David Ricardo's Theory of Free International Trade - Essay Example

Ricardo contributed many important theories in the field of economics. Almost two hundred years back he presented the idea of comparative advantage (Salvatore, 1995, p.2). This contribution gained popularity after his death and now is one of the most popular concepts in the developed world to grow their economies. Unfortunately, these implementations are resulting in many negative outcomes for poor nations or poor all around the globe.

How the ideas of David Ricardo have affected our nations.  

The classic defense to free trade was already established by Ricardo; now free trade is the main debate amongst all developing nations, especially poor countries, which suffer the most. Almost  23 years after his death, Ricardo’s idea of free trade was picked as a public policy by Britain (Formaini 14). Free trade and comparative advantage no doubt was a great work by Ricardo; however, many poor countries suffered due to his theory.  Rising prices of health and other commodities are a growing concern of all nations, but the idea of free trade and other trade agreements are positive for developed countries and multinational companies. For example, If U.S. workers are more capable of producing Product “A” than the UK, and the UK is more capable of producing Product “B” than the U.S., then both countries can benefit from comparative advantage. The disadvantage is if any nation cannot produce any of the products or produces a lower-quality product, it will continue to suffer (Carbaugh  34).

    Why the General Agreement of Trade and Tariffs was created?

 The agreement initially was between a few countries, to increase the use of resources, for mutual benefit, for the exchange of goods, for increased production and economic benefits, to grow the economy, to foster employment to reduce the trade barriers amongst these nations, and to get tariff benefits. These benefits are mostly for countries that have good production and the most desirable business conditions, attracting many foreign companies to their homeland.  Through these foreign direct investments, foreign companies generate revenues and huge profits for their home countries. For developed nations these types of agreements are most beneficial, developing countries with good trade policies and economic and political stability are also getting maximum benefits.  Unfortunately, poor and third-world countries are still lagging behind. Over 110 countries so far have entered into a reciprocal trade agreement. The basic incentive to create such an agreement was to impose order on trade flows after World War II by America and some of its allies (Carbaugh 187).

Impact of WTO

 There are many reasons to say WTO is not in the favor of many nations, nor does it help all economies to grow and prosper. The main criticism of WTO is that it is very undemocratic. It impacts most areas of society, yet it is not termed a democratic and transparent institution (Global Exchange 2). The agreement between rich countries for economic benefits makes other countries unhappy, as they suffer due to these unbalanced agreements.   At the same time, they also trample many human rights acts and labor acts; it makes many essential institutes privatized. This, in turn, raises the costs of living in poor countries for basic state-provided services (Global Exchange 3).

            Has international trade helped nations achieve growth?  

 Many critics explain international trade as a growth factor, they use the terms globalization, WTO, free trade, and trade agreements as great factors of growth. The argument can be presented that these terms are related to growth, but for only big international organizations and developed nations. The rich countries are more benefited by this international trade than the poor countries. This international growth increased poverty instead of helping the poor of the world (Anderson 22).

Conclusion:

          From all the above discussion it is evident that Ricardo’s theory for comparative trade and free trade is a great contribution to economics, however,   it gets utilized well by rich countries and unfortunately affects poor people of every nation.  The concept of international trade is only beneficial for rich countries or for multinational corporations operating all around the globe.