Debate2 Coursework Example | Topics and Well Written Essays - 750 words

Debate2 - Coursework Example Free trade arguments have in past times received support from majority of global institutions, such as the International Monetary Fund (IMF), the World Bank, and World Trade Organization (WTO). As part of the argument in this paper, it will examine how removal of trade barriers induces higher level of economic growth and efficiency within the global economy (Quinlan & Stevens 1998b). None of the countries, in recent decades, has accomplished economic success, in regard to substantial improvement in its people`s living standards, without opening up its economy and engaging in free trade with the rest of the globe. For example, trade opening together with opening economies to foreign direct investment, constitute an important element in the growth of economies of East Asia. The average import tariff in these economies has fallen to 10 percent from 30 percent over the last 20 years. Several Asian countries have become more successful since they opted to participate in the global trade w hich has also helped them in attracting the bulk of direct foreign investment in developing countries as an expansion of their market. This is undoubtedly true of India and China since they both have embraced trade liberalization as well as other market-oriented reforms. China currently invests and trade with East African countries as a result of free trade agreement between the nations. Trade liberalization offers the ideal policy prescription since the economic benefits that accrue from free trade are relatively simpler to illustrate. Countries in the world are generally confronted with just two prices for goods and services within the global economy: the world prices and the domestic price. In a situation where the world price is lower than a country`s domestic price, say Brazil, then domestic consumers from Brazil will purchase the services and good offered by other international markets since they are cheaper. However, firms in Brazil can respond to the effect of free trade by seeking government support through imposing import tax or apply for investment incentives. In addition to the argument that free trade functions best in promoting efficient allocation of resources, it has also been asserted to occasion additional long-run benefits like; economies of scale, improved productivity since prices for intermediate services and goods decrease, and growth externalities via technology transfer. Economies of scale apply to industries which require a very huge volume of production prior to reaching the lowest average cost (AC). Examples of these industries are the movie and film industries of Nigeria and Hollywood. Without no doubt, such industries will hardly arise in an environment that free trade is restricted because, based on the reality that such industries definitely need large markets so as to be efficient, their market will be narrowed only to domestic market (United States, 2004). Growth externalities means the production benefits which may originate from the incorporation of recent technologies acquired by other globe`s production firms through enhanced interaction with foreign countries as a result of free trade. Therefore, free trade offers numerous opportunities for innovation and learning, which are necessary for the global economic growth and strength of international economies, than are offered by a system of closed economy or managed trade (Maddison, 2001). An example of these growth externality