"In developing countries the major concern is that economic liberalization, motivated by the desire to benefit from the growth of the world trade and investment flows, will generate high transitional unemployment and cause an increase in inequality." (Lee, 1996, p.490)
When the current account is liberalized, foreign firms can sell their products in the domestic market. This situation confronts local firms with foreign competition. Consequently, domestic competition may drive a firm to reduce employment in order to be more competitive in the market.
This situation occurred in Mexico. "The real appreciation of the peso resulted in slow economic expansion, which affected especially the tradable goods sectors. This slow expansion implied sluggish job creation, especially in manufacturing". (Ros & Lusting, 2000, p.7) The growth in international trade contributes to productivity and increases the average wage levels. 'However, even as international trade increases the overall levels of wage, it may also increase inequality'. (Taylor, 2002, p.35)
Open trade can yield many economic benefits to nations, but those benefits are not evenly distributed among the populace. The danger is that growth, which benefits only a small minority of the population, increases inequality and can lead to social disintegration. This in turn ultimately affects the standard of living in a society.
Income inequality seemed to increase for several reasons. For example, in Argentina, productivity increased in the traded-goods sector affecting all skill levels, especially unskilled workers. 'The reason for this situation was attribute to the rising income concentration in the non-traded sector, along with greater skill intensity of new investment and to the rise of unemployment in traded goods' (Taylor, 2000, p.47)
Colombia also suffered this phenomenon. People with low skill levels suffered real-wage reductions or lost their jobs as consequence of the bankruptcy of many small companies. On the other hand the sectors of skilled workers were less affected by this economic situation and their wages were not affected.
Under this process, the governments need to change their legal system in order to promote international participation in their economy. The new economic environment can cause, to national enterprise, a discouraging scenario. Their safe position in the market is abruptly interrupted by the presence of international firms, and in most cases they are not ready to adopt it.
The opening of traditional areas of the state action to the private sector is part of the route that these countries had to follow. The private sector has management priorities different to those of the government, caring more about profits. In order to be more profitable they implement productive measures that cause workers diminution.
Internationalization creates an interest's confrontation between the members of the society (government, enterprise, workers) that agree and those that do not. Sometimes, the governments in these countries focus on their economic goals and forget about the social consequences that this process involves.
The dissatisfaction of some members of society with the government measure, can slow down economic growth of the country. This is the case of many countries in Latin America. For example in Argentina, where an inadequate open economy process, that the state implemented, caused the Argentineans displeasure. It kept growing as they saw that the situation was getting worse and they were not able to see any benefit from it. By the end of the past year, all these feelings led them to the political instability that they are facing now. (El Pais, [web site])
The process of open economy involves elements that may change in some way the custom and behavior of a particular society. "The argument concerning cultural homogenization suggests that national cultures that were very different are becoming less so as a consequence of such developments as increased international travel and global media and communication systems". (Segal-Horn, 2002, p.9)
For example, in China, even though they preserve their culture, young people are now more likely to accept and to imitate U.S. life styles and values. The reason for this change is the influences of the global media in this country. Chinese consumers have been exposed to free choice over recent decades. 'Currently, an increase of opportunity has become available, and this is new to them. Under these circumstances they are emulating Western brand preferences, learning about products and American behavior principally from mass media.' (Shimp, T.,2000, 276).
The economic growth through international trade in developing countries can create a confrontation between national culture and the cultures of the other countries that are coming to the nation. This can cause damage to a nation's identity. In addition, this process means the absorption of a country's behavior, and sometimes they are negative and can create social problems. There is an especial link between international trade and the environment. 'Developing countries are often concerned that their market access will be hampered by environmental regulations and by voluntary standards such as eco-labelling' (Jenkins, 2001, p.163).
In order to create an attractive market to international firms, developing countries offer foreign enterprise low environmental standards, which will contribute to environmental problems affecting the entire world. Accepting a product, that is produced, without taking into consideration, the environmental impact, is a problem that involves all nations without distention between developed or developing countries.
Sometimes the government is lenient in regards to a firms environmental responsibilities, and do not pay close attention to a companies actions. This is the case in countries like Brazil and Mexico, where their environment has suffered, due partly to the governments negligence to control the high levels of contamination that firms cause.
Economic growth through international trade it is an indispensable issue for developing countries in order improve their standard of living. However, the transition is not simple, and sometimes their costs are very high. To reduce the implications of this process is difficult, it requires a work group of all the members of society. For the reason that all the possible problems are linked, so if something goes wrong everything would go down.
Bearing in mind that all the problems are linked, the solutions for them could not be developed separately. In order to present solutions for the situations that developing countries could face, economic theory plays a key role in the bases of it's construction. Therefore, they are going to be taking in consideration. In order to tackle this situation, there is no simple solution that a developing country can implement. They may consider many factors to achieve the performance desired with their goal in mind.
Economic growth appears to correlate with the growth of exports, according to this, governments in these countries should veal their expansion by promoting them and creating measures that make them more competitive in the international market. "Exports make possible for Developing countries to overcome the limitations of their domestic markets in exploiting economies of scales". (Balassa, 1998, p.280)