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You are here: Home > Educators > Economics > International Economics > Trade Liberalisation: A Means of Promoting Growth in Developing Countries? - Activity |
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Trade Liberalisation: A Means of Promoting Growth in Developing Countries? - Activity
Trade liberalisation means reducing the limitations on trade that countries around the world have erected over a number of years. Protectionism is a means of attempting to ensure that domestic industries are protected from competition from foreign producers and can be carried out through a variety of means - through tariffs, which raise the price of goods coming into a country (imports), quotas - a physical limit on the number of goods that can be brought into a country, and other non-tariff barriers such as regulations and legislation that make it very hard for foreign competitors to sell goods into another country. The theory of comparative advantage would suggest that opening up world markets and reducing trade barriers (trade liberalisation) would lead to gains from trade for all concerned. The theory is one thing, getting countries to agree to dismantle the complex trade barriers they have erected over the years is far from easy. Given this complexity, how do we know that countries who say they have relaxed their trade barriers have actually done so? Even if we can establish that this has occurred, what evidence is there that trade liberalisation does lead to benefits accruing to the developing world, where problems associated with the difficulty of getting into the markets of the developed world are most acute? Image: Will opening up of markets to free trade lead to an improvement in the standard of living of those in the developing world? This little girl lives in the Dominican Republic, a country where the GDP per capita is $6,000 and where the inequality in the distribution of income is very high with the richest 10% of the population owning 40% of the wealth of the country. Copyright: Natalia Anna Kozlowska, stock.xchng This Activity will look at some of the evidence related to different countries to see whether trade liberalisation does have the beneficial effects that its proponents claim. Task 1Using supply and demand analysis, explain how tariffs and quotas restrict the level of imports coming into a country. (See the 'Mind Your Business' feature on International Trade, Protectionism and the Effects of Intervention in Markets(http://www.bized.co.uk/current/mind/2003_4/031103.htm) which incorporates a diagram and presentation to illustrate the effect of a tariff.) Task 2Refresh your memory about the nature of comparative advantage by working through the PowerPoint Presentation on International Economics [241 KB].(http://www.bized.co.uk/educators/16-19/economics/international/presentation/trade.ppt) Task 3Given the two tasks above, explain how, in theory, trade liberalisation would be likely to impact on development and economic growth in poorer countries. Use diagrams to illustrate your answer where appropriate. 
Image: Trade occurs in many different ways, is it always as free and open as it might appear or are there numerous hidden factors that can damage the expected economic benefits? Copyright: Peter Hermeling, stock.xchng Task 4The following links are to documents that look at the effect of trade liberalisation in reality. Some of the links are to documents that are very long and may be aimed at an academic audience; you will need to select the relevant material carefully. This should not, however, prove to be a big problem - use the index of the PDFs to isolate the sections that are most relevant. In the 423 page 'Trade Liberalisation and Poverty: A Handbook', for example, Chapter 2 provides a good explanation of the debate over trade liberalisation. Your task is to provide an argument on the effects of trade liberalisation. Your argument should focus on the extent to which evidence exists to support the hypothesis that trade liberalisation is the main route to helping developing countries to grow and to reducing poverty in those countries.
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