Developing countries have seen the most change thanks to it, but in order to increment their gains, they must also attract foreign investment (Dollar and Kraay 4). It is imperative for a country who is still developing to globalize in order to bring growth and decrease poverty. There have been multiple examples of success from developing countries as a result from trade, and among them are also Mexico, Vietnam, and Uganda; which have achieved success from their comparative advantages (Dollar and Kraay 4). Thus, trade liberalization has enabled the problem of unfair trade, but the repercussions of protectionism are so high in this point in time, that an approach toward fair trade would be the most reasonable goal. The global economy is so interdependent that a trade war could hurt millions of workers.
The manufacturing business is a great example of this, “manufacturing in the U.S. grew by 250,000 jobs after NAFTA”(Marketplace). NAFTA has had a beneficial effect on the automotive business, “NAFTA helped the U.S. auto industry survive”(Hanson), without the help of this trade agreement cars would be produced at a much higher opportunity cost. Although now, the U.S. is able to trade with Mexico and Canada who are both making car parts at a lower price while still producing efficiently, “The U.S. auto industry designed a very efficient production network that spanned the U.S., Mexico and Canada.”(Hanson). The trade agreement made products from Mexico and Canada cheaper to import.,“NAFTA increased farm exports because it eliminated high Mexican tariffs”(The Balance). Finally, The North American Free Trade Agreement has caused the U.S. economy to “boost” as much as “.5% each year” (The Balance).
Some people fear that free trade will lead to inequality in some states with a history of ineffective governance. Small family business cannot compete on the global scale, so free trade is not beneficial to local businesses when it comes to profit. With reduced tariffs imposed on imported goods, foreign suppliers can easily lower their costs. And as a result, consumers will prefer imported goods and products over locally produced commodities. Free trade will lead some countries to disregard the environment when it comes to producing products and getting rid of waste materials just so they can compete in the
Some economists like Levine and Renelt and Seghezza suggest that trade liberalization promote growth only by promoting investment. That is, when investment rates are controlled, openness has no additional impact on growth. It seems therefore that trade induced productivity-led growth is not empirically important or at least not important enough to show up in cross-country data. This rejects the main prediction of the new growth –new literature namely that trade affects GDP growth by influencing productivity growth. Trade induced investment led growth does show up strongly in cross country data.
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
In addition to this, growth and trade liberalization are negatively related to each other. Trade liberalization has a positive impact on employment level. Interestingly, the total factor productivity is positively and significantly impacted by human capital and trade liberalization. Conclusion and Policy implication The purpose of the study is to examine whether the estimates of key development indicators for India suffer from simultaneity bias. For this purpose we have developed a simultaneous equation model.
They could sell their goods and services to numerous countries. Furthermore, free trade allowed countries to specialize, countries could produce goods where they have a comparative advantage (a lower opportunity cost). The economy of a nation would be efficient when
The ability for countries to cooperate could lead to new jobs, workplaces, culture, more money and ideas (Denton). Lastly, another pro for globalization is it allows for less expensive products for American consumers to purchase. This is due to cheaper labor throughout production processes. Reduced prices lead to American living standards to
Trade can be very effective in conflict prevention and increasing the number of regional trade integrations. The Doha Development Agenda and trade liberalization have helped lead to a relationship of peace and prosperity within many nations. Promotion of trade and investments has been one of the basic tools of economic diplomacy. Some tools are trade liberalization, Regional Trade Agreements, and Free Trade Agreements Industry for a peace initiative. These were used as tools for maintaining economic diplomacy and political stability between some countries.
The reason of the expansion of the regional trade agreements is that FTA reacts to the changes of world economy fast and serves as an important component of trade strategy to achieve significant economic growth. It is very important to examine the benefits that FTAs give to countries because it offers clues why Korea proactively forges FTAs. Benefits of FTA FTA opens up new areas to competition and innovation by contributing to improvement of productivity. It provides better jobs, offers investment opportunities and help inducement of foreign investment. Since keeping their agreements I the base for international trade among traders, FTA create more stable environments for countries and companies to trust each other.