The Positive Effects of International Trade on Emerging Countries

International trade is believed to exacerbate inequalities between Western countries and emerging countries. Some would argue that the world economy is dominated by transnational corporations which seek to maximise profits without any regards for the development needs of local populations. Some even go as far as to talk about a “race to the bottom” in which developing countries engage to lower environmental standards to attract foreign investment.

If there is no denying that international trade can have negative effects on less developed countries, it is not all doom and gloom as it can also create new growth opportunities.

Here are a few examples:

First of all, international trade can help reduce poverty. The best example is China, which, thanks to its strong enrolment in globalisation, experienced a growth in GDP per capita going from 949,18US$ in 2000 to 6807, 43US$ in 2013.

To continue, international trade creates automatically great opportunities for emerging companies to get into larger markets around the world. For example, Brazil has always had a strong agricultural sector but its expansion to larger markets in the world made it the biggest soy and beef exporter in the world.

It also allows businesses in developing countries to become part of international production networks and supply chains, thus, expanding beyond manufacturing into services. For example, it is now commonplace for European businesses to outsource functions such as data processing and customer service to African or Asian countries.

This is linked to international technology flows. Advanced telecommunications and the internet are facilitating the transfer of these service jobs from industrialised to less industrialised countries, making it easier and cheaper for emerging countries’ firms to enter the global market.

International trade can also lead to more access to capital flows. One of the countries that benefits the most from this is Indonesia, with a net foreign direct and portfolio investment total of US$23.2 billion in 2013, according to official balance of payments (BOP) data.

In addition to bringing in capital, outsourcing also helps prevent the so called “brain drain” effect as skilled workers may choose to remain in their home country rather than having to migrate to an industrialised country to find work. Mark Billington, the Regional Director of ICAEW South East Asia, recently spoke about this phenomenon in an interview for ABS-CBN News:”As we have seen, in China and India for example, emigrants are willing to return to their home countries despite wage cuts, so long as they are confident their sector of expertise exists. They can return to their home nation without fearing that their career progression will suffer.

Today, no one can deny that emerging countries which are part of international trade have a larger growth rate than those not taking part in it. With Western customers now increasingly advocating and engaging in international fair trade, let’s now hope that the benefits of international trade will be shared more equally throughout the world.


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