Economic free trade and trade liberalization

Quoted from Backing Up Globalization with Military Might The world is becoming more globalized, there is no doubt about that. While that sounds promising, the current form of globalization, neoliberalism, free trade and open markets are coming under much criticism.

Economic free trade and trade liberalization

Economic liberalization refers to a country "opening up" to the rest of the world with regards to trade, regulations, taxation and other areas that generally affect business in the country.

As a general rule, you can determine to what degree a country is liberalized economically by how easy it is to invest and do business in the country. Removing Barriers to International Investing Investing in emerging market countries can sometimes be an impossible task if the country you're investing in has several barriers to entry.

The economic liberalization process begins by relaxing these barriers and relinquishing some control over the direction of the economy to the private sector. For related reading, see: Unrestricted Flow of Capital The primary goals of economic liberalization are the free flow of capital between nations and the efficient allocation of resources and competitive advantages.

Economic liberalization refers to a country "opening up" to the rest of the world with regards to trade, regulations, taxation and other areas that generally affect business in the country. Multilateralism vs. Regionalism. In the post World War II period many nations have pursued the objective of trade liberalization. One device used to achieve this was the GATT and its successor, the WTO. Trade liberalization has become a ‘hot button’ issue in world affairs. Many countries have seen great prosperity thanks to the disintegration of trade regulations that had otherwise been considered a harbinger of free trade in the recent past.

This is usually done by reducing protectionist policies such as tariffs, trade laws and other trade barriers. One of the main effects of this increased flow of capital into the country is it makes it cheaper for companies to access capital from investors.

Economic free trade and trade liberalization

A lower cost of capital allows companies to undertake profitable projects they may not have been able to with a higher cost of capital pre-liberalization, leading to higher growth rates. We saw this type of growth scenario unfold in China in the late s as the Chinese government set on a path of significant economic reform.

With a massive amount of resources both human and naturalthey believed the country was not growing and prospering to its full potential. Thus, to try to spark faster economic growth, China began major economic reforms that included encouraging private ownership of businesses and property, relaxing international trade and foreign investment restrictions, and relaxing state control over many aspects of the economy.

Stock Market Performance In general, when a country becomes liberalized, stock market values also rise. Fund managers and investors are always on the lookout for new opportunities for profit, so a whole country that becomes available to be invested in tends to cause a surge of capital to flow in.

The situation is similar in nature to the anticipation and flow of money into an initial public offering IPO. However, like an IPO, the initial enthusiasm also eventually dies down and returns become more normal and more in line with fundamentals. Political Risks Reduced In addition, liberalization reduces the political risk to investors.

For the government to continue to attract more foreign investment, other areas beyond the ones mentioned earlier have to be strengthened as well. These are areas that support and foster a willingness to do business in the country, such as a strong legal foundation to settle disputes, fair and enforceable contract laws, property laws, and others that allow businesses and investors to operate with confidence.

Also, government bureaucracy is a common target area to be streamlined and improved in the liberalization process. What risks do organizations face when engaging in international finance activities?

Diversification for Investors Investors can also benefit by being able to invest a portion of their portfolio into a diversifying asset class. In general, the correlation between developed countries such as the United States and undeveloped or emerging countries is relatively low.

Although the overall risk of the emerging country by itself may be higher than average, adding a low correlation asset to your portfolio can reduce your portfolio's overall risk profile.

However, a distinction should be made that although the correlation may be low, when a country becomes liberalized, the correlation may actually rise over time. This happens because the country becomes more integrated with the rest of the world and becomes more sensitive to events that happen outside the country.

A prime example of this is the European Union EU and its unprecedented economic and political union. The countries in the EU are so integrated with regard to monetary policy and laws that a crisis in one country has a high probability of spreading to other countries.

Economic free trade and trade liberalization

This is exactly what happened in the financial crisis that started in Weaker countries within the EU such as Greece began to develop severe financial problems that quickly spread to other EU members. The Bottom Line Economic liberalization is generally thought of as a beneficial and desirable process for emerging and developing countries.

The underlying goal is to have unrestricted capital flowing into and out of the country to boost growth and efficiencies within the home country. Trading Center Want to learn how to invest? Get a free 10 week email series that will teach you how to start investing.By William Krist Economists have had an enormous impact on trade policy, and they provide a strong rationale for free trade and for removal of trade barriers.

Although. Dec 13,  · The recent Asia-Pacific Economic Cooperation (APEC) summit in Peru was abound with free trade rhetoric, but without the support of the incoming US . The Impact of Trade Liberalization on Poverty Except where specified, the views expressed in this publication do not reflect the views of the U.S.

Agency for International Development or . Trade liberalization has become a ‘hot button’ issue in world affairs.

Trade: Chapter Economic Integration: Overview

Many countries have seen great prosperity thanks to the disintegration of trade regulations that had otherwise been considered a harbinger of free trade in the recent past. The removal of or reduction in the trade practices that thwart free flow of goods and services from one nation to another.

It includes dismantling of tariff (such as duties, surcharges, and export subsidies) as well as nontariff barriers (such as licensing regulations, quotas, and arbitrary standards).

The United States, Japan, China, and other countries have also negotiated bilateral free-trade agreements with individual nations or regional trade associations; such agreements generally open trade in some areas while preserving the protection of politically sensitive economic sectors.

Trade Liberalization