Role of International Trade in the Development of Emerging Market Economies

International trade contributes mainly to the gross domestic product (GDP) of various countries over the world. Emerging economies have primarily benefited from the developed countries, which injecta considerable amount of funds to diversify economic activities in these states (Zheng and Tan 2011, p.20). Among the countries that have been beneficiaries are China, Asia, Russia among others. Due to the growth and expansion of trading activities, adoption of standard policies to regulate the actions of businesses hasbeen embraced globally (Castillan.d).  The stable economy such as that of U.S forms the benchmark for other developing nations, which are in the nascent stages of attaining full command in the market.

 Due to the improvedrelations among the states, emerging market economies have improved tremendously, and their growth prospects are expected to rise in the coming years (Barrios et al. 2016, p.324). In the sectors of IT and transport, developing nations, whose performances are under emerging market economies have experienced new changes, thus attracting more revenue.Fung (2010, p.3) defines emerging market as the one whose per capita income is low. Based on his argument, he affirms that such countriesconstitute a global population of 80% and contribute an insignificant 20% to the world economy (Egger et al. 2009, p.514). Furthermore, market liberalization and favorable policiesallow other nations with vested interests to find opportunities to invest. The following paragraphs will discuss the impacts of international trade on the performancesof the emerging market economies.

Provision of Additional Capital to Steer Economic Growth

Multinational enterprises (MNEs) have continued to dominate the global markets, by expanding their operations to other places. The opportunities presented in the developing economies are enormous, which attract foreigners to invest. The host country benefits in the form of job creation, increased revenue collection, improved knowledge,and other subsidiary inputs. Based on the research conducted by Ito(2013,p.575), he affirmed that the technological and production activities that happen in the so-calleddeveloping countriesemanate from the superpowers, whichhavefinancial muzzles to make massive investments. One of the examples is Apple Companythat has an enormous presence in China. For the fiscal year that ended in the year 2017, Apple Companyrecorded 70% revenue increase in China (Gopalan 2016, p.567). The country was branded as one of the developing nations, but it’s now competing with United States’ economy. The heavy presence of foreign companies (Nath 2008, p.308), has helped the state achieve its millennial goals.

The study conducted by Nath (2008, p.311) indicated that influx of companies in India increased the export and import of goods and services in the year 2017, by 40%. According to his argument, the recorded increase was partially contributed by the local industries, and international firms, which boosted the nation’s productivity. The state’s resources have been used to benefit the populace through improved standards of living. This is in line with the Huckster-Ohlin model, which advocates for utilization of available resources, to promote the economic performance (Suzuki 2014, p.268).

Fostered trade agreements

Trading happens through some form of the accords, set corporately by the interested parties. Different countries are governed by distinct jurisdictions. The uniqueness of every country’s tradingpolicies might fail to favor another. The state of conducting business has changed as the time progress. The move has been necessitated by the fact that every nation has a specific product, which another requires. Variousgovernments convened to stipulate the policies and agreements that would serve the international communities (Zhang et al. 2014, p.47). Formation of bilateral, regional and multilateral compositions emerged, that ensured removal of impediments that discouraged people from exchanging goods and services.  Organizations such as EU of 1957 provided open trade across Europe. Additionally, emerging economies benefit from such organizations, since they get help regarding ideas and even financial support, to improve sectors such as health, education, and transport among others. Castilla (n.d) contends that by Russia joining World Trade Organization (WTO), it benefited from improvedtechnological innovations and opened ways to channel their products to overseas markets. The gravity model elucidates that trading is not linearly related to the GDP of the partnering nations, neither is it limited by the geographical distance. Based on this model, people can engage in trade irrespective of their residences, when the favorable market environment prevails (Barrios et al. 2016, p.340). Various governments should focus on abolishing tariffs that stall the citizens from importing and exporting goods.

Improves Technological Transfer

The rate of technology acquisition in the emerging economies is developing at a rapid pace. Hosting some of the big technology companies such as Apple, have been linked to the continued improvements, which are changing the manufacturing sector immensely. Through international trade, Soviet Union State was able to induce the new changes in China, to make the country what it istoday (Egger et al. 2009, p.520). The paradigm shift in the realm of technology that is witnessed in China has placed its economy far above compared to those of other developing countries. Additionally, India has benefited fromthe employment of technology acquired from foreign nations in the processing of milk, producing 13.1% of the milk consumed in the world (Ito 2013, p.580). Improved processing methods have made the state to compete with other countries such as United State and Germany, in the same line of production. In the same vein, comparative advantagemodel takes precedence. It advocates for specializing in what the country is best at producing, which India has capitalized on, through importation of modern technology knowledge.

Conclusion

International trade helps nations to acquire what they don’t produce.  Althoughtrading among countries is a way of generating revenue, various governments agree on the terms and policies to guide the process. Some laws are designed by professionals, detailing the tasks of every party involved in the process. Emerging economies benefit mostly, through the acquisition of modern technology, provision of capital and fostering agreements. Liberalization of market and imposing of lighter terms of trade are the significant responses that the various governments offer, as means to facilitate importation and exportation. It is, therefore, essential to protect the host country industries, to prevent discouraging the local investors. Moreover, foreign companies should disclose the real value of their goods to avoid the cases of dumping. This would reduce rifts among the nations.

References

Barrios, S., Gorg, H., andStrobl, E. (2016). Foreign direct investment, competition and industrial development in the host country. World Scientific Studies in International Economics, 323-346.

Castilla, L. (n.d.). Latin American and East Asian Trade Strategies. Growth and Development in Emerging Market Economies: International Private Capital Flows, Financial Markets,and Globalization, 218-260.

Egger, P., Larch, M., Pfaffermayr, M., and Winner, H. (2009). The Impact of Endogenous Tax Treaties on Foreign Direct Investment: Theory and Empirical Evidence *. The Effect of Treaties on Foreign Direct Investment, 513-540.

Fung, H. (2010). Trade, Economic Growth, and Financial Markets. Chinese Economy43(1), 3-4.

Gopalan, S. (2016). Foreign Bank Presence and Financial Development in Emerging Market and Developing Economies: An Empirical Investigation. International Trade and International Finance, 565-584.

Ito, T. (2013). Export-Platform Foreign Direct Investment: Theory and Evidence. The World Economy36(5), 563-581.

Nath, G. C. (2008). Role of Clearing Corporation in Indian financial mark development. Macroeconomics and Finance in Emerging Market Economies1(2), 307-311.

Suzuki, Y. (2014). Sovereign risk and procyclical fiscal policy in emerging market economies. The Journal of International Trade & Economic Development24(2), 247-280.

Zheng, P., and Tan, H. (2011).Home economy heterogeneity in the determinants of China’s inward foreign direct investment. Transnational Corporations20(2), 1-28.

Zhang, Y., Cui, G., and Chan, T. S. (2014). The Internationalization of Emerging Market Multinationals: Effects of Host and Home Country Institutional Factors. The Rise of Asian Firms, 45-64.

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