Benefits Of Free Trade Theory

Free trade theory, in the international political economy discipline, was encouraged in the tenth century by David Ricado, the British political economist, who created the theory of comparative advantage which demonstrates that every state could benefit from trade liberalization by specializing products and services which they are able to make best even if it may be not better than other states (O’Brien and Williams, 2013). Thus, even low income developing countries will also gain benefits from free trade. Liberals also believes that if states are better off and has strong economy it means that the government will have enough money to improve living standards of its population and other national development projects to eliminate poverty and

This means developing countries are able to access new broader markets and expand their consumers which increase the number of exports and income. Secondly, developing nations can import technology and goods to improve their productivity for a cheaper price compared to import with high tariffs or attempt to produce domestically through free trade agreements. Thirdly, free trade also bringing capital and new ideas into developing countries through foreign investment which could improve production processes of developing countries. For instance, their resources will be used more efficiently to produce more high quality goods or even manufactures new kinds of valuable products. Fourthly, the progress of innovation, new production technique and advanced production processes will lead to economic growth of developing countries. Fifthly, foreign investment will also create new jobs for local workers and opportunity that the local workers will obtain higher wages leading to living standards. Sixthly, higher incomes of the worker’s families mean many children will receive opportunity to attend schools which leads to reduction of child labors. Seventhly, competition of goods in the free trade market will helps consumers

However, it is not every developing country will succeed in developing their economy after adopted free trade policies. There are many developing countries remain poor or even worse off since the prices of technology and manufactured goods that they import from developed countries are higher than the income that they gain from export their low price products such as agriculture which are major exporting commodities of many developing nations. Moreover, opening domestic markets also brings huge risks to developing countries which have not enough capability to compete with developed nations. For instance, after Zambia and Ghana opened their markets the rate of economic growth has fell suddenly because their domestic products cannot compete with foreign goods while the cost of imports were higher than income from exports (Byers, 2003). In contrast to its theory that free trade will improve the living standards of the population in developing countries, the effect of free trade, in reality, affects many people adversely in developing countries particularly poor people in countryside even though the state have economic growth. In Mexico, whereas its economy grown during the first half of the 1990s, there were a lot of people living below the poverty line which increased by 14 million from the mid-1980s (Byers, 2003). In the same vein, it is also possible to