Free trade. Nonetheless, the impact of free trade on

Topic: EconomicsEconomic Problems
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Last updated: July 7, 2019

Freetrade enables inexpensive and quality consumer goods to be exchanged worldwidein spite of geographical boundary (Boudreaux, 2009).

Laos jointed The ASEANFree Trade Area (AFTA) in 1998. International trade plays an integral role inLao economic development and it contributes financially to poverty eradication (Kyophilavong,Record, Takamatsu, Nghardsaysone, & Sayvaya, 2016). Other expert mightclaim that there are disadvantages of Lao trade liberalization such as areduction in tax revenue and trade deficit (Suvannaphakdy, Tang & DiCaprio,2014). However, this essay will argue that socio-economic benefits include economicgrowth and rising living in Laos far outweigh the aforementioned drawbacks.BodyParagraph 1: Economic benefits a.       Opennessto trade enables Laos to export more domestic products such as agriculture andmineral goods to its trading partners without experiencing high tariff rates.As a result, Lao export companies are able to expand their markets oversea (marketexpansion).b.

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      Freetrade encourages market competitionamong domestic and foreign firms that specialized in particularproducts (e.g., textile, silksand gems). As a consequence, these firms will contribute actively to theeconomic growth. Jobcreation and income distribution are two key components needed foraccomplishing poverty elimination in most developing nations (United Nation,2013).

  In relation to this, compellingevidence from Kyophilavong and Oh (2013) and Kyophilavong, Record, Takamatsu, Nghardsaysone,and Sayvaya (2014) suggest that ASEAN Free Trade Area (AFTA) and ASEAN-Korea FreeTrade Area (AKFTA) have positively influenced economic inequality in Laos.  One of major benefits indirectly derived fromsuch trading agreement is wage increase for the working class (Kyophilavong etal., 2016). Along similar lines, Phommahaxay (2013) put forward the claim thatsince Laos opened itself to foreign trade and consequently FDI has flowedlargely into hydropower, mining and manufacturing sectors.  This is results in employment creation,allowing unskilled and skilled workers to access jobs and thereby reducing incomeinequality.  In contrast to this view, Pettis(2014) contends that German and China have experienced greater incomeinequality because of international trade.

Nonetheless, the impact of freetrade on inequality varies from one country to another and it may depend onmany factors including, trade pattern, characteristic of the economy, FDIpromotion policies to determine the favorable outcome of free trade. In thecase of Laos, most of the available evidence in relation to the impact of freetrade on poverty elimination  seems topoint out that wealth inequality improve partly due to free trade (Kyophilavonget al., 2016; Kyophilavong & Oh, 2013). However, the clear advantages ofinternational trade will be fully realized when proper infrastructures, anaccess to credit, education and the support of modern farmer practices areavailable countrywide (Soukavong, 2012). Apart from economic benefit, citizenbenefit gained from international trade should also be noted. A decline in thecost of living is likely to lead to higher purchasing ability of theunderprivileged ones, in turn, rising their standard of living (World TradeOrganization, n.

d., para. 3). Therefore, trade liberalization does matter tothe poor as a variety of products in the market become more accessible to them.To support this argument, Pavcnik (2009) states that, “Obviously, protectionismwould make consumers in poor countries worse off: higher import taxes makeimported products more costly and enable domestic firms to charge higher pricesas well.

This means that consumers can afford fewer goods”( para. 4). The samecase applies to Laos, the finding in Soukavong (2012) indicates that the importof commodity price have been reduced remarkably in 2007. Under thiscircumstance, low-income earners are able to afford consumption goods andcapital goods at lower prices thanks to AFTA. To further promote Lao trade, thereare a number of appropriate trading policies and FDI promotion policies neededin order to address the negative effects of free trade such as trade deficit(Kyophilavong et al., 2016).

Otherwise, maximum benefits of free trade areconfined to Lao’s major trading partners.On the balance,the overall picture seems to be that international trade helps foster Laosocio-economic development and therefore strengthen the poverty reduction. Economicgrowth and higher standard of living are attributed to free trade.   

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