Academic journal article The Journal of Social, Political, and Economic Studies

Developed vs. Developing Countries and International Trade Liberalization: A Comparative Analysis

Academic journal article The Journal of Social, Political, and Economic Studies

Developed vs. Developing Countries and International Trade Liberalization: A Comparative Analysis

Article excerpt

I. Introduction

Since Adam Smith's defense of free markets and David Ricardo's formulation of free trade theory, the costs, benefits, and beneficiaries of free trade have been the subject of contentious debates by scholars, government policy makers, and organized interest groups.1 Consequently, there exists a rich body of literature on winners and losers from international trade. In the classical free market tradition, free trade based on comparative advantage and specialization encourages competition, market efficiency, and growth in income. As a result, economic benefits of trade to consumers and the society far exceed the costs to those workers who lose jobs because of import competition or select domestic enterprises losing market share because of cheap imports.2 The Heckscher-Ohlin theorem amplified the free trade thesis by emphasizing specialization based on factor endowments as the drivers of production and trade and key determinant of comparative advantage.3

The economic critique of free trade theory, in contrast, questions the assumption of a level playing field and conclusion regarding the distribution of gains and costs from trade liberalization. Critics warn of the effect of free trade on infant industries vital to long-term competitiveness. Others have criticized free trade and its consequences on moral and sociopolitical grounds. One line of criticism is that free trade aggravates income inequality and harms human rights, especially labor rights, because major countries play by different rules. Further, externalities in the form of harm to the environment, national security and other sociopolitical costs are not factored into economic gains from free trade.4

These charges notwithstanding, there is near consensus on the net benefits of free trade to society. The data from a 2006 survey of 83 notable American economists are most revealing. The survey found that "87.5% agree that the USA should eliminate remaining tariffs and other barriers to trade," and "90.1% disagree with the suggestion that the U.S. should restrict employers from outsourcing work to foreign countries."5 Mankiw, the noted Harvard economist, and advisor to Mitt Romney's 2012 presidential campaign, best summarized the prevailing thinking, "Few propositions command as much consensus among professional economists as that open world trade increases economic growth and raises living standards."6

There is an abundance of theoretical and empirical works regarding various facets of the economics of free trade. A sizeable body of literature has examined the effect of reforms, notably elimination of quotas, reduction of tarifflevels, strengthening reciprocity measures, and the effect of trading bloc "trade diversion" to member states.7 In contrast, there is inadequate commensurate quantitative work on the magnitude and pathway of the liberalization of the trading regime itself. To be sure, an abundance of research has focused on global systemic factors and their effect on the liberalization of the trading system. Scholars have examined the role and impact of the World Trade Organization (WTO) in reforming the trading system; reducing global systemic protectionism, in particular, the opening of China; and the increasingly significant role of other fast growing emerging market economies in East Asia and elsewhere.8 Yet in spite of the expansive body of work, limited attention is paid to empirically documenting the magnitude of trade liberalization.

A quantitative profile of the degree of liberalization in trade and doing so on a comparative basis across the two broad aggregate grouping of countries, the developing countries versus the developed countries, has not received adequate attention. This study is a preliminary attempt to ameliorate this void. In particular, in order to shed light on trade liberalization, we identify and quantitatively highlight trade liberalization metrics, notably export share of GDP, correlation between exports and income, and document changes in the size of exports as a percentage of economic output. …

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