Research Articles Base: Free Market Economy

The Impacts of Free Market Policy on Economy (case study: in poor countries)

The Impacts of Free Market Policy on Economy Introduction The economies, in every parts of the world, are aiming for the thorough development and stability. In order to gain that advantage, different policies and regulations pertaining to the economy is launched. However, due to the impact of globalization and influence of modernization in the society, there are things that even government can find solution and in the end might affect the progress and growth of the economy. Reasons for Free Market The Economic Partnership Agreements of the countries includes the Free Trade Agreements (FTAs), among the several countries like Thailand, China, India, Australia, New Zealand, Japan and the US. However, in analyzing the effectiveness of the agreement, there is an identified economic impact on the respected countries. For an instance, Thailand has many reasons for the free trade policy and one of the reasons free trade agreements is to make the country more attractive place for foreign investment. The agreement provides investors with competitive advantages in the importation of raw materials, components and other production inputs. They also open new markets and industries to local and foreign direct investment, such as the ASEAN Investment Area (AIA) Agreement and the Thailand-Australia FTA, which enables Australian investors to own majority control of investments in selected industries in Thailand. This strategy and the formation of Free Trade Areas in East Asia would stimulate growth and investment, and improve welfare for Thailand. However, the impacts on income distribution vary with the integration scenarios, depending on the pattern of production and trade and the extent of trade liberalization in Thailand’s FTA partners (Chaipan, Nguyen, Ezaki, 2006). The Free Market Policy According to the free competition, there is a full and free competition among the free markets, free entry into business, and opportunities for the expression and growth of personal initiative and individual judgment is assured. In the application in a business like the small business sectors, the free market competition creates opportunity by entering in an economic system that is mainly free of competition. The development of the small business enterprises is encouraged through different business explorations (SBA, 2004). The Issue of Free Market Failure The market failure is a failure of certain markets to provide a socially efficient allocation of resources. The examples of potential market failure are the public goods like the street lighting or lighthouse protection, police services, air defense systems, roads, public parks and beaches. Public goods are not provided by the free market because of their nature, the private sector is unlikely to be willing and able to provide public goods. The government therefore provides them for collective consumption and finances them through general taxation. The other example are the merit goods whereas goods and services that the government feels that people left to themselves will under-consume and are goods that would be provided in a free market system, but would almost certainly be under-provided. Consumption of merit goods is thought to generate positive externality effects where the social benefit from consumption exceeds the private benefit. The merit goods can be in the form of health services, education, or work training (Farley & Daly, 2001). The government should emphasize the policies concentrating on the reduction of failures within the free market. First is through the market solutions wherein there is a change the costs of the activity to account for the negative externality. This usually involves the use of charges, taxes or subsidies. Second is through regulation / legislation that involve the government introducing legislation that regulates the externality to reduce it. Third are the property rights. For some negative externalities, such as, pollution, if somebody had ownership rights to the air, sea etc., then they could take the polluters to court for compensation. The provision of property rights would give individuals ownership rights on the sea, air etc. And fourth is through the tradable pollution permits that pertains to a modern development in the area of controlling negative externalities has been the use of tradable pollution permits. These can be used to control the degree of structural change and focus on tackling the worst culprits. Conclusion The aim of the government towards the sustainable economy should proceed with the applied policies and strategies. The free market policies can deliver the improvement within the area of concern of the government and therefore, can support the economy for the continuous development. References: Chaipan, C., Nguyen, T.D., Ezaki, M., (2006) Regional Economic Integration and its Impacts on Growth, Poverty and Income Distribution: The Case of Thailand [Online] Available at: http://www.gsid.nagoya-u.ac.jp/bpub/research/public/paper/article/147.pdf [Accessed 13 October 2010] Farley, J., & Daly, H., (2001) The Failure of the Free-Market on Full Planet. University of Maryland [Online] Available at: http://www.ulb.ac.be/ceese/STAFF/safonov/ISEERC2001/Paper/Farley_Daly_paper.pdf [Accessed 13 October 2010]. SBA, (2004) Small Business Act [Online] Available at: http://www.sba.gov/regulations/sbaact/sbaact.pdf [Accessed 13 October 2010].   Credit:ivythesis.typepad.com

The Impacts of Free Market Policy on Economy (case study: in poor countries)

The Impacts of Free Market Policy on Economy Introduction The economies, in every parts of the world, are aiming for the thorough develo...