Argument: Free trade improves the economic growth of developing nations

Issue Report: Free trade


  • Federal Reserve Chairman, Ben S. Bernanke, At the Montana Economic Development Summit 2007, Butte, Montana, May 1, 2007 “Trade benefits advanced countries like the United States, but open trade is, if anything, even more important for developing nations. Trade and globalization are lifting hundreds of millions of people out of poverty, especially in Asia, but also in parts of Africa and Latin America (Bhagwati, 2004). As a source of economic growth and development in poor countries, trade is proving far more effective than traditional development aid (Easterly, 2006). The transition economies of central and eastern Europe have also benefited greatly from trade, especially trade with the rest of the European Union. A recent study by the World Bank compared two groups of developing countries, dubbed the “globalizers” and the “nonglobalizers.” Collectively, the globalizers have doubled the ratio of trade to their gross domestic product (GDP) over the past twenty years, in part because of sharp cuts in tariffs on imports; the nonglobalizers, collectively, have seen a decline in their trade-to-GDP ratio over the same period (Dollar and Kraay, 2004). Among the globalizers, economic growth accelerated from 2.9 percent per year in the 1970s, to 3.5 percent in the 1980s, to 5 percent in the 1990s. In contrast, the nonglobalizers have seen their growth decline from 3.3 percent per year in the 1970s to 0.8 percent in the 1980s and 1.4 percent in the 1990s. The study also found that, among the globalizers, absolute poverty declined significantly and the degree of income inequality changed little.”
  • Martin Wolf, Why Globalization Works?. Yale University Press. 2004. ISBN 0-300-10777-3. pp 84. – “multinational companies possess vast knowledge and experience in virtually every area of economic activity. In particular, as was asserted in Chapter 4, it is inside these institutions that much of the economically useful knowledge of the advanced countries is developed, retained and applied. It is in the interests of countries around th world, but especially of developing countries, to gain access to that knowledge via foreign direct investment. Now, many developing countries recognize that foreign direct investment brings benefits that foreign borrowing does not. The direct investor is locked in and cannot flee the country whenever trouble strikes. If investors make reasonable profits, they will consider themselves long-term participants in the host country’s economy and often bring in more capital. Last and most important, direct investment brings substantial additional benefits that spill over into the domestic economy, including transfer of technology and managerial skills. In many developing countries, multinational corporations have been the most important way to train nationals in modern management and technology.”
  • “Poverty in an Age of Globalization “, The World Bank ,October 2000 – “It is important to distinguish between the incidence of poverty as a percentage of a total population and the absolute number of the poor. The share of the population in poverty has declined for developing countries as a whole (from 28.3% in 1987 to 24% in 1998 based on $1/day and from 61% in 1987 to 56% in 1998 based on $2/day) and in all developing regions except Sub-Saharan Africa and Eastern Europe and Central Asia. Declines have been pronounced and sustained over a longer time period for the most populous developing countries. For example, the incidence of poverty in India measured by the official poverty line fell from 57% in 1973 to around 35% in 1998, whereas the incidence of poverty fell from 60% to 20% between 1985 and 1998 for Indonesia. Standards of living have also improved. Infant mortality rates globally have been cut in half during 1970-1997, from 107 to 56 per thousand;and life expectancy has risen from 55 years to 67 years.”
  • Marian L. Tupy. “Free Trade Benefits All”. Washington Times, January 3, 2006 – “Evidence supports the idea nations more open to trade tend to be richer than those that are less open. Columbia University economist Arvind Panagariya wrote in a paper ‘Miracles and Debacles: Do Free-Trade Skeptics Have a Case?’: ‘On the poverty front, there is overwhelming evidence that trade openness is a more trustworthy friend of the poor than protectionism. Few countries have grown rapidly without a simultaneous rapid expansion of trade. In turn, rapid growth has almost always led to reduction in poverty.'”