Benefits of free International Trade and Economic Liberalization

There are three major aims that follows by discussing about the free international trade because it intends to summarize the arguments of less developed countries against the policy of accepting the total free trade with the reamining nations.

Raeasons to be considered for being against to complete international Free Trade

¨ Free Trade, forces, less developed countries to specialize in labor-intensive agricultural goods and raw materials, such as metal ores, cotton - Increased production of
which does not provide rapid economic growth. If the same applies for a developed country this argument gives much sense to proceed further. As developed countries are specialized in high cost better priced products - Increased production of which provides rapid economic growth. Thus totally causing unequal and biased economic growth.

¨ No guarantee on the stability of demand for exports
of less developed countries. This leads to export instabilities.

¨ Free Trade over a period leads to the higher increase in the price of imports of less developed countries than their exports and the opposite happens for the developed nations.

¨ International financial markets are not most advantageous for less developed countries now especially after the international debt crisis (1980).

Arguments for the Controlled Trade

The classic theories of free trade implies that a country should export and specialize in the production of those goods that can be produced at a comparatively lower cost domestically than abroad. When we apply this principle of free trade to LDC (Less Developed Countries) we realize that they should export the goods where they get an edge over others. The suitale goods are such as jute, sugar, cotton, iron ore and tea.

As for the developed countries are concerned with all their abundant capital they should specialize in capital-intensive finished goods (automobiles, computers and soon) and export to LDCs.

This sort of free trade will leade to higher world welfare and gains both sides of exchange, LDCS and Developed countries.

Advantages

¨ Full utilization of Resources is possible

¨ Increase in market size

¨ Transmission of new ideas & technology

Exports View

Coming to exports ofLDCS, The economies of LDCs are very unstable because they are highly dependent upon the Developed countries economic conditions.

As the change in demand occurs, instability in exports will occur for LDCS. Reason for the unstable exports of LDCs are nothing but the low price elasticity of the goods they export.

The Role of Prices

The prices of imports will be increased faster than prices of exports in Free Trade. Because the cost of production, which reflects the living standards of labor is positively tied up with the prices of exports in developed countries but not in LDCs. Thus the cost of production goes up. That gives high prices exports for developed countries - LDCs imports.

But this happens to LDCs as of their exports are considered in quite opposite way.

Summary and Conclusion

I strongly support the Trade Liberalization further as of the arguments over the Free Trade are not strong enough. As India is considered India is doing in a better way to prove this fact. As of Agarwals Study reveals that International trade has not forced Indian economy to specialize in labor-intensive raw matrial prodcution. To show the India’s economic stability the India economy is not much affected by the fluctuations in the western world (Present scenario).

Thus the country is calssified as “Exporter of Manufactuers” since this accounted for more than 50% of the exports in1990. Thus export instability is not a prime determinant of economic development.

I conclude with the follwoing

If further gains in international trade are to be sought, wider Liberalization of Trade Policies can benefit a nation’s Economy.

Sources of Information

Modern Monetary theory - Manish G Kulakarni.