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Trade & Economic Development

Historically, it has been understood that trade--the free exchange of goods and services--is a tool for creating wealth. We have recognized that voluntary interactions of producers and consumers in the market lead to job creation, profitable specialization of industries, and reduction of production costs. As a result, many countries have sought to enter into agreements to encourage more trade between them and other nations, thereby fostering mutual economic growth or development.

Indeed, trade and economic development are inextricably linked. Developing nations are a case in point. Since, for example, China and India have opened their markets, these countries have seen a hitherto unprecedented economic growth--the kind of growth that lifts millions of people out of grinding poverty and provides them and their families with much-needed advancement opportunities. 

At the same time, international free trade has also caused controversy. Issues such as offshoring and outsourcing of jobs, increased competitive pressure, and creative destruction of national industries have led to a lively debate about how much of such trade a country should engage,  particularly in order for the benefits to outweigh the costs. The question has been raised whether all countries with trade agreements are better off than before. 

This topic provides an overview of the continuing debate over trade and trade policies, and considers the evidence regarding the relationship between trade and economic development. 

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Quote Page

Quotes on trade and economic development from the leading scholars, economists, and politicians.

Commentary or Blog Post

The economic crisis is hitting the world’s poorest countries through falling trade and commodity prices. This column argues that the US should respond by further opening its market to exports from small, poor economies.
Soyemi argues that "Britain and the rest of the world must support building a successful and conclusive Doha package that works just as well for developing countries as it does for developed ones."
Recent developments in the global economy—specifically, higher skilled foreign workers, lower costs of capital movement, and improved communications—have apparently undermined 'the' case for free trade, one of the most bedrock conclusions of orthodox economics.
Three concepts that are given a great deal of lip service these days are capitalism, free trade, and economic development.
John Stossel challenges the myth of "Protectionism" and explains how trade benefits all the nations worldwide, during a discussion with Tom Palmer member of the Atlas Economic Research Institute.
As we take a look around the world, it becomes increasingly apparent that unilateral free trade on the part of the United States would be one of the truly great policies ever implemented.
With a brief overview on the Doing Business Report 2008, Samuel Gregg comments on how free trade might be an option for development in the Latin American continent.
"What is needed is not a rejection of the positive role of the market mechanism in generating income and wealth, but the important recognition that the market mechanism has to work in a world of many institutions."
In this article, Robert P. Murphy rebuts popular arguments against free trade by giving hypothetical counterexamples as well as statistics that tell a different story.
In this article, Stiglitz argues that in order for developing countries to benefit from free trade, not only must rich countries reduce tariffs and subsidies, but also provide "assistance to build decent roads, efficient ports, and to produce goods of sufficient quality."
Keynes himself was beginning to question some of the assumptions supporting free trade. The question today is whether the case for free trade made two centuries ago is undermined by the changes now evident in the modern global economy.
Swanson provides his view on a debate between Larry Summers and the Financial Times' Willem Buiter regarding the "dilemmas of a flat world, from trade and taxation to international standards and regulation."
In this article, Rigoberto Stewart challenges the neo-mercantilists in Latin America by explaining how exports are not the only solution to the continent´s economic woes.
All the ire at banks and multinational companies by dangerous communists and anti-globalisation hippies is misdirected. They should reserve their venom for the rustic rich-world farmer living the life of Henry David Thoreau.
In discussing Joseph Stiglitz and Andrew Charlton's book Fair Trade for All, Reich asserts that, while free trade can hurt developing nations, "within richer nations free trade is already disproportionately benefiting the best educated and best connected."
In this article, James Gwartney and Robert Lawson explain how trade promotes the rapid dissemination of technological improvements that are the driving force of modern economic progress.
In Washington, as in Europe, trade policy is fought almost exclusively on the battlefield of bread and butter. What does it mean for exports, jobs, wages, and competition?
It’s often claimed that limits on trade benefit only a small number of Americans, while hurting the vast majority. That’s still true of things like the import quota on sugar. But when it comes to manufactured goods, it’s at least arguable that the reverse is true.
This post provides data to support the position that free trade policies such as those pursued by international free trade agreements and the World Bank have increased income inequality and hurt the world's poor.
Trade liberalization is vital to the process of development. Voluntary international exchange widens consumers’ range of effective choices and lowers the risk of conflict.
Kenyian June Arunga reflects on the opinions of free trade opponents she met during the WTO ministerial meeting in Cancun.

Chart or Graph

The duties collected were also six times higher than the value of the aid that Bangladesh and Cambodia received from the US in that year.
Figure 1 masks the impact on agricultural exports from poor countries because the average across all goods obscures the prohibitively high tariffs on a few products, notably sugar, peanuts, tobacco, and dairy products.
Trade reform is a policy that is intended to lead to a good investment response. The implication of the diagram is that the effectiveness of the trade reform will depend upon the effectiveness of other policies directly affecting investment.
This graph charts the ups and downs of trade since 1960. According to this chart, the region of East Asia and Pacific have grown the most rapidly, while the world's trade rates have maintained moderate and less major gains.
Table 2 shows that there is a strong positive relationship between trade openness and various indicators of economic welfare.
As table 3 shows, openness is positively related to sound legal and monetary institutions. More open economies achieved higher legal and monetary area ratings than the more closed economies.
At the other end of the spectrum, the openness index indicates that Myanmar, Iran, Sierra Leone, Pakistan, and Burundi were the world’s least open economies in 2000.
The petroleum deficit decreased slightly in September - even with higher prices - and the trade deficit with China decreased (NSA). After stalling over the summer, it appears exports are growing again.

Analysis Report White Paper

The successful conclusion of trade negotiations between Chile and the United States in December meant excellent News for free trade in the Americas and a boost to economic expectations.

"The American military faces a growing threat of potentially fatal equipment failure—and even foreign espionage—because of counterfeit computer components used in warplanes, ships, and communication networks. Fake microchips flow from unruly bazaars in rural China to dubious kitchen-table brokers in the U.S. and into complex weapons. Senior Pentagon officials publicly play down the danger, but...

In his analysis, Patrick J. Buchanan explains how the rise of free trade has eroded America’s industrial base, its independence and sovereignty.
This paper will show that, despite Europe's presumed good intentions, Africans are increasingly uncomfortable with the vestiges of the colonialist mentality. These holdover policies and practices are hurting economic growth all across Africa.
For many Third World countries, their comparative advantage is the cheapness of their labor and the availability of some natural resources. For Western firms, this presents an opportunity for profit by reducing labor and resource costs.
Recent research in international economic history has opened up new lines of enquiry on the origins of globalization, as well as its causes and consequences. This paper considers what lessons this body of historical work has for our current understanding of the linkages between trade and development.
In this article, Clive Crook analyses Third World development by providing some lessons from experiences, discussing macroeconomic foundations and laying out the gains from trade some of these countries have made over time.
Almost all developing countries have experienced a sharp slowdown of economic growth since mid-2008, and many have also slipped into recession.
The purpose of this paper is to reexamine the above evidence and explore empirically the link between exports and economic growth in each of the four Asian countries.
This paper reviews the debates over the relationships between trade regimes, economic growth and poverty reduction.
The U.S.-China trade agreement reached in November 1999 and the recent granting to China of permanent normal trade relations status by the U.S. Congress would pave the way for China’s entry into the World Trade Organization. Nevertheless, many long-standing trade issues between the United States and China remain unresolved.

Video/Podcast/Media

One of the twentieth century’s leading thinkers on the relationship between free trade and the economics of developing countries, Lord Peter Thomas Bauer discusses his clear ideas on the effectiveness of government aid and intervention in the Third World.
Russ Roberts, host of EconTalk, does a monologue this week on the economics of trade and specialization.
"BBC reports on Nigeria and looks at Nigeria's Economic Development with emphasis on the creation of Free Trade Zones being erected to attract foreign investors with benefits that include Tax-Free status."
Like technology, trade gives us more good stuff than bad—yet Americans are likely to cheer technology and fear trade. No doubt TV talkers and White House wannabes will keep stoking our fears of foreigners until voters and viewers stop buying it—or until robots snag their jobs, too.

Primary Document

This economic classic is noted for providing us with terms for and expositions of such key economic ideas as the division of labor, "invisible hand," self-interest as a beneficial force, and freedom of trade.
On the Principles of Political Economy and Taxation provides analysis of the allocation of money between capitalists, landowners, and agricultural workers in Britain. Through this analysis, Ricardo came to advocate free trade and oppose Britain’s restrictive 'Corn laws.'

Books

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