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The Effects of Fair Trade on the Third world Countries

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The former group or the group belonging to the orthodox though are known as the liberalist and the second group which is strictly against the free trade and in favor of protection are known as protectionists.1. Free trade encourages the international division of labor. It implies that free trade promotes specialization according to comparative advantage and in this way, there is an international division of the workforce according to the efficiency. That implies free trade would bring about the global efficient allocation of resources. (Unger 2007,)3. In his famous theory, The Vent for Surplus, Adam Smith has argued that the underdeveloped economies are generally having the problem of surplus labor. Trade would create higher demand for the product of the underdeveloped economies and consequently, the room would be created for the utilization of the surplus labor. Hence free trade would solve the problem of unemployment and underemployment in the underdeveloped economies. (Chacholiades 2006)4. It is often argued by the neoclassical economists that trade enables an underdeveloped economy to enjoy the fruits of the technological progress in its developed trading partner. The technological progress in a developed country would be reflected in the reduced cost of production and enhanced quality of the product. That would enable the underdeveloped economy to reap the benefits of technological progress in the developed economy through better quality of imported goods at lower price. (Salvatore 2007)5. It is often argued by the classical and the neoclassical theorists that free trade would be beneficial for the country. They opined that the opening up of the domestic market would invite foreign producers to sell their commodity in the domestic territory. That would ensure a higher level of competition and the consumers would be able to get the better quality of the product at a lower price.