Free Trade And Its Effect On Economic Growth

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Free trade is trade between countries that after negotiating between each other eliminates or minimizes the existence of Tariff and Non-Tariff barriers (Helpman, 1993). There has been an increase in free trade agreements from 1 such agreement in 1975 to 216 such agreements in 2009 although 45 agreements have been concluded while the remaining are to be executed and implemented (Bate, 2016). Developing countries rushed to free trade in mid- 1980’s such as Mexico, Philippines, Bangladesh, Ghana, Korea, India and Morocco by removing barriers. Countries around the world are measured on the basis of being developed or developing based on factors such as; per capital income, economic and social structure, social, and civil rights and political…show more content…
Low cost of labour has also lead to an increase in countries opening up factories in China such as Taiwanese manufacturers since early 1950’s that led not only to an increase in employment but also changed Chinese economy to Industrial and business oriented from an agricultural economy (Ming & Chaang, 2011) . Also, over the past 20 years; Turkey has experienced an increase in International Trade for its manufactured goods, as it offers lower prices as compared to other developed countries due to low labour costs in Turkey. Trade liberalization creates gains for poor and workers in developing countries through an increase in Income and reduction in the prices they pay (Bate, 2007)). Harrison and Hanson mention that openness to trade has has an impact on wages and an increase in employment (Harrison, 1999). Free trade leads to a more economically rational market structure that arise due to economies of scale and scope as in narrow protected and markets that lack competition, leads to certain firms shaping as oligopolies hence leads to inefficient market structure (Helpman. E, 1989). Import competing goods create competition in a perfectly competitive environment which leads to better quality, new and innovative products at lower prices for customers ((J.Johnson, 1996)). The aims of governments should be to promote competition, which improves dynamics in the economy by not making simplifying things but by encouraging
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