Impact of Trade Liberalization on Developing Countries

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Impact of Trade Liberalization on Developing
Countries

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Introduction

• In the past, developing countries only traded
  amongst themselves.
• This has changed in the 3rd wave of
  globalization.
• This begun in the 1980s.
• Trade has become liberal.
• Developing and developed countries are trading
  now.
• This has led to rapid growth and poverty
  reduction.
• Economies of most developing countries have thus
  been lifted and living standards enhanced.

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Impacts of Trade Linearization

• It has promoted higher growth.
• Openness of trading activities has reduced the
  cost of capital.
• This has resulted to efficiency in investment.
• Increased influx of foreign direct investment to
  a number of developing countries.
• Attraction and implementation of new business
  practices.
• Establish new businesses and industrial networks
  for developing countries.

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Effects on Imports and Exports

• The immediate effect is a decrease in the prices
  of imported good and an increase in export
  prices.
• This has had a direct impact on the income
  patterns and consumer behaviors.
• Decreased import prices has led to low domestic
  substitutes prices.

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Negative Effects

• Reduced the market power of domestic firms.
• This is because several foreign countries have
  been able to stamp their presence in most
  countries.
• Their goods and services are more competitive.
• Domestic firms have found it hard trying to sell
  their products.

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