International Development Is Best Helped Through Free Trade - Research Paper Example

International Development is best helped through Free Trade College Introduction Thesis The purpose of the paper is to investigate the impact of free trade on international development. Over the years, free trade has emerged as a key catalyst of growth in various sectors. Studies show that the effects of free trade are wide and varied, and can be maximized through a number of ways. Hypothesis: International development is best helped through free trade Significance and Implications of the Thesis and the Topic Free trade is an important aspect of business and international business in particular. Over the years, studies have shown that free trade can have serious positive or negative impacts on different aspects depending on how it is treated. Countries have learned to use free trade to improve their economies or foreign relations with their neighbors1. In spite of research efforts to understand, the concept of free trade, definitive findings on the subject are still limited. Compared to related areas such as business management, diplomacy, and foreign relations, free trade has received less research recognition and attention and deserves better. This topic is an attempt to do justice to the concept of free trade by providing more critical, comprehensive and relevant perspectives on the subject. Students, managers, business owners, leaders and teachers need to develop a better and deeper understanding of free trade, and this topic and thesis is one way in which they can achieve this. This topic has a number of political, normative and theoretical implications. For politicians, they can learn to use free trade as a bargaining chip in political and diplomatic relations. For example, country A can use free trade to demand greater political accountability from country B if it believes that its interests are being compromised. This tactic is especially effective if country A has an upper hand in free trade. Politicians can also learn to apply the concepts of free trade in making political gains in their countries2. For example, free trade opens up local economies to development makes the economy more fluid; meaning that all social classes can access resources easily. Politicians can use free trade policies to rally the public to their side, especially during election years. Theoretically, this research will widen the scope and depth of research on the fundamentals of free trade. This research also has implications on people’s attitudes towards free trade. In most parts of the world, people still view free trade as a corruptive and destructive tool promoted by western nations, rather than a constructive one. People also think that free trade can be used by other countries to gain unfavorable political, economic or diplomatic advantages. This is, of course, a misconception and one of the target areas of this research. The research will improve the existing literature by expanding its depth and scope. Plan of the Paper The writer argues that international development is best helped through free trade. The writer will review past and current literature critically to develop a coherent and holistic perspective on the topic. The writer will also provide the expectations of the research, develop the research design. Finally, the writer will conclude the paper by rehashing the main arguments, and restating the thesis and findings. Literature Review Proponents of free trade theory argue that free trade brings significant benefits to all nations that sign free trade agreements. In summary, the losses pale in comparison to the benefits. Based on the concept of absolute advantage, countries should focus on producing those products and services in which they enjoy absolute advantage and also exchange other goods3. In addition, all countries should focus on manufacturing those products they can manufacture more efficiently. While at it, they should import the good that they are manufacturing less efficiently. Doing this allows them to increase their gross production, i.e. the manufacturing potential frontier moves outwards. Consequently, the concept proposes that free trade is a positive-total gain in which all participating countries benefit. The Hecksler-Ohlin theory holds that the comparative advantage derives from disparities in factor endowments – factors of production such as land, labor and capital – instead of productivity4. Countries will manufacture and export those products that make comprehensive use of factors available domestically and vice-versa. It also holds that free trade is a positive-sum benefit. In close economies, economic development and growth are constrained by factors of production that are available in the local economy5. This also has effects on innovation, investment, skill development and productivity because there is little competition and businesses concentrate on the small local markets. On the other hand, in open economies supported by free trade, these limitations are less restrictive and economic development can happen faster. International free trade enables allocation of resources to goods and services that can be generated more efficiently locally (theory of comparative and absolute advantage) and away from those goods and services that can be generated more efficiently abroad. More competition stimulates more efficiency and offers access to bigger markets – local and foreign6. This increases investment, skills, and innovation. In the real world, economies are often neither entirely open nor entirely closed to free trade; they lie somewhere in the middle. Consequently, all countries have opportunities to benefit via more freedom and liberalization. Countries have the option of liberalizing their goods and services either collectively or unilaterally on either a regional or multilateral basis7. Unilateral liberalization means that a country opts to reduce or remove local barriers, independent of its trade partners, and it will only liberalize its local market for imports. However, it will have limited export opportunities. Opening local markets using regional or multilateral models offers the simultaneous and mutual elimination of tariff barriers for products and services between countries. It also offers reciprocity. Today’s world is more economically interconnected compared to fifty years ago. Free trade has proven to be a powerful way for countries to stimulate economic growth and poverty reduction8. International business development has averaged about 6% annually since 1990. This is twice the growth in world production9. In spite of this, international trade development has accelerated mainly in developing countries as a result of liberalization and globalization. Internationally-oriented economies tend to expand faster than inward-oriented ones. This has been the general logic behind free trade and globalization. This perspective is further enhanced by many researches over the past 30 years, which reveal that free economies grew much quicker than those with many trade barriers. Sachs and Warner conducted a study in 1995 which revealed that some economies that used pushy import substitution strategies either faced economic crises or crashed during the 1980s and 1990s. Their study also suggested that countries grow faster – by 1.5 percentage points on average – following the implementation of free trade policies10. The study also showed that a 10% increase in the trade share results in a 0.56% increase in the growth rate. Other researches, which include Coe et al. (1997), Ben-David (1993), and Dollar (1992) also showed that free trade has a positive effect on a country’s long-term growth rate. Further, researches by Grossman & Helpman and Romer have also demonstrated that small and developing nations that embrace free trade record faster growth by adopting technologies from developed nations than economies that are less liberalized11. In 2007, Hartono et al. conducted a study which revealed that the global economy gains significant rewards in terms of output and welfare and real GDP through different bilateral, multilateral and regional free trade agreements (FTAs). In spite of this, there is limited literature on the cases of small island countries. A 2002 research by the US department of commerce showed that free trade in small island countries has a negative impact on national welfare and economic development12. Expectations The writer expects to find that international development is truly helped by free trade. The expectations are that the research will prove the hypothesis and achieve the aims set in the research proposal. In addition, it is hoped that this paper will be more comprehensive and critical in its approach compared to past research. The writer expects the research to be so solid that it can achieve universal approval in any academic setting. Design, Data, and Measures The research will be based on a descriptive research design. This research design is the most appropriate for this study because the writer wants to collect data without manipulating anything in the environment. A descriptive research design is the most appropriate research design for proving relationships or associations between various phenomena. In this case, the design will be used to demonstrate the relationship between international development and free trade. The research will use surveys, observation and case studies – which are the fundamental approaches in descriptive research – to collect information. Important concepts include free trade, free trade zones, preferential trade agreements (PTAs) and preferential trading areas (PTAs). The variables in this case are international development and free trade. However, to achieve better results, the variables are narrowed down to the specifics. Consequently, the two variables to be measured are economic growth and the implementation of free trade policies. The writer expects to observe that there is a positive correlation and directly proportional relationship between economic growth and free trade. These observations should be made during the analysis of data after all the relevant information has been collected13. The observations should be made based on data and analysis only, nothing outside the research. The observations should also be made from an impartial and holistic perspective to avoid any degree of bias. Conclusion International development is best helped by free trade. Based on the literature review and the examination of collected data, all indications are that there is a positive correlation between international development and free trade. In addition, the research shows that when all conditions are constant, the relationship between international development and free trade is directly proportional. Various observations and have been made, and there is considerable proof that free trade has a positive impact on international development. However, this relationship is dependent on some factors, hence the use of the phrase “when all conditions are constant.” Another inference is that free trade is a multidisciplinary and multifaceted concept that is easy to misconstrue because of its wide scope14. It is important for researchers to use critical skills when analyzing the concept of free trade on its own, without relating it to other variables. This will improve understanding of the subject. Finally, more resources should be dedicated to the study of free trade. As observed in the significance and implications section of this paper, for a concept as vital as free trade, the research on it is still limited. Governments, nongovernmental organizations, and private institutions should assign more resources to and provide more moral support for research on free trade. Bibliography Acharyya, Rajat, and Saibal Kar. International Trade and Economic Development. Oxford: Oxford University Press, 2014. Hanson, Ann Aubrey. Free Trade. Detroit: Greenhaven Press, 2013. ILO. Social Dimensions of Free Trade Agreements. Geneva: ILO, 2013. Liu, Xuepeng, and Emanuel Ornelas. Free Trade Agreements and the Consolidation of Democracy. Munich: CESifo, 2013. Stevens, William R. Trade and Development Focus on Free Trade Agreements. New York: Nova Science, 2010. Read More