What are the advantages and disadvantages of liberalization?
Quick Answer
Liberalization is favored because it benefits consumers with cheaper and more varied goods and services. It helps companies diversify risks and direct resources to where profits are highest. However, it can lead to job losses and hurt developing industries. Liberalization is also tied to pollution and other environmental crises.
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Liberalization leads to free trade by removing obstacles such as tariffs and subsidies. Consequently, countries learn to specialize in what they can do best and yield maximum returns. Local industries focus on optimal use of land, labor, and physical and human capital. The total domestic production of goods and services is boosted this way. Since it opens markets to international players, exporters are able to access expansive markets for their products.
However, removal of trade barriers often subjects the domestic economy to the effects of international events. For instance, economic recession in one trading partner's economy can spiral into another's economy. This can hurt employees and consumers of affected economies. Likewise, international competition may hurt local industries, especially when importers are able to find cheaper alternatives from abroad and dump them in domestic markets. Sometimes, it’s best for governments to prop up young local industries by restricting foreign participation, according to opponents of liberalization.
Market liberalization works best if policies take into account the interests of all involved trade partners.
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