Does Trade Liberalisation Promote Long Run Economic Growth?

1576 WordsApr 6, 20177 Pages
3. Does trade liberalisation promote long-run economic growth? INTRODUCTION: While in principle, trade liberalisation promotes long-run economic growth by the means of markets expansion for goods, human and physical capital associated with technological and managerial learning; however, it largely destabilizes Global South economies. On the one hand, proponents indicate a cause-effect relationship between trade openness and economic growth, citing Hong Kong, Singapore, South Korea and Taiwan. On the other hand, opponents challenge this stance by saying that free trade has limited success, referring to Africa and the Middle East (International Monetary Fund, 2001), (The World Bank, 2002, p. 8). Firstly, this essay discusses the…show more content…
These countries have initiated various national restructurings, including “governance, the investment climate, and social service provision” (Ibid., p. x) for economic growth to occur effectively. I. Advantages of trade liberalisation Openness to the global market increases the size of the market. Firms will no longer produce only for the domestic market but also for much larger external markets. Hence an increase in production which will allow the realisation of economies of scale (the unit cost decreases with the size of the production thanks to better use of the equipment) and therefore the fall in prices (reference); it is therefore in the interest of countries that have a limited domestic market (small population, low living standards) to become outward looking to expand the market size of their products (reference). The entry of new economic or trading partners on a market may stimulate competition for innovation progress, improvement of quality of goods and services, decrease prices as well as reducing unemployment rate (reference). In view of this, governments that is eager to achieve real economic progresses should introduce rules and regulations to secure investments and trade. This entails, among other provisions, the creation of a regulatory board with a mandate to ensure equity in accessing goods and services and protecting property rights within stable political and social environment (OECD.org, 2016), (The World Bank, 2002, pp. 12 - 14). As for
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