Free trade and economic development


It is widely accepted proposition that trade makes everyone better off. Some call it harbinger of prosperity, whereas, others label it as a cause of economic disparity. Nevertheless, the role of free trade cannot be undermined in the improving standards of living. We know that there is close relationship between  free trade and standards of living through economic development. Let’s see  free trade  and economic development in the present context.

Consumer welfare through increased choices

Freedom of choices is the measuring rod of the consumer welfare. More the  choices, better the standard of living.It can be only achieved by the means of a wide array of alternative products within the range of pocket. In the today’s competitive market, consumers and producers are price taker and consumers have great variety of products with minimum opportunity costs. This can only be possible with free trade and economic development.

In the last four or five decades, unprecedented growth in global trade  has been witnessed. So, the economic development and standards of living of people have improved substantially. This correlation between trade and welfare of people certifies that the consumers are becoming better-off with the free flow of goods and services.

Clearly,  it is  the outcome of specialization, obtained economies of scale and consequent low cost production. So, we can claim that the free trade system is largely ascribed to the better economic development, as well as increased standards of living.

Economic growth with sectoral balance

In the open market economies, no one has comparative advantage in every sector. This is the reason why there is always adequate room for everyone to specialize and participate in such market.

Usually, poor and developing nations have more advantage in primary, whereas developed have in both manufacturing and services. In short, there is no dearth of advantages to specialize.

In this way, free trade system directly or indirectly brings sectoral balance

 Growth in job opportunities

An effective means of livelihood is   none other than employment.Consumer demand and productive capabilitie are the major determinants of the rate of  employment. For demand, Consumer surplus with purchasing power is prerequisite. Whereas, abundant factors and assured market can augment the supply.

In simple words, the rate of employment and demand of consumers always go hand in hand.

 Competitiveness in the larger domestic markets

As per the “Preferences Similarities Hypothesis” such markets can be a launching pad for emerging national  actors to break into the global market by the means of obtaining economies of scale. The noticeable growth of MNCs from emerging economies proves this logic. It is.

 Market accessibility

Anyone  who has a comparative advantage can participate and take benefit of open market in the absence of barriers. It is better incentives for those who have either factor advantage or aspiring to be a global player. In the last three or four decades, various national actors have been surfaced at the global stage.

 Augmented capital flow

Motivation behind trade is profit. In the today’s age of technological explosion, nobody is self-dependent. We know that capital is one of the most effective factors of production. So, the demand for  capital requirement is common. In response to this, surplus capital is finding their channel to reach every nook and cranny. Ongoing capital inflow and outflow is the positive impact of open market.

Growth in Foreign Direct Investment

In the absence of barriers, like goods and services, capital often determines its directions in quest of better return. If we take a look at the global flow of capital, then we can say that the capital flow and economic growth is closely interrelated.

With the economic liberalization, most of the East Asian nations greatly benefited from the global capital productive inflow. Quality employment opportunities in these nations have increased, so the per capita income and standards of living.

Spillover of the invention and the State- of-the-art Technology

Open market is the best incentive to innovate. It also catalyzes evolution and development of product cycle, propelling the pace of productivity and product diversification. Today, people of world are experiencing spectrum of variety of new products with minimum price. This is the impact of constant research and development powered by free trade. *

Business literacy and bargaining benefit

Being the social animal, people tend to learn from their experiences, and surroundings. It is the common tendency to think at the margin while interacting in the competitive market where consumer is price taker.

Nowadays, through this practical way, consumers are becoming familiar with the sophisticated business procedures which are rapidly percolating at the local level. This is the the double benefit of people- as a consumer and as  learner.

Better means of entertainment sponsored by advertisements

With the electronic explosion, advertising has become the most effective means to reach consumer. By adopting this mean, many reputed MNCs and other actors are widely sponsoring the various programs and entertainment to lure people. In return, people are receiving benefit of entertainment without spending a lot of money. Otherwise, it would have been a expensive matter. As a result, it has become institutionalized and structure mode through which people are interconnected with one another.


In this way, free trade has a lot to offer. Benefits of free trade cannot be confined to mere economic well being. But, in reality, these are labeled as the transforming agent of human life in totality. At the same time, no system is absolute free from shortcomings. Hence, counter arguments also deserve careful attention.

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