Sample Essay on the Impact of Trade Liberalization on Developing Countries

Impact of Trade Liberalization on Developing Countries

In the past, developing countries only traded amongst themselves. However, in the third wave of globalization that began in the 1980s, trade became more liberal and developing countries began associating with their developed counterparts in trading activities. It is during this time that the participation of developing countries in the world markets began to take shape. As a result of the liberalization of trade, there has been rapid growth and poverty reduction in most developing nations. The reason for this is because; it has led to the creation of more markets such that developing nations are now able to get the best platforms that can earn them profitable returns. As a result of this, the economies of most developing countries have been lifted and living standards enhanced.

The liberalization of trade has a direct impact in promoting higher growth in various ways. It should be noted that the openness of trading activities reduces the cost of capital, thus creating efficiency in investment. As a result of this, there has been an increased influx of foreign direct investment to a number of developing countries. This has further simplified the procedures of the adaptation of advanced technologies, thus creating the attraction and implementation of new business practices. As if that is not enough, developing countries have now been able to establish new businesses and industrial networks within their borders, creating employment opportunities for their residents and increasing the overall productivity levels.


As a result of trade liberalization, there has been a significant change in the prices of exports and imports. The immediate effect is a decrease in the prices of imported good and an increase in export prices. As a result of these changes, there has been a direct impact on the income patterns and consumer behaviors in developing countries. Due to the decrease in import prices, domestic substitutes have also followed suit and are offered at reduced prices. This means that those living in the developing countries have been able to benefit greatly through acquisition of a variety of goods at low prices.

Despite the benefits that trade liberalization has offered to developing countries, it should be noted that it has also to an extent, reduced the market power of domestic firms. The reason for this is because; several foreign countries have been able to stamp their presence in most countries. And since foreign industries are more developed than domestic ones, they produce goods and services that are more competitive. Thus, domestic firms have had quit a hectic time in trying to sell their products. In fact, there are even some that have been phased out of the market because they cannot live up to the standards set by foreign firms in terms of production.

As much s trade liberalization can be viewed as a great step towards opening world market for developing countries, there is still need for the development and implementation of better policies and laws to safeguard the domestic industries from being thrown out of business by foreign firms.

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