Does Free Trade Lead to
Exploitation of Developing
Countries?
S
Kristi Beattie, Todd Duncan, John Ray, Shashi Shankar
Benefits of Free Trade to
Developing Countries
Contrary to popular belief, free trade has a
number of benefits for developing nations
such as:
S Environmental Benefits
S Labor Benefits
S Economic Benefits
Environmental Benefits
S Free trade has proven to help
environmental issues in developing
nations, as is evidenced in:
S Improved environmental regulations
S Improved technology for industries
S Negative correlation between foreign direct
investment and S02 emissions.
Environmental Benefits:
Improved Regulations
S “Income effect”
S Exports rise and the standard of living in the
host country improves
S People demand more stringent environmental
regulations
Environmental Benefits:
Advanced Technologies
S “Technique effect”
S Domestic plants can learn from foreign
invested plants that often use more advanced
technology
Environmental Benefits:
Negative Correlation between
FDI and S02 Emissions
S A study in China indicates that there is actually
a negative correlation of .43 between foreign
direct investment and SO2 emission in the
industrial sector (significance level of 1%).
S Estimated SO2 emission in a foreign invested
factory is .5 kg per employee, whereas in a
domestic factory it is .98 kg.
Environmental Benefits
S Earlier assumptions
S Developed countries move their manufacturing operations to
countries with relatively lenient environmental policies,
providing advantage in producing pollution intensive goods.
S However, free trade can actually increase the
standard of living, leading to increased
environmental regulations and advanced
technologies.
Labor Benefits
S Free trade has helped the labor force in
developing nations, as is evidenced in:
S Improved women’s rights
S Increased employment opportunities
Labor Benefits:
Improved Women’s Rights
S Social and cultural boundaries cause women to
be majority of unskilled workers.
S Free trade provides a large number of low-skill
jobs, in turn providing a lot of jobs to women.
S Leads to job competition between men and
women and decreases the gender wage gap.
Labor Benefits:
Increased Employment
Opportunities
S Some argue free trade causes individuals to
work for unfair pay.
S However, developing countries struggle with
high unemployment.
S People are happy to have these jobs.
S These jobs are better than the alternative.
S These jobs assist people to attain higher life
satisfaction and ultimately join the middle class.
Economic Benefits
S Free trade has helped developing nations
grow their economies, as is evidenced by
trends in:
S GDP
S Shrinking poverty levels
S Types of exports
S Investment and trade between developing nations
Economic Benefits:
GDP
S 5% per year increase in GDP in the 1990s for
developing nations that embraced trade.
S 1% per year decrease in GDP for developing
countries that did not lower trade barriers and
increase trade.
Economic Benefits:
Shrinking Poverty Levels
S Concurrent with the increase in globalization
in the 1980s and 1990s, the number of people
living on $1 per day fell 375 million (a 50%
decrease).
Economic Benefits:
Types of Exports
S 20 years ago, raw materials made up 80% of
the goods exported from developing nations.
S In 2004, manufactured products made up 80%
of goods exported from developing nations
that embraced trade, while those that did not
(in Africa) continued to export primarily raw
materials.
Economic Benefits:
Investment & Trade Between
Developing Countries
S In 2004, developing nations invested $40
billion in other countries.
S Trade between developing nations has been
increasing. As of 2007:
S Indian-African trade = $25 billion
S Chinese-African trade = $55 billion
Economic Benefits
S Overall, free trade has led to increased GDP
for developing nations. That GDP is reflective
of more jobs, more exports, and better wages
for those nations.
But there are some cases of
exploitation...
S Oil in Nigeria
S Sweatshops
S Shifts to other developing countries
Conclusion
Even though there are a few cases where
exploitation did occur, free trade is very
beneficial to developing countries. This is seen
through improved environmental regulations,
an enhanced labor force, and a rising economy.