Free Trade and Protecti Essay

1077 WordsMay 28, 20125 Pages
onProtection can be defined as any form of government action that gives domestic producers an artificial advantage over foreign competitors. Free trade can be defined as a solution where governments impose no artificial barriers to trade that restricts the free exchange of goods and services between economies with the aim of shielding domestic producers from foreign competitors. The argument of free trade is based on David Ricardo’s economic theory of comparative advantage which states that if one country can produce a certain good more efficiently than another country, trade will benefit both countries if each specializes in the production of the good in which it is comparatively more efficient. Pascal Lamy, Director-General of the WTO recently stated that he expected world trade to rise by 14.5% in 2010 due to the “wisdom governments have shown in rejecting protectionism”. Indeed the reduction of protective measures such as tariffs, subsidies and local content rules has enabled some country’s economies greater access to the global economy and with it the benefits of free trade. Reduced levels of protection have indeed accelerated the globalization process, and the development of an increasingly intertwined global economy. Furthermore the deregulation of national markets has led to an increase in Direct Foreign Investment, the growth of trade and the growth of Transnational Corporations (37000-79000 since early 1990’s). Some of these benefits, however, have not reached the developed economy with the high income economies receiving 2/3 FDI in 2007, developing economies of Africa, received less than 3% of net FDI. The rapid proliferation of regional trade agreements around the world since the 1990’s is indicative of increasing levels of trade. Ironically although accelerating levels of trade, the establishment of closed trading blocs such as the EU and NAFTA are

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