ECON 332 Economic Growth and Development

Abhijit Chokshi 130029

Word count: 1520

Q] Explain the importance of Trade Liberalization for developing countries. Discuss how does Trade Liberalization affect the poor?
Several specialists define trade liberalization as the complete or some of part removal of trade obstacles like quotas and tariff rate enforced by administrations on both imported and exported products (Marchant.1997). The global free trade is a relatively new concept which supports a system of trading policies which permits free trading across national borders. Trade liberalisation is practised in various countries as a means of boosting development and growth.

Traditionally, each country will have policies set which ban or restrict trading of certain goods or services across national borders. This could hamper the economy of not only that specific country but also of various other countries. The free trade policies allow prices to be set without any restrictions and based on the demand and supply relations. 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.

In the following piece, importance of Trade Liberalization for developing countries like Mexico, India, and China will be discussed. The prevailing debate will include how Trade Liberalization affects the poor followed by conclusion.

Trade Liberalization in developing countries

In this segment three cases of trade liberalization (Turkey, Korea and Mexico) are discussed: After the period of 1970s, Turkish imports had been experiencing growth of about two % annually, whereas exports were decreasing at the rate of one % annually. But from 1985 to 1995, though imports by Turkey raised by 10.4 % per year, exports raised by 19.4 % per year. Since complete progression in GDP was about five % annually, this indicates that trade turned into significantly more vital to the economy of Turkey. Remarkably, as imports and exports by Turkey rises, manufacturing also raised from 22 % of GDP in 1985 to 27 % of GDP in 1995 (Rudiger. D, 1995)

A next case is Korea, where changes happened progressively in the trade policies after 1970s. Korea permitted capital and intermediate products to be imported. For instance, automobile engines were imported initially and then produced by having license and now engines produced under Korean design. By 1983, out of some 10,000 classes of goods and products, 19.6 % still face import restrictions. By 1990 the restricted %age had decreased to 5.3 %. For Industrial goods normal tariff rate has been got down from 24 % to 11 % with the view to lower tariff rate to 5 % under new law by 1992 (Young, 1989). .

A third case of trade liberalization is Mexico. Before 1985 Mexico was entirely protected: tariffs, quotas and licenses. In 1985, the economy of Mexico was opened. First it was a slow opening, but as political forces pressurized for slow openings, the Mexican government responded positively. Though some segments for example, chemicals and auto motors have been let off so far, a great deal of trade liberalization has been achieved. Import increased already from 13.4 % in 198590 to 16.5 in 198690. By 1995 import had already reached to more than 19 %.

In the above mentioned countries, trade liberalization approach is not being questioned. Trade liberalization was an important part of a broader strategy of accomplishing stability, effective and efficient allocation of resources.

Trade Liberalization and its impact on poor in India and China

According to World Bank 2002, supporters of globalization have faith that trade liberalization is the crucial to fight against poverty in developing countries (McCulloch, et al. 2002). It is supposed that the reduction given over the trade barriers will help in trades and invites foreign direct investment (FDI) which further will lift the economic growth and in the end lead to poverty alleviation (WTO 2002).

However, according to the report of UNCTAD (2001), poverty in developing countries still exists. Here in the paper, India and china is selected to argue that increase in the trade liberalization has contributed to the increase of poverty and discrimination in many developing countries. According to World Banks report (2007), trade liberalization in India attained significant economic growth and has been able to bring out millions of individuals out of poverty. Also, the upgrading in education offers essential abilities to the Indians to allow them to participate at international levels.

India is the one of the top performer in information technology, telecommunications and pharmaceuticals business. This shows that since having trade liberalization India has relished significant economic growth. Even though many supporters thought that trade liberalization bring significant economic benefits, there are controversies over trade liberalization. While the opening international trade in India has definitely strengthened and diversified the economic benefit of middle class in India, this progressive economic development has in fact small effect to help many of Indian farmers whose sources of revenue are reliant on agricultural activities (Mehta 2004).

A research conducted in the Warangal village of India; demonstrate that by replacing the native cottons over the genetic modified Bt Cotton encouraged by Monsanto Company of USA, Indian farmers have detrimental effects. Many farmers of the Warangal village faced the debts traps because farmers have to buy costly fertilizers and insecticides to sustain the crops. The excessive use of fertilizers and insecticides also contribute to poisoning the soils and resulting in many other chief crop failures. Likewise, the incapability to pay off bank loans in turn causes to increasing suicide rates among the farmers (Stone 2002,).

Many mishaps have happened, the most horrible mishap being in 1998, when more than 500 farmers committed suicide in Warangal village, the figure of suicide cases has continued to rise ever since (Stone 2002). This case study thus suggests that while international firms take the benefits of free trade in developing countries, farmers in rural part of India continue to feel pain in spite of the increasing economic growth.

Trade liberalization also is a cause of rise in human rights violations in developing nations. China started to experience trade liberalization in the 1980s; the economy of China raised significantly (Lardy 2003). Cheap labour in China, tax incentives and good financial structures has attracted substantial numbers of international firms to spend in the country and to contribute to the economic development. Although this fast growth in economy to some degree may help to improve the living conditions of many Chinese people, the individual liberty of chines people has been persistently shortened by the state. (CATO Institute, 2005)

Under the mask of economic growth, the Chinese administration bounds the individual rights for example, liberty to express and liberty of get-together. Also, the dominances over workforces and democratic movement groups have been broadly stated. The Chinese administration considers economic progress over individual rights and liberty of expression (Human Right Watch 2009, 2005). It can be argued that all though trade liberalization brings economic benefits to China, the fundamental rights of individuals have been curtailed in the name of economic growth. Furthermore, strong western business interests in China dissuade developed countries from taking strong criticisms against the Chinese notorious human rights violations (Harney, 2008)

Recommendations and Conclusion

It is recommended that if developed nations are thoughtful about dealing with poverty in developing nations, it is essential to use trade liberalization to encourage impartial trade competition, human rights ethics, and ecological sustainability.

In conclusion, it is clear that the approval of trade liberalization by developing nations contains dangers as well as profits and benefits. Whereas, it is debated that trade liberalization offers economic welfares to developing nations, trade liberalization can also give birth to poverty and discrimination in many developing nations. This is also clearly established through the rising gap between rich people and poor people, there is a rise in human rights violation and environmental degradation.

Expert argues that however India has been welcomed by the global community for attaining significant economic growth over the last few years, India still faces the largest population of poor people in the world (IMF 2008).

In spite of the fact that during the last decade, India has enjoyed significant economic development brought by trade liberalization, poverty still remains there as a big problem. Trade liberalization brings economic welfare to developed and developing nations but only few benefits to poor people in developing countries. Though trade liberalization brings economic benefits to China, the fundamental rights of individuals have been curtailed in the name of economic growth. Furthermore, strong western business interests in China dissuade developed countries from taking strong criticisms against the Chinese notorious human rights violations.

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.

References
CATO Institute 2005, Foreign Aid and Economic Development, Foreign Policy Briefing, Cato Institute, Washington. Harney, A 2008, Keeping Up With Chinas Olympic Shine Part II: Shoppers, intent on bargains, bear some responsibility for Asias pollution. Yale Center for the Study of Globalization, Washington. Human Right Watch 2009, Taking Back the Initiative from the Human Rights Spoilers, World Report 2009, Human Rights Watch, Washington. Human Rights Watch 2005, China Human Rights Fact Sheet Human Right Watch Annual Report, Human Rights Watch, Washington. International Monetary Fund 2008, India: Is the Rising Tide Lifting All Boats?. International Monetary Fund, Washington. Neil McCulloch, X 2002, Trade Liberalization and Poverty: A Handbook, Centre for Economic Policy Research, United Kingdom. Marchant, M A & Snell W M 1997, Macroeconomic and International Policy Terms, The University of Kentucky Cooperative Extension Service, USA Mehta, P B 2004, Indias Kinder and Gentler Globalization Stone, G D 2002, Biotechnology and Suicide in India Anthropology News, Vol. 43, No. 5, May 2002 World Bank, 2007a, Asia 10 Years After the Financial Crisis, Media Release, April 5, 2007 World Watch Institute 2006, Multinational Corporations Violating Chinas Environmental Laws and Regulations, World Watch Institute, The USA. Xinhua 2007, Four factors bolster Chinas economic growth China Daily, 18 June, P.1