Why do developed countries want developing countries to liberalise their trade and investment? what do you think should the developing countries demand in return?

Key Points: • Globalisation is the process of rapid integration of countries. There are three types of movement within international economic exchanges. a) The flow of trade in goods and services. b) The flow of labour by the migration of people c) The movement of capital for investments over long distances • An MNC is a company that owns or controls production in more than one nation. MNCs set up factories for production is regions where they can get cheap labour and other resources so that they can get greater profits. • Integration of markets and production through trade and investments controlled by multinational corporations with huge wealth and power is one of the hallmarks of the present phase of globalisation. • Liberalisation is the process which removed the barriers to trade and investment and opened the economies to the forces of globalisation. • The benefits of globalisation have been unevenly distributed. It has benefited well-off consumers and also producers with skill, education and huge wealth. • International organisation like World Trade Organisation (WTO), World Bank (WB) and the International Monetary Fund (IMF) represent the interests of the developed countries for more than that of the developing world. • Globalisation has also created new opportunities for companies providing services, particularly those involving Information Technology (IT). • Critics of globalisations argue that globalisation harms democracy, workers rights and the environment is m...

Definition Trade liberalisation involves removing • Reducing tariffs • Reducing/eliminating quotas • Reducing non-tariff barriers. Non-tariff barriers are factors that make trade difficult and expensive. For example, having specific regulations on making goods can give an unfair advantage to domestic producers. Harmonising environmental and safety legislation makes it easier for international trade. Advantages of Trade Liberalisation • Comparative advantage. Trade liberalisation allows countries to specialise in producing the goods and services where they have a comparative advantage (produce at lowest opportunity cost). This enables a net gain in economic welfare. Trade liberalisation leads to removal of tariff barriers and the market price will fall from P2 to P1. This leads to significant increase in consumer surplus of areas 1+2+3+4. The net welfare gain is 2+4 • Lower prices. The removal of tariff barriers can lead to lower prices for consumers. E.g. removing food tariffs in West would help reduce the global price of agricultural commodities. This would be particularly a benefit for countries who are importers of food. • Increased competition. Trade liberalisation means firms will face greater competition from abroad. This should act as a spur to increase efficiency and cut costs, or it may act as an incentive for an economy to shift resources into new industries where they can maintain a competitive advantage. For example, trade liberalisation has been a factor in en...

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Developed countries want developing countries to liberalise their trade and investment because then the MNCs belonging to the developed countries can set up factories in less-expensive developing nations, and thereby increase profits, with lower manufacturing costs and the same sale price. In my opinion, the developing countries should demand, in return, for some manner of protection of domestic producers against competition from imports. Also, charges should be levied on MNCs looking to set base in developing nations.

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