Economic Development and Trade in an Era Term Paper

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Economic Development and Trade

In an era of increased globalization and advancements in technology, it has become increasingly important for all of the nations of the world to keep bringing improvements in their economic infrastructure and to expand their businesses on the global scale. It has been observed that without a reasonable level of economic development any country cannot gain a competitive position in the world market. This is the dilemma faced by most of the developed nations of the world.

In this paper we will examine as to how economic development of any country promotes the trade and business and how free trade and liberalization in trade policies, on behalf of the governments, help the businesses to flourish and effectively compete in the world market. We have covered the issues related to the economic development of the developing nations and has discussed the aspects that have caused hindrance in the economic development of these countries. Finally we have cited the example of a developing country (India) and has discussed as to how liberalization in trade has helped it in making remarkable achievements with respect to economic growth and to bring improvements in its industry and trade.

Barriers to economic development:

With the increased globalization and expanding of businesses on a global scale, the global market is becoming increasingly competitive. As the underdeveloped or developing countries are striving to come to the level of the developed nations, they are also considering to expand their business horizons and to expand their businesses worldwide in order to get the benefit from the reduction in barriers to free trade.

However, for the developing nations the journey has never been so easy and they have been facing a number of obstacles in their drive to progress as a developed and prosperous nation. (Levitt, 1983) Among the major barriers are the problems of economic and political uncertainty faced by these countries. Lack of technological expertise and non-availability of skilled personnel to bring advancements with respect to technology is also a major area of concern (I). Although some of these countries have taken constructive measures in this regard and have invested a considerable level of their annual budgets for the development of sciences and technology but in most of the cases the approach used by these nations was wrong. (Jeffrey G, 1998) Governments of the developing nations used to believe that they can "import' technology but purchasing technologically advanced equipments for their industries and by hiring foreign professionals for the maintenance and operations of these equipments. However, they ignored the fact that real advancement in science and technology can only be brought by training the local workforce and by educating the local population. In order to bring technological improvements in this countries, it was needed that these countries should invest in scientific research and development and encourage their local population to participate in such productive activities by awarding scholarships to the talented students, by giving awards and recognitions for any innovation made by anyone.(i) In addition to this, investment in the educational sector was also highly desirable in these countries but all such factors were ignored by the governments of these countries. Instead of this, these countries have been continuously adopting the strategy of "purchasing" the new technologies from the developed nations which resulted in their dependency on the developed countries with respect to technology. This provided the developed nations an edge over the developing countries in international trade. Even in their domestic markets, the business organizations of these countries were not much successful in comparison to the foreign multinational organizations operating in those regions. (Dani, 1998)

Apart from the lack of technological expertise and advancement in technology, there are several other reasons as well that have been continuously hindering in the economic development of these countries and in turn are creating obstacles in expansion of trade in the international markets. (i) Political and economic instability is also one of the major reasons. As most of the developing countries in Asia or Africa were colonies of western countries like Great Britain and France, they gained independence in the mid of the twentieth century. Since their independence most of these countries have been suffering from uncertainties in their political and economic environment. (Justin Lin, 1998) Corrupt government officials and fraudulent industrial lords have been exploiting the general public and creating chaos and uncertainties in the region. Differences of interests among these countries have resulted in wars and have prevented them from directing their resources to some productive activities.

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Conflict between Iran and Iraq and the internal conflict between several groups in Afghanistan that lasted for years are some of the examples. The absence of a stable economic and political environment in these regions discouraged the foreign investors to invest their money and therefore there have been a minimal inflow of foreign direct investments in these countries. Even if some of the foreign companies took the courage to make investments, they have not found these regions to be much profitable. The reasons were the corrupt practices of government officials, lack of support from the governments of these countries to encourage business, increasing poverty and high rate of inflation prevailing in the region. (Balassa, 1998)

Unequal distribution of power and wealth - a major barrier:

It is widely accepted by the economic experts that the strong economic development is a result of an equal distribution of power and wealth among different groups in a society. This diffusion of power and wealth take place over a long span of time and is usually observed when several groups, which exist in a society, negotiate with each other. They form their alliances with groups that have more power and wealth. As a result, groups with less power tend to gain more power. With the span of time, this process leads to the formation of an institution that creates the foundation of free market economies. This diffusion or balance of power and wealth further leads to the development of a range of political and economic institutions in the country. This helps in the structuring of an open and liberal democratic system. (Justin Lin, 1998) However, where leaders and rulers are in a habit of dictating the development of the economic and political institutions, as is the case with developing countries, power and wealth tends to be concentrated in the hands of a certain group. The absence of the right to claim their privileges among the most seriously affected groups ultimately weakens the existence of moderate institution.

It is therefore obvious that the problems of economic development in the developing countries are as much political as they are considered to be economic. More specifically speaking the problem of economic development faced by most of the developing countries is institutional.

The absence of fairly liberal political and economic institutions has restrained these nations to truly utilize their resources and workforce. It is a great pity that the economists of these countries have failed to recognize the basic rule of economic development that it is not primarily an economic phenomenon, but is dependent on the existence of efficient and functional political institutions that are answerable to a wide range of societal interests. That is why the policies adopted by the governments of the developing countries, to simply alter the economic policies of the country without tackling the problem of nonexistence of democratic institutional structures has prevented these nations from enjoying long-term prosperity. (Balassa, 1998)

The diffusion of power and wealth among all the groups of the society allows the individual members of the society to freely choose their economic occupations and business. Therefore, diffusion of power and wealth promotes economic development. This makes it possible to create democratic governance in the country. Though most of the developing countries claim to have institutions of democracy but having the institutions of democracy does not mean that power and wealth are diffuse.

In most of the developing countries the rulers are in actual dictators despite the fact that they were elected. Moreover, it has been observed that in countries where there is more liberalization for trade, the economic development has been the greatest. In these countries, the private sector has made the regulations instead of the feudal, autocratic rulers or even religious leaders. (Robert C, 1998) These policies were formed keeping in view the interests of individuals from all of the social groups. In the initial stage several agreements were formed which were respected and repeated by the society and after a reasonable span of time they were being adopted into the legal system. Such free market institutions can only be formed when there is no intervention of the government or any other powerful group in the process. Nevertheless, in case of developing contributions continuous and abrupt interventions of the governments and other powerful institutions have hindered in the formation of a free trade market and thus there has been less or no economic development. The economic decline in majority of the developing countries is the result.....

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