Is free trade beneficial only if a country is more productive than its trade partners? Discuss with reference to two developing countries of your choice.
Following the trend that more and more countries participate in the world scale process of globalization, which started from the 1980s last century, it has integrated countries together and made them more interdependent in terms of the economy and market. Most of the states now more or less have liberalised their economy with free trade, in order to achieve economic development and economic growth. For example, the most integrated free trade area now is the World Trade Organisation, which was established in 1995 and evolved from its predecessor General Agreement on Tariffs and Trade. (Ravenhill, …show more content…
Nowadays developing countries tend to have a relatively larger agricultural or manufacturing sector than its industrial sector, and developed countries are more likely to have more advanced industries. By the introduction of free trade, countries will increase their total output for the goods which they specialise in and income theoretically. (Skarstein, 2007) However these theories ignore the productivity growth and technological changes, which will otherwise make a fundamental reverse in the impact of free trade. In fact, as Rune Skarstein suggests, the actual comparative advantage for developed countries is they are industrialised and developing countries are not, and this is the reason countries engage in free trade. Therefore, even though developing countries have higher productivity in the production in those sectors that they have comparatively more abundant factor of production for, more likely labour intensive agricultural and manufacturing goods, with free trade, poor countries end up with not having a comparative advantage but having an absolute disadvantage in the trade of agricultural and industrial goods with developed countries. (Skarstein,
Following the trend that more and more countries participate in the world scale process of globalization, which started from the 1980s last century, it has integrated countries together and made them more interdependent in terms of the economy and market. Most of the states now more or less have liberalised their economy with free trade, in order to achieve economic development and economic growth. For example, the most integrated free trade area now is the World Trade Organisation, which was established in 1995 and evolved from its predecessor General Agreement on Tariffs and Trade. (Ravenhill, …show more content…
Nowadays developing countries tend to have a relatively larger agricultural or manufacturing sector than its industrial sector, and developed countries are more likely to have more advanced industries. By the introduction of free trade, countries will increase their total output for the goods which they specialise in and income theoretically. (Skarstein, 2007) However these theories ignore the productivity growth and technological changes, which will otherwise make a fundamental reverse in the impact of free trade. In fact, as Rune Skarstein suggests, the actual comparative advantage for developed countries is they are industrialised and developing countries are not, and this is the reason countries engage in free trade. Therefore, even though developing countries have higher productivity in the production in those sectors that they have comparatively more abundant factor of production for, more likely labour intensive agricultural and manufacturing goods, with free trade, poor countries end up with not having a comparative advantage but having an absolute disadvantage in the trade of agricultural and industrial goods with developed countries. (Skarstein,