Free Trade For Developing Countries

Free Trade for Developing Countries
1. Infant Industry Argument
* If developing countries wish to develop new manufacturing industries, they may struggle to compete on an international scale.* In short run, these countries may need tariff protection to enable their industries to develop.
2. May Prevent Diversification
* Development needs economies to switch from agriculturalsector to industrial sector.
* The marginal cost of production in agriculture is nearly zero. Moving to industrial production will be relatively costless.
* To diversify an economy protectionmay be needed.
3. The Senile industry
* If industries are declining and inefficient, they may require large investment to make them efficient.
* Protection for this kind of industries wouldact as an incentive to for firms to invest and reinvent.
* Protectionism could also be an excuse for protecting inefficient firms.
4. To diversify the economy
* Many developing countriesrely on producing primary products.
* However relying on agricultural products has several disadvantages:
1. Price can fluctuate due to environmental factors
2. Goods have a low incomeelasticity of demand.
5. Raise revenue for the government
* Import taxes can be used to raise money for the government.
* Only will be a small amount of money.
6. Help the Balance ofPayments
* Reducing imports can help the current account.
* In the long term, against free trade is likely to lead to retaliation
7. Protection against dumping
* If one country sold a lot ofits food surplus at very low prices on the world market, this caused problems for world farmers, because they saw a big fall in their market prices.
* Definition: Dumping
* Dumping is aninformal name for the practice of selling a product in a foreign country for less than either (a) the price in the domestic country, or (b) the cost of making the product. It is illegal in some...