Trade openness refers to the degrees to which a country or economy permits or have trade with other countries or economies. The trading activities include that of import and export, foreign direct investment (FDI), borrowing and lending, and repatriation of funds abroad.

Economic growth is defined as the increase of per capita gross domestic product (GDP) or other measures of aggregate income. Plainly, it is the annual increases in a country’s total output of goods and services.

Open economies generate greater market opportunities for commodities they produce and those they are unable to because of lack of resources or technology associated with its production. At the same time domestic countries are also faced with greater competition from businesses based in other countries.

International trade has been the main driver of growth and development in the last few centuries. It encompasses the exchange between countries of capital and goods and services. Hence, represents a significant share of Gross Domestic Product. Without international trade countries would be limited to the goods and services produced in their own country.

In terms of financial development trade openness enables a way to obtain funds from other countries that, and also invest its surplus funds in other countries. It also leads to greater efficiency as surplus production of one country can be exchanged for surplus production of another country.

OVERVIEW OF ISSUES COVERED IN THE ARTICLE

The article provides an analysis on the link between trade openness and economic growth.

The dynamic effects derived from trade are:

Trade openness has been identified as a promoter of structural change in the economy, enhancing processes already underway due to technological advances and allowing domestic resources to shift from less productive to more productive uses.

The effects from trade are not always favorable to all economies. For the developed countries trade increases the market of resources that they use in the production of other goods, mostly that of natural resources.

Trade has the potential to lift developing countries out of poverty. This can be through the elimination of trade barriers by the developed economies. For example if the developed countries reduce their tariffs and protection on agricultural produce, that are the main source of revenue for developing countries, the developing countries could gain significantly through the boost in exports of their commodities.

Moreover, trade openness can aid strengthen the drivers of productivity through six ways:

By enabling more efficient allocation of resources- by channeling resources of countries into the production of those goods and services that it can produce most efficiently and also through the exchange of surplus production with countries that have a different comparative advantage.

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Enable achievement of greater economies of scale- this comes about with the expansion from the domestic market to the world market. Hence removing this constraint would allow industries to produce on a more efficient scale.

Trade also increases the incentives for firms to innovate and with larger markets firms will be driven towards expanding their production leading to an overall productivity in the economy.

It would also trigger greater competition- whereby domestic firms with the exposure to increased competition would innovate. Thus leading to birth of more competitive firms capable of competing in the world markets.

Increased access to new technology- Trade enables reach of products that incorporate new technology. This is because with more open trade structure the different stages of production process can be carried out in other countries which are more technologically advanced.