefore, this section argues that free trade can help the world’s poorest countries by allowing them to access cheaper equipment, accessing export markets as well as foreign direct investment, which play a considerable role in economic growth of these countries.

References  

Bhagwati, J., & Srinivasan, T. N. (2002) Trade and poverty in the poor countries. American Economic Review92(2), 180-183.

McNally, C. A. (2012) Sino-capitalism: China’s reemergence and the international political economy. World Politics64(4), 741-776.

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