Smith argues because productivity increases with division of labour, a larger market other than a domestic market is needed in order for the exchange to become beneficial to those involved. Smith supported foreign trade as it served as a “vent for surpluses”. As a result of the increase of output due to specialisation, goods that cannot be sold in the domestic market must therefore be exported. Also foreign trade he said was beneficial to a country as there would be more choice of products and prices lower than they were before. This is because of the increased competition that confronted domestic producers.
Through trade liberalization there will be a shift of resources from the production of import substitutes to the production of export-oriented goods. This, in turn, will “generate growth in the short to medium term as the country adjusts to a new allocation of resources more in keeping with its comparative advantage” (McCulloch, Winters and Cirera, 2001). Overall, it may be fair to say that openness or trade liberalization leads to lower prices, new technologies through trading, and of course better information. We can conclude that trade liberalization has a
i) Trade liberalization promotes free trade between countries by removing tariffs and non-tariff barrier on the exchange of goods. The reduction of tariff and non-tariff barriers includes tax charged on imported goods, licensing rules, quotas and other requirements (1). Trade liberalization benefits a nation by lowering price for the scarce resources which enables domestic firms to create more products and foster economic growth. The other advantage is that countries involved in free trade can specialize in production based on comparative advantage for goods. From academic research of rapid development in Asia around the 1990s; the reduction of trade barrier and growth showed positive relationship.
They drive the vision and trade policy orientation into liberalism, including Free Trade Area, because trading provides many benefits, such as providing job vacancies that could reduce the number of unemployment. Furthermore, trading helps the producer of products and services obtain resources, especially scarce resources in their countries, provides revenue by exporting, and so on. Nonetheless, the development of free trade policy does not operate excellently, because of the liberalism policy of economy concerning some countries. It has caused some negative impacts, including a discrepancy between developed countries and developing countries especially in this globalization era. Therefore, trade protectionism began to be applied in various countries to minimize the negative impact of international trade.
The WTO had both favorable and unfavorable impacts on the Indian economy. It can assess on a basic and general concept:. 3.1 Favorable impacts Increase in export earnings An increment in export earnings can be viewed can be viewed from growth in service and merchandise: • Growth in service exports- the WTO provided GATS, which was beneficial to countries like India. It extended the multilateral trading system to the service sector in that GATT provides such a system in the merchandise trade. • Growth in merchandise exports- the formation of WTO led to the increment in exports in developing countries simply because it reduced tariffs and non-tariff trade barriers.
It can be true to a large extent, it is advantageous to the country generally as well as this cost minimizing behaviour of the firm would result in a higher degree of specialisation. Trade theory suggests that International Trade (which is always welfare improving) is a result of higher degree of specialization becouse this case occurs due to the increased FDI in the labour abundant country. Edward M. Graham say Foreign Direct Investment operates rather than displacing trade. FDI lets a firm to establish a larger area for distribution and not only produce a larger number of commodities but also increase the number of products sold in the foreign market. It has a faster increasing merger and acquisition across the regions where the globe has given a boost to the flow of Foreign Direct Investment.
For instance, the values of coefficients of FDI and investment in Model 4 are 0.82 and 0.14 respectively. This indicates that 1 % increase in the share of FDI in GDP leads to 0.82% increase in LPG, and 1 % increase in share of physical investment in GDP leads to increase in LPG by 0.14%. It can be inferred, therefore that FDI encourages boosting of productivity growth than physical investment. It could be due to the direct role that multinational enterprises have on the production process of the local firms through both the forward and backward linkage effects. Multinationals do try to increase their profit by increasing efficiency of local firms through importing their capital, advanced technologies, marketing and managerial skills (Baldwin and Dhaliwal 2001; Baldwin and Gu 2005; Blomstrom and Kokko 1998; Globerman and Ries 1994; Rao and Tang 2005).
Outsourcing directly contributed to job loss domestically, with 2.9 million people were put off work during 2001 to 2009. (Lerman & Schmidt, 1999) Employers relocate their industries overseas to enjoy lower cost of cheap labors and avoiding paying payroll taxes or social security. With less financial flow in the industrial stream, national tax base has been impaired. National income declines, so the government is lack of revenue to consolidate social welfare and public services, which has resulted in dramatic drop in people’s average living standard and quality of life. Taking America’s comparative advantage of high-end technology and human resources into consideration, one may easily find that the nation will leave its low-end and limited skilled productions and human resources to oversea market to boost productivity and maximize profitability at the same time.
This is in consonance with the principle of giving fairness and economic advantage for constituents. Monopolistic firms tend to abuse their power when not regulated upon and this can constitute to negative effects on consumers. For instance, in Kazakhstan,there are a number of companies owned by public utilities like transportation companies, electric power transmission, thermal power production, airports, telecommunication companies, airports, cable systems, and portal services. As such, competition is very limited and providing better services for people are prevented. Because of this, new legislative acts especially on promoting fair competition by allowing not only public, but private monopoly to enter in are provided (OECD,
With this, the credit allocation system according to the export performance of the companies exceeded by far the adverse problems caused by financial repression. In the Korean system of rationing credit in proportion to firm’s export performance, the prospective entrepreneurs were evaluated not by the financial system but by the natural selection process of cost-quality competition at international export markets (cf. King and Levine, 1993). THE SUCCESS OF CHAEBOLS AND ITS CORRELATION BETWEEN THE FINANCIAL SYSTEM AND GOVERMENT THIS COULD BE PART OF OUR FINAL CONLCUSION YES! This system increased the profitability of the activities that improved productivity and also improved the chance of successful innovation in export sectors.