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Explain how Trade and Investment Liberalisation benefits individual economies?

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Explain how Trade and Investment Liberalisation benefits individual economies? By Dylan Harapoff The liberalisation of trade and investment has increased greatly alongside the upsurge in globalisation due to financial and trade deregulation inturn bringing unprecedented benefits to individual economies. The removal of trade barriers such as tariffs, quotas and subsidies has caused a 16-fold increase in world trade since 1950. Consequently this has allowed for greater efficiency through specialisation, the expansion of markets for local producers, diffusion of technology and new ideas, greater consumer sovereignty and finally economic growth. Financial liberalisation on the other hand exists through foreign directory investment or portfolio flows which allows for higher labour productivity and income levels, an increase in the standard of living, technology transfer and the creating of new jobs and markets stimulating the exporting of capital and intermediate goods bringing benefits to both developing and developed countries. Critics of globalisation have placed much blame for the growing environmental and job insecurity around the globe to the globalisation phenomenon, however studies prove that market liberalisation promote labour and environmental standards. It is generally accepted that there is a direct link between trade and economic growth. Trade promotes growth in a number of ways; it creates specialisation, new markets and technological improvements. Economic growth is extremely important in benefiting individual economies as it increases the number of goods and services per capita in a nation thus making them cheaper inturn boosting the standard the living. ...read more.


Despite stern arguments that trade liberalisation causes labour market outcomes such as job insecurity and lower wages in unskilled industries due to competition from low wage, low labour-standard developing countries. On the other hand such impacts have been caused by labour saving technological change and shifts in the demand and movement in the business cycle. In addiction these outcomes have been modest compared to the benefits experienced in other industries. On average, 1% in the increase in the ratio of trade to GDP increased income per person by 0.5%. Benefits for the consumer are immense. They experience cheaper, better quality and a larger variety of goods and services, which comes as a direct result of trade liberalisation. Reduced production costs and market competitiveness advantage consumers greatly. In addiction global consumer trends are beginning to develop once again showing the greater access of cheaper products that trade liberalisation brings. Tax concessions seem to also be a surprising result of market liberalisation as the Uruguay Round alone delivered a tax cut estimated at more than $200 billion per annum. The overall benefit for consumers is a higher standard of living and a bridge in Investment liberalisation in the form of FDI and portfolio flows have also provided benefits to individual economies. Opening economies up to foreign investment has been the greatest determinant in economic growth and job creation. ...read more.


In recent years it has be proved that firms and sectors operating where FDI is intense have higher average labour productivity and pay higher wages. This is because outward investment enables firms to remain competitive therefore supporting employment at home as higher profits translate to greater labour standards across the host and recipient nations. Figure 2 outlines the payoff from FDI for wages in individual economies. Portfolio flows also provide benefits however being founded on a speculative nature their volatility often creates negative side-affects. Portfolio flows are generally the day-to-day movements of capital to foreign countries such as shares that do not acquire a controlling interest. The liberalisation of portfolio investment has seen similar benefits to that of FDI flows such as job growth however the greatest must be in the speculative market and short-term finance generation for developing nations. As indicated by the International Monetary Fund foreign exchange turnover which comprises 95% of speculative investment has a turnover of 10 times that of GWP and 70 times of world trade. This expansion of markets is beneficial towards economies, as it creates short-term capital flow proving to be vital for stimulating economic growth however as witnessed in the Asian crises of 1997 and 1999 it can be formed on false investment causing a rapid downturn. 1 Globalisers are defined as the top one third of the 72 developing nations measured on their growth in trade compared to their GDP. 2 Relative efficiency in the production of a product 3 Graham, 2001 ...read more.

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