Friday, June 8, 2007

Problems of Free Trade for Developing Countries

Free essay: Problems of Free Trade for Developing Countries

1. Infant Industry Argument.

If developing countries wish to develop new manufacturing industries they may struggle to compete on an international scale. Therefore, in the short run at least, they may need tariff protection to enable their industries to develop. After a few years they may be able to reduce these tariffs. Many developed countries used tariff protection in the past, especially the Asian "Tiger Economies"
In this regard, it is said free trade usually benefits developed countries more than developing countries.

2. May Prevent Diversification

The lewis model of development suggests that development needs economies to switch from agricultural sector to industrial sector. This is because the marginal cost of production in agriculture is nearly zero. Therefore, moving to industrial production will be relatively costless. However, to diversify an economy protection may be needed. Otherwise developing economies will be stuck with the production of primary products. This makes the economy vulnerable to fluctuations in prices; there is also a low income elasticity of demand for products

3. Environmental Damage.

Free trade and the force of globalisation may lead to exploitation of natural resources.

see also: arguments against free trade

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