Explains Why International Trade Agreements Are Beneficial for Developing Economies

International trade agreements have been a topic of discussion among economists, policymakers, and business leaders for decades. While some argue that free trade agreements have negative repercussions on developing economies, others claim that they are crucial for the growth and development of these countries. In this article, we will discuss why international trade agreements are beneficial for developing economies.

Access to New Markets

One of the significant benefits of international trade agreements is that they open up new markets for businesses in developing economies to sell their goods and services. This access to new markets can help increase revenue for local businesses and create jobs for the citizens of these countries. For example, the African Continental Free Trade Area Agreement (AfCFTA) has created the largest free trade area in the world, covering 55 African countries. This agreement has the potential to boost intra-African trade by up to 52.3%, leading to an increase in economic growth and job creation for African countries.

Increased Investment

International trade agreements also attract foreign investment to developing economies. When countries open up their markets to foreign businesses, it encourages them to invest in local companies and set up operations in these countries. This investment can lead to the transfer of knowledge, technology, and skills from developed to developing countries, which can help these economies grow and develop. The Trans-Pacific Partnership (TPP) agreement, for instance, aimed to boost economic growth in the Asia-Pacific region by removing trade barriers, attracting foreign investment, and promoting economic integration.

Lower Prices

International trade agreements also encourage competition, which can lead to lower prices for consumers. When countries remove trade barriers and allow businesses to compete on a level playing field, it creates more opportunities for consumers to benefit from lower prices and greater choice. Developing economies, in particular, can benefit from lower prices because it can increase the purchasing power of their citizens, which can stimulate economic growth.

Greater Economic Diversification

International trade agreements also encourage greater economic diversification in developing economies. When countries open up their markets to foreign businesses, it can lead to the development of new industries, which can help these countries reduce their reliance on a single sector or product. This diversification can help these countries become more resilient to economic shocks and create more stable economies in the long run. For example, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) has encouraged diversification in the economies of participating countries, leading to greater economic stability and growth.

In conclusion, international trade agreements can be beneficial for developing economies in various ways. They provide access to new markets, increase investment, lower prices for consumers, and encourage greater economic diversification. While it is true that free trade agreements can have negative impacts on certain sectors or industries, the benefits they bring to the overall economy of a country far outweigh the potential negatives. Therefore, policymakers and business leaders should continue to explore and negotiate free trade agreements that can promote economic growth and development in developing economies.