Trade liberalization is as aspect which has gained importance for growing and developing economies as it helps to boost economic growth. This paper looks at evaluating whether trade liberalization is important for economic growth and development. The process of trade liberalization started in the 1980’s and gained prominence in the 1990’s as economies all around the globe started to give importance to trade liberalization so that better growth rates can be achieved. It was seen that economies who didn’t adopt the process of trade liberalization faced difficulties in trade and was not able to witness growth which resulted in different economies to move away from traditional mechanism and adopted the process of trade liberalization.
It is true that political rhetoric and popular press looks towards preventing the local industry through the process of protectionism and are against free trade so that the local economy can be prevented. Research has also shown that no economist proposes the fact that protectionism is good for economic growth but instead free trade through the policy of trade liberalization is important for economic growth and development. There are different reasons which have been identified for trade liberalization and the manner in which economic growth and development is witnessed which have been presented below
Trade liberalization through the process of openness in imports helps to reduce cost and improves efficiency of the domestic industry. Exposing the domestic industry to foreign competition provides an opportunity for the domestic industry to become more efficient. It helps enhancement of technology and reduction of cost as foreign inputs are easily available which ensures better productivity and less wastage. As a result better results are achieved at a lower cost which thereby helps the economy to achieve better growth rates and development for the economy on the whole. The process also provides an opportunity to deal in a new market and opens the overall market which thereby increases the chances to be successful and ensures that the growth rates can be improved.
Trade liberalization further helps consumer to ensure that they are provided with the best products at the minimum cost possible. Free trade helps to ensure those industries which are protected opens up for competition. This ensures that the bargaining power of consumer increases and provides an opportunity to get better products at a lower cost. Economies gain from it as the disposable income increases which results in increased spending and investment which helps the economy to grow. The impact of free trade is witnessed in the agriculture sector as consumers are able to get better products for consuming at a lower cost. This thereby enables the consumer to be better off which thereby helps to ensure better growth. If the policies are well designed it helps to provide a competitive advantage as economies identify the different directions which will strengthen their performance and look to work in that direction. This will help to ensure better opportunities in different markets and provides an overall impetus through which better growth and productivity can be ensured.
Trade liberalization over a period of time helps to reduce the restructuring cost. Trade liberalization through free trade results in increased competition which makes it difficult for the incapable players to deal with increasing competition. As a result the incapable players move away from the market resulting in unemployment. Since, the consumers are able to purchase the products at a lower cost the purchasing power of money increases. After a period of time the demand increases as people are willing to spend more which results in the unemployed people being employed elsewhere. The process would lead towards improving the industry and would provide a directive through which the different aspect of the society would be improved. This thereby ensures that the overall economy is better shaped and provides an opportunity through which better growth rates can be witnessed and the overall performance of the economy can be better shaped. The process will also help to deal with a dimensional aspect of business which was previously ignored and would provide an opportunity through which changes can be brought. The phenomenon would shape the economy and bring about the required changes through which growth and productivity can be improved.
Trade liberalization further helps in restructuring and reducing political cost. Since the process of restructuring through free trade ensures that the inefficient firm will not be able to compete it helps the efficient firms. It provides the efficient firm with better technology and opportunity to deal with in the foreign market. This thereby improves the opportunity which the economy has and provides the efficient players to cater to a large market. It will also help the efficient industries to identify their strength and would provide an opportunity through which the use of different resources can be changed. This will improve the overall dimension of bringing about changes in the working dimension which would thereby enable improved rates of growth and productivity. As a result the chances of growth and development multiples as it ensures that the overall opportunities increases and provides better chances of growth and development.
The above arguments shows that trade liberalization helps in economic growth and development but it cannot be said that having open markets and policies has helped to achieve economic growth. It is even seen that economic growth are witnessed by economies which have protectionism as just opening up the economy through free trade liberalization doesn’t necessarily provide high growth rates. It is important that the policies are adopted in the correct manner and appropriate steps are taken to ensure better growth rate and development. The overall impetus for growth and development should be aimed towards identifying the different parameters of trade liberalization which will help to achieve economic growth. This will help to transform the overall dimension of the economy and would provide an opportunity through which better growth can be achieved.
It is true that trade liberalization helps to achieve economic growth and development but just opening up the economy is not sufficient. Economies instead will have to look at having wider economic policy development policies in place so that the actual gains which are expected from the designed system can be achieved. The developing countries on a large scale have been able to ensure high growth rates on account of globalization and trade liberalization. It is seen that developing countries which have adopted the path of trade liberalization have been able to move from traditional working mechanism to producing economies. This has contributed towards their growth and development as economies are able to ensure better products at lower cost.
The World Bank analysis on globalization growth and poverty have found out that developing countries which have more than 3 billion people are able to witness growth as they have adopted the path of trade liberalization. The developing countries have looked toward being manufacturing hubs which has helped to reduce poverty. As a result the developing countries have started to find around 25% share in the market which has resulted in better opportunities of growth and prosperity. The overall mechanism has helped the developing economies to transform the economy as choosing the path of trade liberalization has helped them to grow and improve their economy.
The manner in which trade liberalization has helped economies can be easily seen from in Asia. China through the policy of trade liberalization has been able to bring about the required changes in growth and development. The trade liberalization policies has helped China to improve their Human Development Index from 0.627 to 0.755 which is a combination of wealth and quality of life. This indicates that trade liberalization has helped economies to be better place to take decisions through which they are able to bring about the required dimensional change. Similar trends are also witnessed in other economies like India and Vietnam which has been able to bring about the required changes and improve the condition of people. As a result the overall life index has improved and economies have been able to witness the required changes through which better development has become possible.
Similar stories can be seen in other regions of the world as well as they have also witnessed growth and development. Dominican Republic and Mexico through the policy of trade liberalization has also witnessed rapid growth and development. The overall manner of living has changed and people have witnessed an improvement in their standard of living. The overall condition has developed and has resulted in improving the condition of the economy.
The paper thereby shows the manner in which trade liberalization has helped economies to ensure better growth and development. It is true that for all round growth and development only trade liberalization is not allowed but it is one of the important determinant which can shape the overall economy. Having a proper process and policy which aims towards bringing around all round development provides an opportunity to use the different resources in such a manner that better growth and development can be achieved.