Historically, it has been understood that trade--the free exchange of goods and services--is a tool for creating wealth. We have recognized that voluntary interactions of producers and consumers in the market lead to job creation, profitable specialization of industries, and reduction of production costs. As a result, many countries have sought to enter into agreements to encourage more trade between them and other nations, thereby fostering mutual economic growth or development.
Indeed, trade and economic development are inextricably linked. Developing nations are a case in point. Since, for example, China and India have opened their markets, these countries have seen a hitherto unprecedented economic growth--the kind of growth that lifts millions of people out of grinding poverty and provides them and their families with much-needed advancement opportunities.
At the same time, international free trade has also caused controversy. Issues such as offshoring and outsourcing of jobs, increased competitive pressure, and creative destruction of national industries have led to a lively debate about how much of such trade a country should engage, particularly in order for the benefits to outweigh the costs. The question has been raised whether all countries with trade agreements are better off than before.
This topic provides an overview of the continuing debate over trade and trade policies, and considers the evidence regarding the relationship between trade and economic development.