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mba essay sample|Is Free Trade The Answer To Development

时间:2016-11-23 16:23来源:www.ukassignment.org 作者:cinq 点击:
Abstract: This paper examines the issues associated with free trade and international development and proceeds to display that there are many different factors which contribute to nations becoming developed.
The International Trade and Development website (2010) has theorised that a completely liberalized global market is the most efficient way to foster growth, because each country specializes in producing the goods and services in which it has a comparative advantage. However by doing this it does not necessarily generate development, rich countries and large corporations dominate the global market place and this proceeds to create unequal relations of power and information. This punishes the less developed countries and drives them into poverty, high levels of unemployment and income inequality. While trade is almost certainly beneficial for a country as a whole, it can harm the interest groups and individuals within the society (Frieden 2010, p.219). Whilst reducing trade barriers is good for a nation's economy, there are also evidently many winners and losers associated with this process.
First the terms free trade and development must be defined to understand the key concepts associated with each. The concept of free trade also known as international trade refers to what is often called open trade and is based on the laws of comparative advantage. It allows traders to act and transact without interference from government. Comparative advantage refers to the low relative cost of a good in one country, compared with its relative cost in another country. By following the Normative Law of Comparative Advantage, if a country is permitted to trade, a country will gain for example, the benefits of trade will exceed the costs (Griffiths 2002, p. 114). However, it should be noted that not everyone gains from free trade; it explains that there are costs incurred in free trade, though there are also benefits that are larger. The following term development must be defined also. Development if often measured in terms of changes in gross national product (GNP) per capita and comparative GNPs between countries (Griffiths 2002, p. 75). Evidently, a country is thus said to be developing if its GNP is increasing. Thus, does free trade stimulate development? It possibly can, however it is pierced with flaws. Free trade on its own is not enough to drive economic development. Developing countries require more help. They need assistance to make full advantage of the benefits of free trade otherwise they will be mistreated by the much larger developed countries.
The central objective of the World Trade Organisation (WTO) as described on the World Trade Organisation website (2010) is to ensure that trade flows as smoothly, predictably and freely as possible by encouraging the liberalisation of multinational trade in goods, services and intellectual property. The six main functions characterising the WTO, are designed to achieve this central objective also referred to as 'regulating' international trade. The strengths of the WTO, many of which are the very reasons for its establishment, embrace the benefits of free trade and a rules-based organisation.
International trade is not the answer to development. Exporters oppose protection; they worry that the protection barriers of their country might provoke retaliation in foreign markets. "American farmers have opposed American barriers to Chinese goods, largely to avoid retaliation against the many billions of dollars of American farm goods that China imports" (Frieden 2010, p. 230). The Third world, less developed countries (LDCs) have suffered immensely as a result from trade liberalisation. It has left these poorer parts of the world weak with nonexistent industrial capacities and dependant on a handful of agricultural and mineral commodities. By relying greatly on natural resources, several issues may arise. For example, civil conflict may occur, along with a possibility of police forces and the government becoming corrupt. This heavy reliance on natural resources and minerals can commonly be referred to as a resource curse. The resource curse occurs when a developing country is rich in natural resources and fails to benefit from it, instead sometimes moving backwards whilst the major corporations investing in the resources benefit. "Countries like Angola and Ethiopia and dozens of others among the poorest of the poor spent so much time, energy, and money on military and civil conflict that it is not surprising that little remained for economic development" (Frieden 2006, p. 443). There are several 'building blocks' that need to be laid out as a foundation before international trade can become advantageous towards developing countries. A trade dominated by basic commodities means that these countries do not develop their infrastructural technologies, including education and training.These countries need to improve their health and educational sectors so that their citizens are healthy and well educated, enabling citizens to have the opportunity to become employed.
Trade liberalisation can be detrimental, putting a majority of people out of jobs. It can change the relative wages of skilled and unskilled labour and the cost of capital, thereby affecting the employment of the poor. The exploitation of third world countries for cheap products can lower the value of the product and put the original producers of that specific product who were located within Australia out of work. Major corporations such as Nike may find it cheaper to move their production line to a less developed country, to exploit cheap labour followed by exporting their products all over the world. These workers suffer; they work in confined spaces that are overpopulated with and extremely low wage. Even though these multinational corporations pay above average wages, these workers are still mistreated and work long hours and do not receive any royalties from products that are extremely successful. These conditions can lead to shortening the life span of citizens and can leave a country as being underdeveloped. While the major corporation headquarters remain in the developed countries and benefit from the large amounts of revenue being made. Also as stated by the Small Business Advice from the Champions of Small Business website (2010), trade liberalisation can also affect the welfare of the poor by affecting government revenue from trade taxes and thus the government's ability to finance programs for the poor. Evidently, trade liberalisation is more beneficial towards the rich and allows them to get richer whilst the poor remain poor. "Humanitarian aid did not reach its intended beneficiaries, ending up instead in the pockets of the Third World rich, confirming the common charge that government was taxing poor people in rich countries to benefit rich people in poor countries" (Frieden 2006, p. 454). Globally, as free trade has expanded over time, the gaps between the economically successful nations and the economic failures have been greater. This is due to the global competition destroying them and the countries that were located in between being classified as successful or a failure have for the most part become failures or causes uneven development. "Greater specialisation could be both blessing and curse. Its attractions were tempered by the fact that it made some lines of business of long standing obsolete, increasing the competition that countries faced from others" (Frieden 2006, p. 418).
Additionally, the spread of power between the wealthier and less developed countries is remarkable and evidently favours the more developed countries interests. International institutions such as the International Monetary Fund (IMF) and the World Bank whose objectives are to supply member states with finances to help get them out of difficult situations and help them develop through various means such as through projects like building basic infrastructure (roads, schools, power plants) just does not seem to be working. Both these institutions seem to be biased towards the wealthier countries. This is evident via the voting power distribution within the board of these institutions:
Decisions at the World Bank and IMF are made by a vote of the Board of Executive Directors, which represents member countries. Unlike the United Nations, where each member nation has an equal vote, voting power at the World Bank and IMF is determined by the level of a nation's financial contribution. Therefore, the United States has roughly 17% of the vote, with the seven largest industrialized countries (G-7) holding a total of 45%. (Global Exchange - Building People-to-People Ties 2010)
This indicates that the decisions made reflect the larger developed countries that contribute the most to the institutions. By the more dominant countries having power they have the ability to make sure that the poorer countries do not become more developed by themselves and thus is disadvantageous towards the poorer nations and causes uneven development.
Furthermore, many developing countries are drowned with foreign debt. A large sum of money was loaned to the governments of the developing nations under the assumption that their lack of development could be fixed by a huge amount of capital being pushed into these countries. However, in many instances this was not the case, the capital was not used productively and often lined the pockets of corrupt government officials, or purchased weapons, or got spent on projects that actually did nothing to increase wealth production or increase the standard of living. Under such low working standards these poverty struck countries have no incentive to impose environmental, health or safety regulations on foreign businesses that bring large amounts of capital to these countries. However, capital and money is not the only answer to development.

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