Is Free Trade More Successful in Promoting Development than Aid - Essay Example

Is free trade more successful in promoting development than aid? [Topic] Is free trade more successful in promoting development than aid? Free Trade Economists have promoted the concept of free trade constantly. They claim that free trade is the best policy regarding trade. Many men and women are doubtful regarding the concept of free trade, they believe that free trade will increase choices for consumers and their local firms should be protected from foreign competition. The citizens of United States of America should understand the true value of free trade for their own country for example New York can provide with banking, Michigan can produce cars and Texas can provide with petrol and gas stations. This way all the fifty states of the United States trade freely amongst each other and enjoy success. (Blinder, 2008) However David Cameron suggests that Africa does not need free trade. African success is dependent on the declination of the concept of free trade that has evolves from the western world. This way Africa will be able to protect their home industries and will develop alternative ways of trading (Dearden, 2011). Development Aid Through development aid long run growth of the least developed countries is encouraged. It can assist in building large projects, giving financial help, helping regarding the balance of payments or providing budget for activities like research and development. $131 Billion has been given by the United States since 1946 in the form of development aid. Development aid has momentously impaired the developing countries from growing as through this the role of the public sector increases and citizens rely on the government. The basis of development aid is that developing nations do not have the sufficient amount of finances to grow. However personal, cultural, public and political factors are what also effects a country’s growth other than development aid. Aid allows serving officials to increase their power through political support. In communities where political power plays a significant role, people in power tend to use these funds gained through developmental aid to build up their position, reward their followers and pay money for crushing their opposition (Majewski, 1987). Free Trade against Development Aid Individuals naturally want to trade with one another; they try to use their personal skills and resources to their best advantage. Due to the restrictions and rules imposed by the government trade is limited as government gets in the way. Paying little respect to their terms of trade settled with developed countries, developing countries could increase the amount of success they achieve through trade if they eliminated the self created barriers they have made. However trading with other countries is not very simple, it requires vast infrastructure like roads, railways, ports and education that will increase the number of proficient officers who can create trading rules. Without the assistance of foreign aid developing countries are not able to develop such infrastructure. This restricts them to take part in efficient international trade. Trade enables developing countries to improve; it allows them to be flourishing trade partners. Along with building their own economy and improving their manufacturing and services sector, developing countries need to build up their trade infrastructure. For instance this would make them further concentrate on a stable exchange rate, improved administration and political stability. On the other hand openings for trade are very limited due to the barriers imposed by the international arrangement. Market economics and pro-trade advocates have different views when it comes to trade. The international trade market symbolizes everything except free trade, tariffs, takes, subsidies, government regulations and other restrictions exist which stands as a disadvantage to some trading countries. Developing countries due to their weak negotiable position are the losers in this case as compared to the developed countries. The protectionism scheme imposed by the European Union and the United States of America disables developing countries to compete fairly in the trading market. One of the troubles with the current development aid structure is that due to this the developing countries who receive aid have a misconception in their minds that the Western countries are rich and are able to provide them with huge sums of money. It can also give an impression that the aid is given without any concern or surely without good judgment as huge numbers of the people who regulate aid may be considered to be as ethically vague associates within dictator administrations. This increases the expectations developing countries have regarding developed nations. People living in those countries who receive the development aid decide to move to the seemed rich states which give them aid, hoping that they would prosper there, however when reality hits them it can cause issues. It can also be said that trade is an incompetent way for distributing resources among people equally at both the micro and macro level. Small chunk of elite will benefit mostly from trade as they are the ones usually who can afford to buy and sell goods and services. Aid when compared with trade, is targeted directly at those who need it, for example local groups, churches and mosques. Financial aid given by countries is usually spent in all the wrong places. It may focus on large projects and centralization which is usually not required and benefits only a few numbers of people. Developing countries are very weak. Trading in the international market can be a huge risk for them. Home industries might be destroyed if cheap imports are available to citizens of that country. In the long term countries will become dependent on goods that are produces only for trading like rubber, coffee, cocoa etc. this will not allow them to self sufficient. All countries are not always successful in trading, this may be because some countries do not have enough resources or raw materials to produce enough to be provided in local markets and exported. Due to the existence of trade developing countries are allowed to hold on to their decorum. Aid is usually seen as a demeaning idea, even if the reasons it is required for are very strong. It can considered as a form of charity, as there is one country who is providing aid and is considering itself to be higher than the other country, this can be very discomforting for the other country and its citizens. A trading relationship would enable countries to stand as equals with other countries; they would earn money on the basis of trade rather than some country giving them charity. Factors of production like land, labor and capital can be acquired through free trade. Land refers to the natural resources that are found in a country, developing countries usually do not have enough natural resources. Due to free trade small countries are enabled to get hold of those resources that they need to produce consumer and capital goods. Free trade can also improve the standard of living for the citizens of a country. Goods that are not produced in the country can be easily attained through importing them, which is made easier through free trade. For a developing nation it might be cheaper to import goods and services rather than producing them. Another positive effect of free trade is that it will improve the countries relations with foreign countries. Developing countries usually receive a number of international threats. Free trade will also allow them to improve their military power, infrastructure and political stability. Productive efficiency can also be improved through the idea of free trade. Every country is able to produce some specific good in which they specialize. Free trade allows those countries to reduce the gap in their production processes (Vitez, 2014). Is free trade more successful in promoting development than aid? Free trade can be considered as more successful than aid. When a country emphasis on trade rather than aid it readdresses concentration from developing countries to developed countries. People stop concentrating on their own country and concentrate more on the country that is providing them with aid. They stop paying attention to what they are capable of doing. Due to no barriers on trade, developing countries can earn huge sums of profits. The entire population will benefit from these profits, this will allow the people to earn more money and spend more, citizens of the country will also start investing more in their own country. It always better for a country to be self-sufficient rather than paying debts to those countries which provide them aid. This will allow developing countries to maintain their pride. Free trade will help a country in stabilizing their exchange rate against other countries. Free trade enables countries to find out what they are capable of producing; they might have comparative and absolute advantage over other countries. When people will sit at home and receive money that is given to them to them by their government which they have received in the form of financial aid people will not be motivated to work, however free trade will allow people to use their skills and resources in the right places and also get rewarded for their hard work. When people will start earning more, they will pay more taxes, which will allow the government to raise more revenue than before, which is can be used in replacement of foreign aid. References Free Trade: The Concise Encyclopedia of Economics | Library of Economics and Liberty. 2014. Free Trade: The Concise Encyclopedia of Economics | Library of Economics and Liberty. [ONLINE] Available at: http://www.econlib.org/library/Enc/FreeTrade.html#. [Accessed on 24 April 2014]. Third World Development: Foreign Aid or Free Trade? : The Freeman : Foundation for Economic Education. 2014. Third World Development: Foreign Aid or Free Trade? : The Freeman : Foundation for Economic Education. [ONLINE] Available at: http://www.fee.org/the_freeman/detail/third-world-development-foreign-aid-or-free-trade. [Accessed 24 April 2014]. Trade vs Aid | Debatewise Where great minds differ. 2014. Trade vs Aid | Debatewise Where great minds differ. [ONLINE] Available at: http://debatewise.org/debates/2795-trade-vs-aid/. [Accessed 24 April 2014] The Benefits of Free Trade for Developing Countries | Chron.com. 2014. The Benefits of Free Trade for Developing Countries | Chron.com. [ONLINE] Available at: http://smallbusiness.chron.com/benefits-trade-developing-countries-3834.html. [Accessed 24 April 2014] Read More