Our world has become a village and the globalization movement has picked up momentum requiring governments and individuals alike to adapt to these changes in the understanding that their growth or indeed survival depends on it. Globalization has been fuelled by a consistent practice of free trade whose growth necessitates breaking down several legal and fiscal barriers in order to make cooperation easier and flow of capital and investments across the globe more effective.
Growth of companies and increased competition requires that companies seek markets in foreign countries and mutual benefit dictates that bilateral efforts between trading partners be equal and for that an abolition of significant reduction of tariffs and licenses becomes mandatory. Free trade therefore has led to the adoption of capitalism across the globe with only a small fraction of countries still clinging to communism as a form of economy (Bhagwati 2002).
However, free trade was not always the preferred form of a market system in the early days and the status quo has been brought through the influence of great economists and philosophers alike whose advocacy against traditional economic practices led to the present free international trade. The first prominent form of international trade was mercantilist which tended to favor the accumulation of precious metals. The mercantilist economists favored strong protectionist policies which included high tariffs and restricted movement of labor and resources.
The Dissertation on Role of Trade in Economic Growth
‘International Trade and Economic Growth in Developing Countries’ Neil Foster • Introduction by facilitating the transmission of technology across borders. • It has long been thought that international trade can increase a country’s growth rate. Until recently however the argument for free trade was based upon static considerations of specialisation and the international division of labour. While ...
The emergence of liberal economists like Richard Cobden and Adam Smith led to a systematic attack against such practices and a sustained effort to replace it with free market. This market will be characterized by reduced government control, abolition of restrictions and relying on the forces of demand and supply to determine prices. However, Karl Marx felt that although free market under capitalism was a brilliant and effective form of market structure, he nevertheless felt that it led to segregation of society and that such a system would collapse and be replaced by a classless society under communism (Marx, 1999).
