The relationship between openness to international trade and development Introduction:
Openness to international trade is the popular choice among different countries for their own development, especially after the establishment of the World Trade Organization (WTO) in 1995, globalisation is a trend for different districts, and a country is difficult to develop its economy in a closed circumstance. According to Razmi and Refaei (2013, p377), International trades will benefit the people and institutions of the countries, because the specialization of the production of goods and services will increase the productivity and lead to higher income and better living standards. The competition and cooperation between countries also will allocate the resources in a more efficient way, so the whole world would have a higher level of welfare from the international trades. Kabadayı (2013, p194) also states that openness to international trade leads to the human development, for the technology, ideas and cultures are exchanged when the countries are exchanging goods and services. The globalization make the views competed and the cultures fused, providing a better choice for the world population. If the border of the nation is open to trade, economic freedom will lead to the economic growth. Liberalization promotes specialization and division, thus increasing the productivity and income and bringing greater efficiency. The communication between different countries not only provides the advanced technology and ideas, but also creates the chance to develop the knowledge and cultures. This essay focuses on the positive development outcomes of the openness to international trade from the aspects of economic growth, institutional progress and industry structural optimization, and it also explores the negative aspects through the income inequality and inflation.
Benefit 1: openness generates economic growth
Openness to the international trade means the whole economic activities of the countries are related with each other under the globalization. Most of the countries which have an openness policy are experiencing a rapid development, especially China which creates an economic “miracle” in the last 30 years. What is shown in the figure 1 is the contrast of GDP per capita between China and India, with a result of more rapid increase of China than India. It is demonstrated in the figure 2 that the degree of openness increased from 12% to 40% in India and started from 15% to a much higher level of 60% in China, where the “degree of openness” (O) is defined as the index that dividing the sum of exports (X) and imports (Q) by GDP: O = (X+Q)/Y (Marelli and Signorelli, 2011, p134). What is exhibited in the contrast of the two countries is that the higher degree of openness will lead to a more significant growth of GDP per capita. Although there are differences of culture and politic circumstances in the two countries, the similar geography, large population and openness policy in both countries make them a successful contrast to show the importance of openness for the economic growth in a country.
Source: processing of WTO and IMF statistics.
Source: processing of IMF statistics.
The openness also plays a crucial role in promoting the development of developed countries. Since the taking effect of the North American Free Trade Agreement (NAFTA) in 1993, the trade among America with Canada and Mexico has increased to nearly double from $299 billion in 1993 to more than $550 billion in 1999. Particularly, after the establishment of WTO, the exports of America risen to $2,350 billion in 1999, accounting nearly 25 percent of its whole GDP and more than 15 percent of all global trade. (Froning, 2000) The international trade makes the cheap products easier to enter to the market of Canada and Mexico, in exchanging for the abundant nature resources, so the developed countries also will a large of the benefit from the openness to the...
References: Froning, D H 2000, ‘The benefits of free trade: A guide for policymakers’. Heritage Foundation Backgrounder, (1391), 25.
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