Theory and Concepts of Free Trade

Introduction

The main aim of opening up and liberalizing free trade in economies of most developing nations has been to adjust the foreign trade affairs in order to enhance the relative stake in trade and production of tradeable products. This strategy for free trade has purposes that through lowering tariffs and elimination barriers of trade. Through free trade economy is able to run along its production prospect limit in such a manner that the exports and productions of the labor intensive products will efficiently improve as well as grow.

Topic 1: Concept of free trade

• Free trade is considered as a policy that eliminates the discrimination against exports and imports (Spiegel, 1991).
• Countries engaging in free trade enable their companies to import or ship goods or resources from international countries with low tariffs and no government restrictions.
• Governments that place tariffs or restrictions on imported goods tend to increase the cost of conducting business in the domestic economic market.

Topic 2: Theories that embrace free trade

• The theory of free trade is widely accepted by economist’s despite being rejected by others. Comparative advantage theory, neoclassical and classical and Keynesian theories assert that free trade in goods between countries is always an advantage the countries trading the goods (Meyer, 2017).
• Comparative advantage theory suggests that nations will engage in trade with each other through export and import of goods result to relative advantage in terms of productivity.
• Neoclassical and classical developed the theory of self-regulating systems backing for freedom in the market.
• Keynesian theory seeks for lower taxes to stimulate demand thus drawing the global economy out of depression

Topic 3: Developing countries in the context of Free trade theory

• Developing countries benefit from free trade through improving their access and increasing the amount of economic resources.
• Strong free trade policies enable economic growth
• Globalization and free trade benefits

References

Meyer, F. V. (2017). International trade policy. Routledge.

Spiegel, H. W. (1991). The growth of economic thought. Duke University Press.