Trade Liberalization
In basic terms, trade liberalization has got to do with bringing down the various trade limitations existing between countries. It is important to note that in an attempt to protect their domestic industries, many countries from across the world have in the past erected numerous protectionist measures including but not limited to tariffs and quotas. This has amongst other things had the effect of stifling international trade. This text concerns itself with the impact of trade liberalization on developing economies.
The Impact of Trade Liberalization on Developing Countries
Before commencing on the main discussion, it would be prudent to briefly define a number of key terms which I will be making use of in this text. These terms include trade liberalization, tariffs, subsidies, and quotas. To begin with, tariffs in the words of Lipsey and Harbury (1992, p.215) are "taxes levied by the government on imports of a particular good." As a protectionist measure, tariffs are in most cases used to increase the price of goods and services entering a given country thus making the said goods more expensive than those produced locally. It is however important to note that apart from being used as a protectionist measure, tariffs can also be used by governments as a source of revenue. As important tools especially when it comes to shaping trading policy, tariffs may in some instances have unintended consequences. It is for such a reason that formations like the World Trade Organization exist.
In the words of Stroup, Sobel, and Macpherson (2009 p.101), "a subsidy is a payment to either the buyer or seller of a good or service, usually on a per-unit basis." Subsidies as the authors further point out are meant to either enhance producers' profitability or ensure goods are affordable to buyers. Subsidies could come in various forms. Governmental subsidies according to Carbaugh (2011) could be in the form of cheap loans, tax concessions, or even outright cash disbursements. The author further points out that subsidies could be classified into two basic forms, i.e. export subsidies and domestic production subsidies. Export subsidies are meant to encourage or stimulate exports by providing exporters with a competitive advantage. They also assist a nation's balance of payments. Thus while tariffs seek to make imports much more expensive, export subsidies seek to ensure that a country's exports are cheaper. On the other hand, domestic production subsidies "are granted to producers of import-competing goods" (Carbaugh 2011, p.166).
Next, a quota is yet another tool used in an attempt to regulate trade volumes between nations. In basic terms, quotas can be termed government-backed restrictions to trade that attempt to limit the number of goods (or services) that can either be exported or imported within a specified time period. For this reason, we have import and export quotas. The former is in basic terms a restriction (physical) on the total quantity of goods business entities can import within a specified period of time (Carbaugh, 2011). Export quotas on the other hand restrict the quantity of goods allowed or permitted to leave a given country. Export quotas are put in place for a variety of reasons including but not limited to ensuring that a country does not face scarcity of some specific products.
Trade liberalization as I have already indicated in the introductory section concerns itself with the reduction of the various trade limitations existing between countries. In that regard, trade liberalization has got to do with the elimination of existing trade barriers between nations via the reduction or removal of existing tariffs, easing of quotas, etc. In the final analysis, trade liberalization plays a critical role in the enhancement of free trade.
Background
In the past, countries from across the world have sought to promote new trade agreements in the belief that developing countries benefit from such agreements. The question that should, and indeed must be answered, in this case is; do new trade agreements designed to reduce existing trade barriers have any impact on developing nations. If indeed, they have an impact, whet is the nature of the said impact?
Expected Effects of Trade Liberalization
According to a report issued by the World Bank (2002, p.xi), "a reduction in world barriers to trade could accelerate growth, provide stimulus to new forms of productivity-enhancing specialization, and lead to a more rapid pace of job creation and poverty reduction around the world." Although in the opinion of the World Bank there are benefits to be derived from trade liberalization, there is uncertainty as to the fate of trade talks - with a good number of developing nations harboring...
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