Latin America Trade Liberalization: Economic Development

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Trade liberalization is the free movement of goods and services between countries. While many have argued that trade liberalization opens up industries and markets without many barriers, critics against trade liberalization serves to the advantage of the developed economies while the less developed economies continue to suffer.

Some of the factors which have been attributed to criticizing liberalization of trade is the fact that with removal of trade barriers, the structural employment only occurs in the short run while in the long run most people lose their jobs since most of the industries in the less developed economies are unable to compete with similar industries in developed economies especially those found in Africa, Asia, and Latin America.

Liberalization of trade also leads to overdependence on the international markets. As a result, this makes businesses and employees of the industries in Latin America and other Less Developed Economies become more vulnerable to downturn of the trading partners as it happened with the recession in the USA whose effects were felt through out the world. In contrast to how the proponents argue, trade liberalization does not offer a level playing ground between the developed and the less developed economies.

This is due to the fact that most developed countries produce in excess due to their advance technologies and thus most of the time they tend to dump their surplus productions in world markets at very low prices and this leads to losses for the home industries. Finally, trade liberalization serves to the disadvantage of governments in cases of financial crisis.

Whereas the people of certain countries would expect the government to protect its internal industries so as to maintain stable employment levels, with trade liberalization this is not possible since introduction of a barrier would be against the objectives of free trade (Nenci & Pietrobelli 5).

Economic growth of any country depends on how good or how best that country allocates and utilizes its scarce resources, the rate at which the population is growing as well as the technological and institutional organizations of that country. Different countries vary in their resource endowments and this brings out the different trade relationships that exist.

The issue of diversity in economic growth performance has attracted arguments among the economics scholars with some indicating that aspects of government economic policies, particularly the trading policies generate the growth rate dispersion. While high performing economies benefit from liberalization of trade, countries which are import oriented have been trapped in the cycle of inflation, stagnant exports, and slow productivity growth.

This is due to the fact that the developed economies can most of the times flood the market with cheap products and services which has been enabled by their superior technologies which aids them in achieving economies of scale faster than the less developed economies. While the contrasting growth patterns cannot be explained by trade liberalization, it is obvious that it has had negative effects (Kawai 375).

In this paper we shall cover how trade liberalization has changed business opportunities and economic development in Latin America. With barriers of trade having been reduced as a result of trade liberalization, the less developed economies within Latin America region have struggled to stay afloat.

Despite the lost job opportunities, there are also new jobs which are created in the manufacturing sector. With trade liberalization, developed economies have shifted their industries from their homeland to the less developed economies in the Latin America region due to the availability of labor thus creating new and sometimes even better paying jobs.

Trade liberalization serves as an advantage to countries whose costs of productions are very high. Due to trade liberalization, government of less developed economies in Latin America have been able to import cheap products from better endowed trading partners and this has given the citizens of these countries to afford goods and services they could not have afforded without liberalization of trade.

According to the Ricardian model of international trade, countries tend to specialize in producing goods and services which require the minimal costs.

Due to the comparative advantage exhibited by the different capital endowments different countries within the Latin America region possess, countries have been able to specialize in what they can produce cheaply thus attaining economies of scale earlier than if they could try to produce everything by themselves and then they import those goods and services which they other countries have specialized in producing and in return this has led to low prices of goods and services in the market serving as an advantage to the majority.

The informal firms have also of late come under increased pressure to legitimize their operations an issue most are against as this would expose them to unfair competition from big firms (Fandl 10).

Works Cited

Fandl, Kevin. “Beyond the Invisible: The Impact of Trade Liberalization and Formalization on Small Businesses in Colombia.” Gmu, 2010. Web.

Kawai, Hiroki. “International Comparative Analysis of Economic Growth: Trade Liberalization and Productivity.” Ide, 1994. Web.

Nenci Sylvia & Pietrobelli Carlo. “Does tariff liberalization promote trade? Latin America in the long-run (1900-2000).” Etsg, 2007. Web.

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Latin America Trade Liberalization: Economic Development

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