Free trade is a form of trade in which countries sell goods to each other free of local government restrictions that otherwise prevent foreign competition. While often the subject of heated argument, World Trade Organization data has shown that free trade agreements can have some positive effects on Third World countries that take advantage of them.
To reduce poverty, developing nations need to sell their products and services to the broadest global market possible. Profit from exports to countries with which they have free trade agreements help their economies. Relieving protectionist policies that make imports from foreign markets expensive facilitates the production of goods made with imported materials. According to a World Bank study published July 2008 by the Office of the United States Trade Representative, the annual income gained by developing countries from the elimination of trade barriers has exceeded the money they've received from economic assistance and debt relief programs combined.
Free trade helps generate better and higher-paying jobs. Industries involved in the manufacturing of goods that are exported to foreign free trade partners recruit more workers. Reduced tariffs on the goods of small businesses in developing nations make their products more affordable on the world market, which helps these small businesses grow. Their growth results in the creation of more jobs. In the 1990s, when the United States enacted the Andean Trade Preference Act that gave Colombian exports duty-free access to the U.S. market, the program was considered beneficial to the Colombian labor market.
Improved Living Standards
World Bank research has shown that per capita real income has grown nearly three times faster for developing countries that have lowered trade barriers than developing countries that haven't. Free trade not only contributes to improved living standards of countries who engage in it, it gradually drives modernization and improved infrastructure. Public services such as sanitation, health care and drinking water are positively affected by the economic growth that free trade creates. As wealth is created, consumption levels rise, which contributes to further growth of the economy.
Increased Foreign Investment
Developing countries spurred to launch new products and expand production of existing products as a result of free trade, are better positioned to attract international financing and collaboration. As long as intellectual property protection is in place and agencies such as border control are well-structured, foreign corporations are more motivated to invest. Thailand, for example, encourages free trade and subsequently ranks among one of the most attractive investment locations in the developing world.
- International Chamber of Commerce: Free Trade Helps Developing Countries Catch Up
- World Trade Organization: Free Trade Helps Reduce Poverty
- Office of the U.S. Trade Representative: Trade Facts
- Thailand Board of Investment, North America: Doing Business in Thailand
- Embassy of Colombia: Baucus Commits to Pushing Colombia FTA, Expanding Trade With Colombia
- Photo Credit Jupiterimages/Comstock/Getty Images
What Are the Benefits of a Free Trade Zone?
Free trade zones eliminate many of the barriers to trade that increase prices for consumers and businesses.
About International Trade & Foreign Direct Investment
International trade and foreign direct investment (FDI) are tightly intertwined ideas. The simplest concept is that countries trade to receive what they...
How Free Trade Affects the Consumer
Free trade is the economic theory that companies should be allowed to import or export their goods without government intervention.
What Are the Positive Effects of Globalization in Business?
Globalization is a trend that has gained momentum throughout the twentieth century and into the twenty-first. Fueled by advances in communications and...
What Are the Benefits of Free Trade in Developing Countries?
In 1776, Scottish economist Adam Smith called for an economy where people could engage in trade with citizens of other countries free...