Question

Why doesn’t Milner and Kubota’s (2005) argument about trade liberalization in developing countries apply to developed countries? (2.5 points).

Answer 1

The research paper written by Milner and Kubota specifically studies developing countries.

It finds that for globalization to be successful, international trade has to prosper. There should be no trade barriers.

Along with free trade, many developing countries are also moving towards more and more democracy. These two changes are taking place simultaneously.

They argue that moving towards democracy also moves a country towards free trade. Barriers to trade signify that the country is still not free enough. Here, freedom refers to the efficiency of markets. A market without barriers will be the most efficient.

Over a data span of 30 years, they find that democracy indeed reduces trade barriers. In a democratic country, the government is answerable to the citizens. Free trade makes everyone better off, both consumers and producers.

It is not that these points donot apply to developed countries. They actually do. It is just that most developed countries have by now achieved a decent level of democracy, and powerful governance measures. Their trade policies are already liberal.

Further, in most developing countries, labor is unskilled and in large numbers. By opening up to globalization and free trade, such governments would facilitate their labor to be more skilled. In developed countries, labor is already skilled and expensive.

Many developing countries are very highly protectionist, and this impedes trade. On the other hand, developed countries are quite open to trade of goods and services, labor, capital and natural resources.

Developed countries also trade a lot with developing countries, due to cost differences. Thus, the developed countries have already crossed many of the barriers that developing countries are still facing.