The growth of the economy has been largely attributed towards trade liberalization as it has accelerated the pace at which economy is growing. This paper will evaluate the manner in which trade liberalization has contributed towards economic growth in comparison to economies not adopting trade liberalization. Economies around the world started to adopt trade liberalization policies in the 1980’s which gained pace during the 1990’s as most economies started to practice trade liberalization. It was seen that economies that adopted trade liberalization were witnessing a faster rate of growth compared to economies which didn’t adopt the practice of trade liberalization. This thereby forced economies to look at trade liberalization in a positive framework as it was supporting high growth rates and made economies to move from traditional mechanism which was followed.
It was witnessed and is still practiced in certain regions of the globe where measures like protectionism are used so that the local industry can be protected against other players. These economies are against the policy of free trade and looks at safeguarding the local industry. Research has shown that no economist proposes trade protectionism but instead proposes free trade but still economies to protect the local industry look at having a certain degree of protectionism. This is correct to a certain extent but economies along with it have to practice the concept of free trade so that better economic growth and development can be achieved (Krugman, 2003). Having a mix of both protectionism and free trade will help to gain from both as it will protect the weak industries and at the same time foster other industries to grow and face competition at a higher level. This has brought forward varied reasons for economies to look at trade liberalization so that better growth rates can be achieved. Some of the reasons which has been identified towards trade liberalization are as
Trade liberalization through the policy of open trade helps to reduce cost and brings efficiency in the local and domestic industry. Dealing with international players provides an opportunity for the domestic industry to deal with strong competition which increases the chances of the organization to become more efficient and improve the manner in which different work is carried out. It increases the opportunity as us of technology can increase, easy availability of foreign inputs and materials will help to control cost and reduce wastage. The process provides an opportunity to use new ways and mechanism to become more efficient. It also creates an opportunity where the goods and services can be sold to a new market thereby increasing the opportunities and providing bigger markets (Krueger, 1998). On the whole it will ensure that better economic growth can be achieved through the process of trade liberalization as cost can be reduced and overall efficiency can be improved. This will help the domestic economy and would provide a dimension through which use of resources will improve and overall wastages will be reduced.
Economies following the policy of trade liberalization witness better consumer surplus as they are better satisfied. This is primarily on the backdrop that products and services are provided to the customer at a lower cost. Free trade reduces protectionism and the local industry has to deal with international competition. This thereby ensures that the consumers are better off as any inefficiency will be reduced and consumers will be provided with products at competitive rates. The process thereby ensures that consumers have a bigger bargaining power which helps them to dominate in the market and provides an opportunity to get better products and services. This has a positive impact on the economy as consumer purchase more products at lower cost. This increases the money supply in the economy (Krugman, 2013). The demand for more products results in increased investment which thereby creates more employment and helps the economy to achieve higher economic growth which would not have become possible without trade liberalization. One such direction is the agriculture industry which has gained from open trade as it has helped to improve production, control cost and ensure that people are provided with better products as per their needs and requirements. The process has enabled economies to identify the direction they need to work in the future and the manner in which better growth rates can be attained. It has also helped economies to understand the areas that different world economies are focusing on thereby increasing the opportunity to develop the local markets so that goods can be produced at competitive rates which would help to improve growth rates.
Following the policies of trade liberalization helps in the long run as it reduces the restructuring cost. The economies through the process of trade liberalization witnesses increased competition. This reduces the cost as different players look to dominate the market. This has an impact on the incapable players as they are not able to compete with the market forces. This results in the incapable players moving out of business. As a result the degree of unemployment rises but for a short period of time. Consumer’s disposable income increases primarily due to the fact that products are available at lower cost which thereby increases the demand for goods. In the long run the demand increases which thereby increases investment leading towards increased employment (Krugman, 2008). As a result in the long run restructuring takes place as market becomes more efficient and the incapable players are removed from the market. The other players still present in the market are able to develop the required fundamentals which strengthen their working style and ensure that they are able to deal with competition in a better way. The process thereby focuses on the dimensional aspect of business which strengthens the manner in which different activities are carried out. This aspect was ignored when the policies of trade liberalization was not followed as the primary focus was on the short run and businesses didn’t look at developing a process which would fetch them long term results. The process thereby fosters the economy an provides an opportunity where through the use of different resources, process, technique and skills better economic growth rates can be achieved.
Since, trade liberalization improves the process of restructuring it helps to reduce the political cost for the business. The process of restructuring through free trade results in the incapable players moving out of business. As a result the degree of unemployment rises but for a short period of time. Consumer’s disposable income increases primarily due to the fact that products are available at lower cost which thereby increases the demand for goods. In the long run the demand increases which thereby increases investment leading towards increased employment. The efficient firm are thereby in place where they can use better technology and resources to restructure their business. Economies as a result are able to identify the different core areas which need to be developed so that results can be improved. The focus thereby shifts towards those crucial points which would help the economy. The situation also unfolds into one where the players are provided with an opportunity to sell products to a large international market thereby reducing the risk and providing a wide market which can be catered (Rodrik, 2008). The efficient firms can thereby identify their strengths and work on those. This will help the business to bring the required dimensional change through which business effectiveness can be improved. This will shape the business for carrying our more work load in the future. The economy as a result will be able to grow as better rates of growth can be witnessed and would thereby transform towards bringing about the required dimensional change through which effectiveness will be improved. Trade liberalization would thereby support and help the business in gaining the required change and increases the chances to be more effective which would translate into better growth rates for the entire economy.
It is seen that trade liberalization has helped economies to achieve high economic growth but it cannot be ascertained that only trade liberalization helps in high economic growth and other factors don’t have a role in shaping economic growth. Studies have shown that economies which have used the policy of protectionism to protect the local industry have also witnessed economic growths especially in situation of economic downturn (Slaughter, 2009). Open economies during economic downturn faces low economic growth due to trade relation with one another. This is not seen for economies following the policy of protectionism as they are not impacted by the economic downturn. It highlights the need and importance for economies to identify the policies which would help them to bring about the change in the economic condition. Economies need to adopt the policies wisely so that that they are able to ensure high growth rates. The different parameters of trade liberalization needs to be analyzed properly and based on the different needs and requirements appropriate policies should be adopted so that high economic growth rates can be achieved.
Past research and studies have stressed and showed that trade liberalization has helped economies to achieve a faster rate of economic growth but just opening up the economies alone doesn’t result in fast growth rates. Economies have to look at wider aspect which is achieved through economic policy development. The system has to be developed and designed in such a manner that it helps to improve economic performance (Freeman, 2004). The manner in which trade liberalization has contributed towards economic growth can be easily visualized in the manner developed countries are performing. To substantiate the same developing countries have followed the same path and have moved away from traditional working to style to one which supports their growth and development. This has facilitated the entire process of growth and development and provided an opportunity through which high rate of economic growth has become possible. As a result economies are gaining from economies of scale and scope and are able to carry out the entire functioning is a more coordinated manner.
The analysis on globalization, growth and poverty carried out by World Bank shows that developing countries which have over 3 billion people are witnessing high rates of growth on the premise that they have adopted the policies of trade liberalization. Using their skills which is basically manpower has helped the economy to produce goods at cheaper rates and have thereby become manufacturing hubs. This has helped to control poverty and improve the overall working dimensions. This has increased the market share for developing countries which has reached over 25% and is creating new opportunities in the future (Glyn, 2004). This will help the economies to fight poverty and provide an opportunity through which better economic growths can be achieved over a longer period of time.
An example highlighting the manner in which economies have superficial growth rates can be witnessed in Asia. China by following the policies of trade liberalization has brought the required dimensional changes and has become a hub for manufactured goods. The policies have helped the economy to improve the Human Development Index from 0.627 to 0.755 which has improved the standard of people. Since human development index is a combination of wealth and quality of life it has thereby helped to improve the overall standard of living. In a similar manner other economies like India and Vietnam have witnessed widespread dimensional changes in the quality of life which has thereby shaped the overall economy and has aided towards better growth rates. Similarly other economies like Mexico and Dominican Republic has also witnessed changes in trade policies which has impacted the pace of economic growth. The entire phase has facilitated the process through which different activities are carried out and has improved the standard of living, decreased poverty and made people better off. The changes in policies through trade liberalization have fetched positive results and similar more results are expected in the future as dimensional changes have been observed.
The paper thereby brings forward the manner in which trade liberalization along with other economic parameters have contributed towards rapid economic growth and development. This has led towards widespread ramification in the working culture and has helped economies to transform the manner in which different work activities are carried out. Having properly identified policies and mechanism through which trade relations can grow has helped economies and working on similar grounds will help to further consolidate the position and ensure that better performances can be witnessed in the future.
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