Essay on Developing Countries
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Global Trade Liberalization and The Developing Countries
In today’s world, with the emergence of the internet and computer technologies, companies and countries have global market access in terms of brand recognition, customer segments, and bilateral trade relations (Gnangnon, 2018). More specifically, a company or country can reach billions of customers across the world, and trade has never been easier. Technological developments, improvements in infrastructure and logistics, and the collective and constructive approach to liberalization, especially after the 2nd World War, created a suitable environment of global prosperity, wealth, and multilateral benefits (Haas & Hird, 2017; Gnangnon, 2018). Arguably, in this direction, the world has become rapidly global and liberal within the last decade. In other words, under-developed, developing, and developed countries started to work together in a collective and competitive manner, and world trade has overcome traditional barriers and prejudices. In this assignment, global trade liberalization and developing countries have been meticulously examined. The paper presents insights, information, and comments into the integration into the world economy, resulting in integration with the world economy, the progress of integration, results of the integration, policies on trade liberalization, evidence, potential gains and benefits, and further liberalization recommendations for reaping the benefits. After all, one can highlight that although developing countries have benefited from liberalization and open economy, there are still certain barriers by the EU and the U.S., especially in the textile and agricultural industries.
International Trade and the World Economy
Economic growth, poverty reduction, and development have long been boosted by integration into the World Economy within the last decades (Haas & Hird, 2017). That is, the growth of world trade increased 6 percent per year, two times more than the average of the world output (IMF Staff, 2001). Nevertheless, one can readily infer that trade was already considered a predominant factor for obtaining growth (Haas & Hird, 2017; Gnangnon, 2018). Since the end of the 2nd World War, the global trading system made use of “eight rounds of multilateral trade liberalization, as well as from unilateral and regional liberalization” (IMF Staff, 2001). In this direction, the General Agreement on Tariffs and Trade (GATT) was approved by many countries, and the world of trade was enabled on a large scale. Moreover, the last one of these rounds, called “Uruguay Round,” which was completed in 1994, resulted in the foundation of the World Trade Organization (WTO) (IMF Staff, 2001). The organization provides a suitable and meticulous environment for organizing and arranging the increasing and gradual bodies of multilateral trade regulations and agreements.
Integration into the world economy refers to secure access to global open markets. This approach can be boosted by related regulations and policies that enable developing and emerging countries to take part in developed markets, or vice versa (Gnangnon, 2018). For instance, Turkey is a strong engine semi-parts manufacturer. That is, rather than wholly manufacturing a full functioning engine, the country is concentrated on manufacturing parts to support developed factories in industrial countries (Altuntaş et al., 2009). This collective approach benefits both developed countries and developing Turkey and creates a win-win trade environment. In this sense, Turkey is supported by some regulations, including customs agreements between the EU and Turkey.
The living standards across the world have been boosted as a result of the integration of the world. Most of the developing countries could improve in many fields, thanks to the global aspects of international trade. That is, they have had a suitable environment and tariffs for exporting and importing goods with many other developed and developing countries; and subsequently, the incomes of such countries have dramatically risen and brought prosperity to developing nations across the globe (Gnangnon, 2018). More specifically, while developing countries used to account for one-fourth of the overall world trade during the 60s and 70s, they now account for one-third of the world economy (IMF Staff, 2001). In this direction, many developing countries have drastically developed their infrastructure and manufacturing capabilities as a result of free access to global markets.
Similarly, the relations and trade between developing and developed countries increased in a rapid manner (Cornia, 2020; Gnangnon, 2018). In other words, 80 percent of the overall exports of developed countries are now going to developing countries (IMF Staff, 2001). In this sense, one can readily infer that the integration of the world economy has both benefited developing and developed countries in terms of trade access, income, manufacturing, and infrastructure, as well as international relations and politics implicitly.
Although the integration has long been considered as hugely beneficial to many countries across the globe, the developments in recent decades have shown us that the progress was sometimes uneven. While some Asian countries, including China and Japan, benefited a lot, Latin American countries, unfortunately, could not satisfyingly make use of the integration. The reasons behind the success of Asian countries stem from the fact that these countries were successful at implementing required internal regulations in order to take part in international trade by attracting foreign trade investments (FDI) to their countries. Especially India and China “embraced trade liberalization and other market-oriented reforms, and also of higher-income countries in Asia—like Korea and Singapore—that were themselves poor up to the 1970s” (IMF Staff, 2001). In this sense, one can conclude that the progress of integration has highly been dependent on the internal regulations and the pace of adaptation of developing countries. That is, although Asian countries were willing and successful in implementing and embracing new global regulations, especially Latin America and North African countries could not successfully adapt themselves, resulting in comparably fewer benefits in terms of income and wealth.
As mentioned earlier, although willing countries have benefited a lot from the integration, Latin America, Middle East, and African countries could not keep up with the new developments in world trade. That is, “the poorest countries have seen their share of world trade declined substantially, and without lowering their own barriers to trade, they risk further marginalization” (IMF Staff, 2001). Unlike successful countries, these countries faced structural problems with their economies, weak policies and regulations, and over-protection of trade in many aspects.
After all, although some countries failed to integrate into the world economy, many developing countries such as Indonesia, Turkey, Brazil, and India could make use of such an advantage. Between 2002 and 2010, after an almost whole integration into the European and American markets, the Turkish economy showed a sustainable growth rate, and they managed to get rid of extra zero in the national currency. The development was so rapid and beneficial that in 2008, 1 Turkish lira was worth 0.82 $US, and that rate was recorded in Turkish history (Altunbaş et al., 2009). As a developing country, Turkey integrated its internal and external assets into the world economy by freeing and opening its markets and took a great deal of FDI. Thus, international organizations could invest in Turkey because of its literate population and benefited both sides. As a result, while there are contrary examples, countries that managed to comply with the requirements of liberalization and free economy have long benefited from the globalization.
The Benefits of Trade Liberalization
Sustainable economic growth requires strong and decent policies aimed at international liberalization and trade. No need for evidence, this condition is clear. That is, not a single country was successful at improving their income, trade, and living standards without making their economy and country to open to other economies and international trade environment. For instance, the success of Asian economies are clear examples; they lowered their trade tariffs from %30 to %10 within the last decades. In this direction, one can highlight those nations should implement accessible and comprehensible regulations and policies that ease the process of international trade and globalization.
In the manufacturing of certain products, opening up economies creates many advantages to the global economy in order to boost the competitive advantage of nations. South Korea and North Korea can be given as explicit examples. While South Korea has been open to the world economy for many decades now, North Korea was extremely close to other nations, not only in terms of economy but culture as well. When considered the overall wealth of both countries, the advantages of the open economy are clear. Open economy enables a multinational, cultural, and bilateral advantage for many countries, and these eventually attract foreign direct investments, which bring wealth to the nation.
There are substantial evidence and statistics regarding oriented countries in terms of integration to world economies. “Countries that have opened their economies in recent years, including India, Uganda, and Vietnam, have experienced faster growth and more poverty reduction” (IMF Staff, 2001). In other words, those countries decreased their tariff rate during the 80s and experienced substantial economic growth in the following years.
Getting rid of trade barriers and integrating into the world economy creates many advantages. “Estimates of the gains from eliminating all barriers to merchandise trade range from US$250 billion to US$680 billion per year” (IMF Staff, 2001). Also, almost 70% percent of this income benefited developing countries directly or implicitly. Moreover, developed countries have more protective measures against trade, and one can highlight that developing countries tend to benefit more from an international open market.
Further Liberalization of International Trade
The information is given above clearly supports the idea of further liberalization. That is, the state of open market and protection are significant for both developing and developed countries because each nation may have a comparative advantage on a single product, while there still exists a need for other types of goods, and the concept of free trade and liberalization creates a mutual and bilateral advantage for both group of countries. In general, industrial (developed) countries tend to implement high protection and tariffs for agricultural products. In other words, according to the statistics, the average tariff in agriculture is almost nine times more than the manufacturing industry (IMF Staff, 2001). Moreover, agricultural manufacturing and subsidies in developing countries lead to pre-empting markets and a depressive market by undermining developing countries. As an example, “European Commission is spending 2.7 billion euro per year making sugar profitable for European farmers at the same time that it is shutting out low-cost imports of tropical sugar” (IMF Staff, 2001). In this direction, one can claim that protection over agricultural product and imports in developed countries result in a depressive agricultural sector for developing countries that aim to sell agricultural products for their GDP and economy.
The protection of manufacturing is not quite strict in developed countries. However, many labor-intensive products tend to be protected. For instance, “the U.S., which has an average import tariff of only 5 percent, has tariff peaks on almost 300 individual products, which are largely on textiles and clothing, which account for 90 percent of the $1 billion annually in U.S. imports from the poorest countries” (IMF Staff, 2001). Similarly, other types of labor-intensive products are subjected to tariff escalation and peaks. In this direction, developing and emerging countries find it hard to manufacture labor-intensive value-added products because of tariff peaks in those (developed) countries. Nevertheless, developing countries also implement high tariffs. Generally, their tariff on manufactured industrial products tend to be four times more than of developed countries, and they tend to show the same characteristics with industrial countries in terms of tariff policies on value-added products.
Because of tariff peaks and barriers, nontraditional measures have become common in global trade. That is, both developing and developed countries implement anti-dumping measures. Also, sanitary and technical standards of import can sometimes become overwhelmed. Moreover, there may be extra charges for exporters, especially to the European Union. For instance, “EU regulations on aflatoxins are costing Africa $1.3 billion in exports of cereals, dried fruits, and nuts per European life saved” (IMF Staff, 2001). In this sense, one can readily question the balance of costs and benefits in terms of exporter and customers with such regulations.
As global trade is proven to boost economic growth and wealth for both sides, further liberalization by developing and developed countries should be improved. More specifically, international communities and especially developed countries should realize the barriers to developing and poorer countries and come up with constructive policies to attract production and manufacturing across the globe. That is, especially for textile and agriculture, regulations in the EU and the U.S. should be reviewed because they are extremely strict and create disadvantages and comparative inferiority for poor countries. Similar to this, decreases on tariff escalation and peaks should be implemented to boost world trade. After all, enhanced market access for poor and developing countries will eventually result in a better income and decrease in poverty across the world.
Reaping the Benefits
Although the steps taken after the 2nd World War created a liberal trade environment, failures such as the WTO Conference in 1999 led to drawbacks and challenges for the international trade environment (Haas & Hird, 2017). These kind of agreements and multilateral initiatives are extremely significant because they provide many countries with visible benefits that eventually lead to economic growth, increased GDP, and enhance available markets across the world. In this sense, potential failures may include ineffective agreements and negotiations that merely benefit one group of countries. In other words, trade is a collective win-win outcome, and benefiting only one group will eventually result in failure.
In conclusion, in this assignment, global trade liberalization and developing countries have been meticulously examined. The paper presents insights, information, and comments into the integration into the world economy, resulting in integration with the world economy, the progress of integration, results of the integration, policies on trade liberalization, evidence, potential gains and benefits, and further liberalization recommendations for reaping the benefits. Economic growth, poverty reduction, and development have long been boosted by integration into the World Economy within the last decades. Integration into the world economy refers to easy access to global open markets. This approach can be boosted by related regulations and policies that enable developing and poor countries to take part in developed markets, or vice versa. Although the integration has long been considered as hugely beneficial to many countries across the globe, the developments in recent decades have shown us that the progress was sometimes uneven. While some Asian countries, including China and Japan, benefited a lot, Latin American countries, unfortunately, could not satisfyingly make use of the integration. International communities and especially developed countries should realize the barriers to developing and poorer countries and come up with constructive policies to attract production and manufacturing across the globe. After all, one can highlight that although developing countries have benefited from liberalization and open economy, there are still certain barriers by the EU and the U.S., especially in the textile and agricultural industries.
Altunbaş, Y., Kara, A., & Olgu, Ö. (2009). Overview of the Turkish economy. Turkish Banking, 7-39.
Cornia, G. A. (2020). Macroeconomic stabilization in developing countries. The Macroeconomics of Developing Countries, 309-327.
Gnangnon, S. K. (2018). Effect of multilateral trade liberalization on foreign direct investment outflows amid structural economic vulnerability in developing countries. Research in International Business and Finance, 45, 15-29.
Haas, P., & Hird, J. A. (2017). Trade liberalization and economic growth: Does trade liberalization contribute to economic prosperity? Controversies in Globalization: Contending Approaches to International Relations, 1-39.
IMF Staff. (2001). Global trade liberalization and the developing countries -- An IMF issues brief.
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