Impact of Trade Liberalization on Economic Growth
According to most people, trade liberalization has an association with economic growth. In fact, the belief is that increased international trade directly contributes to economic growth. However, it should be noted that the truth or falsity of this statement is based on the approach that each parson takes. The impact of trade liberalization on economic growth has been an issue of debate across the board with some pointing negative results and others positive. In fact, the debate has not yet been settled.
Trade liberalization has been effected in various ways that boil down to either the reduction or complete elimination of trade barriers so that people can freely engage in trading on international markets. In fact, this has been the most popular economic policy of both industrialized and developing nations. The motive behind the push for free trade has been the achievement of macroeconomic goals of the economies of the nations. Developing countries are mainly implementing trade liberalization policies so as to achieve economic growth.
One of the points to note about the impact of trade liberalization on economic growth is that it has led to the increase in imports and exports. Since trade liberalization has given both domestic firms the freedom to pursue markets for their products globally, there has been a significant increase in exports and imports for various countries across the globe. As a result of this, individuals and governments across the world have been able to rake in better revenue, hence, economic growth. However, it should be noted that the income generated from free trade varies from one economy to another based on their exports and imports.
Before the liberalization of trade, it was not easy for countries to trade with their counterparts with which they do not lie on the same geographical proximity with. As a result of this, most nations only used domestic markets for their products. However, trade liberalization has opened doors for exports for quite a number of countries. Today, nations that have implemented policies for liberalization of trade are able to export their products to the markets that they deem profitable. As a result of this, such nations have been able to experience a faster growth in GDP. With the growth of GDP, it is obvious that the economy is also growing.
Trade liberalization has opened up new doors for developed nations to invest in foreign countries so as to reduce costs of production among other reasons. This has created employment opportunities in developing countries and even raised the living standards. In the nations where foreign investments have been established, economic growth has been achieved through the opportunities offered. It should also be noted that such foreign firms have brought in innovative technologies that to some extent curtailed the development of domestic industries. In fact, the influx of foreign firms in emerging economies has led to intensive competition that have driven quite a number of domestic firms out of business. To this extent it can be said that trade liberalization has hindered economic growth.
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