Effect of Trade and Investment Liberalisation on Individual Economies

Effect of Trade and Investment Liberalisation on Individual Economies

The liberalisation of trade and investment has increased greatly

alongside the upsurge in globalisation due to financial and trade

deregulation inturn bringing unprecedented benefits to individual

economies. The removal of trade barriers such as tariffs, quotas and

subsidies has caused a 16-fold increase in world trade since 1950.

Consequently this has allowed for greater efficiency through

specialisation, the expansion of markets for local producers,

diffusion of technology and new ideas, greater consumer sovereignty

and finally economic growth. Financial liberalisation on the other

hand exists through foreign directory investment or portfolio flows

which allows for higher labour productivity and income levels, an

increase in the standard of living, technology transfer and the

creating of new jobs and markets stimulating the exporting of capital

and intermediate goods bringing benefits to both developing and

developed countries. Critics of globalisation have placed much blame

for the growing environmental and job insecurity around the globe to

the globalisation phenomenon, however studies prove that market

liberalisation promote labour and environmental standards.

It is generally accepted that there is a direct link between trade and

economic growth. Trade promotes growth in a number of ways; it creates

specialisation, new markets and technological improvements. Economic

growth is extremely important in benefiting individual economies as it

increases the number of goods and services per capita in a nation thus

making them cheaper inturn boosting the standard th...

... middle of paper ...

... the speculative market and short-term finance

generation for developing nations. As indicated by the International

Monetary Fund foreign exchange turnover which comprises 95% of

speculative investment has a turnover of 10 times that of GWP and 70

times of world trade. This expansion of markets is beneficial towards

economies, as it creates short-term capital flow proving to be vital

for stimulating economic growth however as witnessed in the Asian

crises of 1997 and 1999 it can be formed on false investment causing a

rapid downturn.

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[1] Globalisers are defined as the top one third of the 72 developing

nations measured on their growth in trade compared to their GDP.

[2] Relative efficiency in the production of a product

[3] Graham, 2001