Free trade helps developing countries catch up
The World Trade Organization has issued a study showing that developing countries that are the most open to trade are the ones catching up with rich countries.
Introducing the report, WTO Director-General Mike Moore said: “This report confirms that, although trade alone may not be enough to eradicate poverty, it is essential if poor people are to have any hope of a brighter future.”
The WTO Director-General noted as an example that South Korea was as poor as Ghana 30 years ago. Thanks to trade-led growth it is as rich as Portugal today, he said.
The study, by Dan Ben-David of Tel Aviv University and Alan Winters of Sussex University, finds that, in general, living standards in developing countries are not catching up with those in developed countries. But some developing countries are catching up – the ones that are most open to trade.
The study concludes that “trade liberalization is generally a strongly positive contributor to poverty alleviation – it allows people to exploit their productive potenti al, assists economic growth, curtails arbitrary policy interventions and helps to insulate against shocks.”
Referring in a speech in London to the study’s findings equating economic convergence with openness to trade, Mr Moore said “This is particularly good news for China. The liberalization that joining the WTO requires will give another big boost to Chinese living standards.”
Mr Moore conceded that, in the short term, some people do lose from globalization. As trade barriers fall, foreign competition forces domestic firms to specialize in what they do best, rather than making goods that can be more efficiently produced elsewhere.
He suggested that the hardship of such people should be eased with welfare benefits and job retraining, not by putting a halt to globalization. “The temporary losses of a few should not prevent a country from reaping the much bigger – and permanent gains – from free trade.
“After all, the interests of candle makers were not allowed to stop the introduction of electricity. Nor are governments scrambling to stop the internet cutting out middlemen,” The WTO Director-General said.