How Realistic Is Free Trade in the Real World?

Topics: Economics, Developing country, Country classifications Pages: 7 (2419 words) Published: May 5, 2012
I - Introduction:
Nowadays, virtually almost every country in the world has once engaged in trade activities due to the obvious benefit it can bring. Besides, free trade activities are also being encouraged in all over the world. However, along with these benefits, free trade in fact brings plenty problems, especially for the developing countries. This paper will discuss the advantages and disadvantages of free trade in developing countries, and provide a pessimistic point of view in the global growth and development in the future.

II – Overview of Trade and Free Trade
Going by the standard definition of the term “Trade”, it is nothing but a simple activity that involves two or more countries engaging in the exchange of goods and services. Such exchanges of goods or services can be between two parties or several parties. Based on trade, people in many countries could have a great number of opportunities to select a wide range of products and services originated from every country around the world. Additionally, it improves not only the terms of trade but also the economic health of each country. Most academic economists agree and accept the obvious theory that trade benefits both parties involved in the transaction. Trade is a concept that exists largely due to the differences in the cost of production of some tradable commodity in the various locations (Zaidi, Kadiwala). Nevertheless, a few countries do not believe in the benefits of trade, they keep pursuing conservative policy and isolate itself from global integration such as North Korea. Along with Trade, there is another term which needs to be clarified: “Free Trade”. According to Athony Carter, Free trade refers to the right to sell goods and services around the world without any hindrance. With free trade the only thing determining the price of items will be supply and demand factors. As well as goods and services, free trade can also refer to the ability of labor to move freely around the world. The main aim of free trade is to carry out development to improve the human welfare. With free trade, the production will have the lowest cost and the consumption will have the cheapest price. Hence, there are enormous benefits of free trade such as increase in economic growth, competitive advantage, economics of scale, etc. However, along with these benefits, free trade in fact brings plenty problems, especially for the developing countries (M. Suparmoko 2002). Although developing countries have become more integrated significantly into the trade world recently, their integration is still not in right directions, has failed to provide many of the expected benefits (Dani Rodrik and Mark R. Rosenzweig, 2009).

III – Competing perspectives about the role and impact of trade in developing countries
Admittedly, Free trade is an issue of great importance for those in business and consumers around the world. The issue of free trade is a highly contentious one, and both sides of the debate can provide persuasive arguments for their position (Anthony Carter). The existence of free trade around the world is hindered in many different ways. Most countries will have tariffs on at least some imports, and this tax can make these good less competitive. The usual reason why a government will impose this type of tax is that they want to protect local industry or dissuade people from purchasing certain products – the governments also use tariffs to raise funds. Of course there are also a lot of limitations on the free movement of labor (Anthony Carter). Fundamentally, there are three main schools of thought which will approve for the both sides of the debate; Neoclassical approach, Structuralists, and Dependency Theory. This essay will apply the three theories mentioned above in order to demonstrate the two arguments for and against Free trade in developing countries. While Neoclassical theory suggests that all free trade is eventually mutually beneficial to everyone welfare,...
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