Does Increased Participation in International Trade Promote Economic Growth and Development in Low Income Countries?
Most of the economic specialists agree on “there is gain from trade”. In 1817, David Ricardo posited that the countries that are specialized in producing and manufacturing goods with a competitive edge, then there is a gain from trade for them.
A rapid growth has been seen in the past fifty years around the world that had inevitable effects on the lives of the individuals and nations. Academia has been conducting research on this rapidly growing than ever trade phenomenon since decades. Studies have brought different results and no significantly similar results have been produced. The only accords are that what sort of trade is better for the development of which country is more important to know than exploring whether the trade is good or bad (Adriana , 2016). Adriana found that trade policy of a country defines the growth of firms within the country and firms with growing productivity hold larger share in the trade market as compared to the less productive firms.
Winters and Hoekman in 20015 conducted a comparative study of literature that dealt with the impact of liberal trade policies on employment rate in the country and wage rates. The researchers found that the trade activities increased due to tariff reductions have a little impact on the employment rate (Hoekman & Winters, 2005).
In 2006 Barton et al. reasoned that current trade system was originated from the Northern America’s
1930s’ policies unlike unilateral liberalization of trade through bargain and negotiation by the United Kingdome. The authors also posit that establishment of world trade organization in 2005 is a reflection that there are fewer restrictions from the United States and other developed nations who act in their own best interest.
In 2003, Narlikar reported that developing countries face difficulties in establishing collaborations and coalitions during negotiation processes held on the platform of world trade organization. There are many situations where the small countries can be given more access to the developed countries’ markets when the developed countries dismantle their coalitions.
There are a number of internal policy tool in world trade organization’s agreements that restrict the developing countries increased participation in the international trade, such restriction in scholars circle is known as “policy space” restriction. This is the biggest hurdle that the trade regime and policy puts on economic development of less developed countries (Rodrik, 2001).
The welfare benefits obtained from international trade are not very big in terms of each percent of GDP. Therefore free trade regime is often linked to effects of the trade on economic growth. The statistical significance of the trade effects has largely been studied but the ignored part has been the economic growth caused by the international trade (Lewer & Berg, 2003).
Trade advancement has turned out to be far reaching in the course of recent decades, especially among creating and progress economies, because of the apparent constraint of import substitution-based improvement techniques and the impact of global budgetary foundations, for example, the International Monetary Fund and the World Bank, which have regularly made their help restrictive on exchange advancement. The principal justification for this level of responsibility regarding a program of exchange change is the undeniable conviction that advancement is an essential to a progress from generally shut to moderately open economies. Financial experts for the most part concur that open economies become quicker than their partners do (Grossman and Helpman, 1991; Edwards, 1993). In the event that transparency is surely decidedly identified with development, it at that point takes after that advancement is a prerequisite for development. In spite of their initial guarantee, late experience recommends that not all exchange changes have been as effective as foreseen (Singh, 2010).
The connection between exchange transparency and monetary development has been hypothetically questionable. While tried and true way of thinking predicts a development improving impact of exchange, late advancements recommend that exchange receptiveness isn’t generally advantageous to monetary development. Expanded global exchange can produce monetary development by encouraging the dispersion of information and innovation from the immediate import of cutting edge merchandise (Barro and Sala-I-Martin, 1997; Baldwin et al., 2005; Almeida and Fernandes, 2008). Exchange encourages incorporation with the wellsprings of advancement and upgrades picks up from outside direct speculation (al., 2000; Bond et al., 2005). In their hypothetical models, Grossman and Helpman (1991) demonstrate that exchange transparency enhances the exchange of new advancements, encouraging innovative advance and efficiency change, and that these advantages rely upon the level of financial receptiveness. This agreement lays on the supposition that exchange makes financial impetuses that lift efficiency through two flow: in the short-run, exchange diminishes asset utilize misallocation; over the long haul, it encourages the exchange of mechanical improvement. Exchange advancement can likewise compel governments to resolve to change programs under the weight of worldwide rivalry, accordingly upgrading monetary development (Sachs and Warner, 1995; Rajan and Zingales, 2003). Exchange advancement in creating nations has in this manner frequently been actualized with the desire of development incitement.
Notwithstanding, endogenous development models hypothesize that the commitment of exchange to monetary development fluctuates relying upon whether the power of relative favorable position orientates the economy’s assets toward exercises that produce long-flee from such exercises. In addition, hypotheses propose that, because of innovative or budgetary imperatives, less-created nations may do not have the social capacity required to receive advances created in further developed economies (Rodriguez and Rodrik, 2000). In this way, the development impact of exchange may contrast as indicated by the level of monetary advancement. In spite of its potential beneficial outcome on development, some hypothetical examinations guarantee that exchange transparency may hamper development. For Redding (1999), Young (1991), and Lucas (1988), opening up to exchange may really lessen long-run development if an economy has practical experience in parts with dynamic similar burden as far as potential profitability development or where mechanical advancements or learning by doing are to a great extent depleted. For such economies, specific insurance may encourage speedier mechanical advances.
The observational investigations are as uncertain as the hypothetical points of view. A few investigations have distinguished a positive relationship between exchange transparency and financial development (Chang et al., 2009; Kim, 2011; Jouini, 2015), others found no association, either positive or negative (Musila and Yiheyis, 2015; Ulaşan, 2015). The writing is uncertain mostly on the grounds that distinctive investigators utilize diverse intermediaries for advancement or exchange receptiveness and depend on various systems. The proof for development improvements through exchange progression shows blended impacts due to issues with misspecification and the assorted variety among the advancement files utilized (Whitehead et al., 2001).
International trade being a major consideration of openness, has contributed remarkably in the economic growth of an economy. International trade participation of China has made the country grow incredibly and the whole world has become its global market for goods and commodities dramatically. China has taken the international trade policies in favor of its trade sectors. The trade structure and trade volume of China in international trade market have brought positive effects on China’ s economy and growth. The eastern part of Chinese territory has been growing most quickly and the western and central areas have been lingering behind with regard to cooperation in international trade and monetary development (Schor and Schor, 2016).
International trade structure and participation of China has go(Lewer and Berg, 2003)ne through a fast development along with its fast growing economy and has incorporated the whole world as market of its products. The abundance of skilled labor, vast reservoirs of natural resources and a stable political system has helped China to grow as a global factory of commodities and goods. Since decades ago(Xu, 2012) , debates on international trade’ s effects on a country’ s economic growth, productivity and self-sufficiency are going on . A major finding of the investigations conducted upon the phenomenon of economic growth is that countries producing and manufacturing goods at an international scale are fast growing as compared to those who produce goods for internal use only. The progress and globalization of trade of a country connects it more with the external variables and factors such as transparency. Thus the research on the impact of international trade on the developing countries economy is very important in this globally traded market phenomenon. China’s economy has gone through emotional pace of development since it the monetary changes have started and the choice of entry into the exchange trade market, global exchange and development. China’s financial development joining into the worldwide economy has increased up to a great extent (Whitehead et al., 2001). Moreover the country’s participation in global trade, exchange of goods and its cooperation similarly increased the flow of change in profitability of domestic industries and advancements in scientific methods. On one hand, huge imports of hardware merchandise in middle era of 1990s. Immediate affected profitability through the utilization of innovation encapsulated in them. Then again, the innovation and scientific methodology has significantly contributed to the productivity of China and its expansion in international trade market.
References
Lewer, J.J., Berg, H.V. den, 2003. How Large Is International Trade’s Effect on Economic Growth? J. Econ. Surv. 17, 363–396. https://doi.org/10.1111/1467-6419.00198
Rodriguez, F., Rodrik, D., 2000. Trade policy and economic growth: a skeptic’s guide to the cross-national evidence. NBER Macroecon. Annu. 15, 261–325.
Schor, A., Schor, A., 2016. Is trade good for development? The elusive question. Braz. Polit. Sci. Rev. 10. https://doi.org/10.1590/1981-38212016000200008
Whitehead, M., Dahlgren, G., Evans, T., 2001. Equity and health sector reforms: can low-income countries escape the medical poverty trap? The Lancet 358, 833–836.
Xu, A., 2012. The Research on Impact of International Trade on China’s Economic, in: Advances in Computer Science and Engineering, Advances in Intelligent and Soft Computing. Springer, Berlin, Heidelberg, pp. 553–560. https://doi.org/10.1007/978-3-642-27948-5_73
