Trade openness and competitiveness

By Syed Sadaqat Ali Shah

The vital for accomplishing prosperity and subsequent growth and development, peace, people-to-people interaction and economic advantage is trade openness. Trade openness facilitates under-developed countries in various styles and ways. Knowledge sharing, technological transfer, employment boom in developing countries or countries that have proclivities toward imports because of several reasons, cultural acquaintance through tourism and hence trade openness promote aggregate development in countries engaged in trade.

Grossly speaking, the uneven trade among trading partners has infused unwanted disequilibrium in global market, either due to incompetence displayed by countries in assessing their domestic proficiency in producing competitive goods to meet demand in international market or due to scarcity of skills to exploit endowed natural resources efficiently which, if not mobilized, are exploited unfairly by elite at the expense of poor and destitute. The business elite who possess sufficient capital to exploit gifted resources, without any subjection to criticism, prefer exportation of product produced in host country.

Putting it plain, trade openness is a path to economic growth, prosperity peace and, above all, integrated economies around globe. Trade agreements among countries display a mixed picture. A September 2014 Pew poll, for instance, indicated that while there is strong support for trade in developing countries, the picture is more mixed in advanced economies, specifically in perception of employment and wage effects ( Pew Research Centre, 2014), mentions World Economic Forum in a report.

Trade openness is stimulated by countries to achieve diversification and to avoid recession (the idea of trade openness or liberalization is rooted in painful events prior to World War I, Great Depression and subsequently emergence of International Trade Organization) or any economic shocks. On the one hand countries vie for grabbing high market shares from their rival competitors in international market. On the other hand trade liberalization is lamented for that big economies eat shares of smaller countries and even influence small countries’ market, thereby lowering local productivity and transforming it into consumer market.

Openness is like thinking out of the box. Trade openness is vital for economic growth and for reaping dividend in international market. Trade openness has transformed world economies into an era of continuous evolution; intensification of competition in global market, job creation, deepening economic integration, firms’ movement to low cost localities without any restrictions and most importantly poverty alleviation are all consequences of trade liberalization.

Since the inception of World Trade Organization, with the aim and mission to facilitate world trade, dozens of countries joined WTO camp to grab maximum opportunities in international market. The shares of developing countries in global trade since 1970 have doubled, close to almost 40 percent of global trade, indicated WEF in a report. Such situation led to three fold benefits and an opportunity to earn money; benefits for national government, profits for industries and benefits for individual in the form of freedom of choice.

Government through trade agreements with trading partners fills in the needs of her citizens by importing the requirements from various countries offering the product at competitive price. The government engaged in trade if finds a product expensive enjoys freedom of choice and opts to buy from another country offering the same product at a more competitive price. At the same time government of a country explore markets for products produced domestically to earn sufficient foreign exchange.

Industries, likewise, multiplies production to meet market demand, both nationally and internationally. Large production backed by efficiency adds to profitability of industry. Such scenario has given birth to ‘battle of talent’ and this is what capitalism believes. India’s professionalism in IT, for instance, has long been recognized by global market. India’s IT sector for this reason is earning massive currency for the national economy. So trade openness matters both for domestic economy and foreign economy.

At individual level the benefits a customer reaps are now unprecedented because he enjoys freedom of choice in choosing product of his choice. He has uncountable choices to buy product of his choice offered in the market at various competitive prices. So what if trade openness did not exist? His freedom of choice conspicuously would have been shackled and limited to few brands of the same product.

Trade openness for these reasons has been defined as engine of growth for countries engaged in trade and for these reasons and this is where competitive agenda kicks in. Competitiveness as per definition of WEF the set of factors that determines level of sustainable productivity of economy, be it a world, a continent (or macro region), nation, region or even a city (World Economic Forum, Global Competitiveness Report, 2014). Trade liberalization is followed by competitiveness which is then followed by professionalism, talent and efficiency.

Openness comes with risk and costs. Openness if mismanaged can yield detrimental consequences and that domestic growth is put at risk. The question whether trade openness has improved or sustained global growth rate is ambiguous. On the one hand developing countries, in particular, have experience considerable growth. On the other hand trade openness has increased dependencies of developing countries, like Pakistan which has gained nothing from trade openness but have become consumer market over a decade, on import which has worsen their current accounts.

It is up to countries how well and efficiently they transform their capabilities and potential into opportunities and rewards. The tools to accomplish success and competitiveness are obvious.

The policies- efficient public administration, timely decision making, favorable business environment, better law and order situation, and regulation relevant to business environment should be transparent and without any confusion. The state’s policies and regulation should be consistent with international standard. Policies and regulation if favorable give birth to stable market and boost investors’ confidence in long term. Inconsistent and opaque business policies deter investors and instead results in capital flight which eventually shrink opportunities for domestic economy in international market. The aftershocks are felt nationally in terms of unemployment, deteriorating economic growth, the foreign reserves and social imbalance or inequalities.

Developed, in fact competitive, economies do well in competitiveness for several reasons; they have conducive and favorable business climate, transparency in policies, regulations and, above all, transparent tax laws, high saving rate, maintenance of peace, strong financial system which transform public saving efficiently into loans to private sector operating within boundaries of country. These are in fact essence of good governance and competitive economy.

Simultaneously for achieving competitiveness and to tap unexplored markets under umbrella of trade openness the significance of better infrastructure including higher-quality roads and transport system, qualified and skilled labor force cannot be shirked and ignored. The former can be achieved through immense allocation of funds to public investment by government while latter can be accomplished by allocating massive funds for Research and Development.

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Syed Sadaqat Ali Shah

Syed Sadaqat Ali Shah is a researcher and works on banking regulations, competition and reforms.

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